PurposeWhen a company has many different products or even many different lines of business, strategy becomes more complex. The company not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment. The BCG matrix (sometimes called the Growth-Share matrix) was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or products determine their investment priorities. Show The BCG matrix considers two different aspects of a business unit or product:
Market ShareMarket share is the percentage of a market (defined in terms of units sold or revenue) accounted for by a specific product or entity. For instance, if you run a neighborhood lemonade stand that sells 200 glasses of lemonade each summer, and there are two other competing lemonade stands that sell 50 glasses and 150 glasses, respectively, then you have 50 percent market share. Out of 400 glass sold, you sell 200 glasses, or 50 percent of the total. Companies track market share data closely. For example, what is the market share for different types of cell phones in the U.S.? The International Data Corporation reports these numbers quarterly. As the following table shows, Android phones have had the dominant market share over the past several years.
Market-Growth PotentialThe market-growth potential is more difficult to quantify, but it’s the other important factor in the BCG matrix. Let’s use some of the products in Proctor & Gamble’s portfolio to identify markets with different growth potential. How about bathroom tissue—is that a high-growth market? Probably not. Data show that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992. How about the market for high-end skin-care products? Generally, markets for products that serve Americans born between 1946 and 1964—the baby boomers—are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation. Market-growth potential generally includes analysis of similar markets, as well as analysis of the underlying drivers for marketing growth. It can be thought of as a “best guess” at what the future value of a market will be. Applying the BCG Matrix The BCG Matrix is comprised of four quadrants that show high and low market share and high and low growth potential. Each quadrant has a name and specific characteristics. DogA product or business with low market share in a mature industry is a dog. There is no room for growth, which suggests that no new funds should be invested in it. Cash CowA cash cow is a product or business that has high market share and is in a slow-growing industry. It’s bringing in more money than is being invested in it, but it doesn’t have much growth potential. The profits from a cash cow can be used to fund high-growth investments, but the cash cow itself warrants low investment. Question MarkA question mark is a product or business that has low market share currently, but in a growing industry. This case is trickier: the product/business is consuming financing and creating a low rate of return for now, but its direction isn’t clear. A question mark has the potential to become either a star or a dog, so close monitoring is needed to determine its growth potential. StarA star has high market share in a fast-growing industry. This kind of product or business is poised to bring strong return on the funds invested. It also has the potential to become a cash cow at the end of the product life cycle, which can fund future investments. According to the logic of the BCG matrix, as an industry grows, all investments become cows or dogs. The intent of the matrix is to help companies make good portfolio-management decisions, focusing investment in the areas that are likely to provide returns and fund future growth. What does business growth rate refer to as used in the BCG matrix?Structure of the BCG Matrix
The market growth rate is this years industry sales minus the past years industry sales. The y-axis of the graph/matrix represents rate of market growth while the x-axis represents a products overall market share.
What is the BCG growth market share matrix?The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses graphical representations of a company's products and services in an effort to help the company decide what it should keep, sell, or invest more in.
What are the four quadrants of the BCG matrix?Each of the four quadrants represents a specific combination of relative market share, and growth:. Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest.. High Growth, High Share. ... . High Growth, Low Share. ... . Low Share, Low Growth.. What is dog in BCG matrix?A dog is a business unit that has a small market share in a mature industry. A dog thus neither generates the strong cash flow nor requires the hefty investment that a cash cow or star unit would (two other categories in the BCG matrix). A dog measures low on both market share and growth.
|
