Developed and designed in the 70’s by Boston Consulting Group (management consulting firm based in Boston, USA), this matrix is another pillar of strategic management, and is a crucial tool for:
– product portfolio analysis
– resources allocation
Note: In this post I’ll refer always to “product”, but this matrix can be applied also to whole business units as well as single products within a specific product line.
Despite the names of the elements may sound bizarre this chart must be taken in serious consideration, because it provides a clear overview and supports decision making by placing all the products in relation to their growth rate and relative market share.
Question marks: relative market share is low, market growth rate is high.
Usually this is the starting point for a new product, question marks have a high growth potential but are in a market area marked by low sales volume, as a consequence of that they have high selling price but low margin. Products in this area must be continuously monitored in order to get the moment where:
- they will start growing and evolving to stars
- the above condition will not happen and they’ll become dogs
Stars: relative market share and market growth rate are high.
Product is growing strong, now is the moment to give maximum support by allocating investments on product improvement and on all the necessary strategies to face the competition, that will grow and increase as well.
Cash cows: relative market share is high, market growth rate is low.
Both product and marked reached their maturity: there are no growth opportunities, therefore investments must be limited and costs optimized. In this way the product will provide the best performances in terms of profits, part of which can be invested on stars and question marks.
Dogs: relative market share and market growth rate are low.
Products at the end of their lifecycle or question marks that failed, they don’t generate enough profits to support themselves and is not possible to invest on them due to the low outlook on growth and market share. These products must be accurately monitored, in order to take necessary decisions and avoid that the prolonged presence of these low performing products drains resources (e.g. production, logistics) that can be dedicated to other products.
BCG matrix can be overlapped on the product lifecycle chart, in order to better visualize all the elements.
This tool is also useful to analyse the whole product portfolio of a company, and can help the decisional process by giving a complete and detailed overview.