BCG Matrix Introduction
The BCG Matrix was developed by Bruce D. Henderson for the Boston Consulting Group (BCG) in 1970 to help companies analyze their business units, product lines, or brands.
It helps the company to analyze where to allocate its resources and is used as an analytical tool in different practice areas such as strategy, product management, marketing or portfolio analysis.
What Is the BCG Growth-Share Matrix?
Bruce Henderson developed the Boston Consulting Group BCG Matrix as a portfolio management tool in 1970. It is also known as the BCG Growth-Share matrix. If you have worked in an organization that implements business strategy frameworks, there is a good chance you will have come across it.
The Boston Consulting Group (BCG) Growth Share Matrix is a strategic framework used to analyze the market opportunities and growth potential of a business unit, or product portfolio. It is one of the most popular tools for analyzing the market growth and market share of companies, as well as for identifying new market opportunities.
The idea behind the BCG Growth-Share Matrix is that companies can try to position themselves in the market as either a “Star”, “Question Mark”, “Cash Cow”, or a “Dog”.
The BCG matrix helps to decide how to allocate resources and how to prioritize business initiatives. It can also be a useful tool for strategic planning and forecasting cash flows.
What are the four categories of the BCG matrix?
The four quadrants are designated Stars (upper left), Question Marks (upper right), Cash Cows (lower left), and Dogs (lower right).
The BCG Matrix: Stars
Products or Business Units in the star quadrant are in a rapidly rising market where the product(s) have a large market share. Products in the stars quadrant are market leaders that require considerable expenditure to retain their position.
The BCG Matrix: Question Marks
Products or Business Units in the question marks quadrant are in a rapidly rising market, yet the product(s) have a small market share. While they are quite appealing, their future performance is unknown. As a result, the question mark.
The BCG Matrix: Cash Cows
Products or Business Units in the cash cows quadrant are in a slowly growing market with a large market share. Reduce or continue stable investments and maximize the cash flow from a product or business unit.
The BCG Matrix: Dogs
Products or Business Units in the dogs quadrant are in a slow-growing market with a low market share. Products in the dogs quadrant can usually maintain themselves and generate stable cash flows, but they will never reach the stars quadrant.
How to use the BCG Matrix?
The BCG Matrix is a very helpful tool that any business can use to prioritize their activities. This can also be used within your company to decide which projects you want to take on, which clients you want to work with, or which services you should offer. This tool will also help you to decide how to focus your internal efforts to grow your business.
Each quadrant reflects a unique mix of relative market share and market growth. Just complete the following 5 steps:
Step 0: Download and create the BCG matrix in Excel below
You can download the free and fully editable BCG Matrix Excel template below.
Step 1: Select the product or business unit
The BCG matrix may be used to analyze products, business units, brands, or a company as a whole. Specifying the unit is required.
Step 2: Define the right market
A poorly defined market might result in poor product categorization. Precisely defining the market is a requirement for better understanding the portfolio position.
Step 3: Determine the respective market share
The amount of market share that a company has in comparison to its greatest rival is referred to as relative market share or RMS. Market share is the percentage of revenue generated by a company inside a specific market, hence relative market share is the percentage of one company compared to the percentage of the highest earner.
Step 4: Determine the market growth rate
Subtract the market size for year one from the market size for year two to calculate market growth. To convert to a percentage, divide the result by the market size for year one and multiply by 100.
Step 5: Complete the BCG Matrix diagram
The x-axis represents relative market share, while the y-axis represents the industry growth rate. For each product, business unit, or company add the determined value combination into the diagram.
Examples of using the BCG Matrix: Apple
Let's consider the following example of a BCG matrix for an organization such as Apple. Apple has a wide range of products and services. It can be anything from iPhones and Macs to the Apple Music subscription service.
Stars would be the Apple iPhone, or Apple Watch. Both products have a good market share and drive profits for Apple.
Cash Cows would be their App store, iTunes, MacBooks, Ipad, or AirPods. They both require little investment and generate billions for Apple.
Question Marks would be the Apple TV, Displays, and Home Pods. The products have to catch up. Time still have to tell if they will become a star or dog.
Dogs would be probably be the iPod, and the Iphone Mini. Sales for these products are this are declining and there seems to be little room for growth.
How to use the BCG Matrix in Marketing
A BCG matrix can help decide on how to allocate the marketing budget for the next financial year.
In order to decide how to allocate the marketing budget efficiently, first use the BCG matrix to decide which products are in which category.
Products will range from low to high in terms of potential for growth.
Similarly, the products are also ranked from low to high in terms of difficulty to market.
Once you have decided the categories of your products, you need to decide the amount of marketing budget you want to allocate for each of the categories.
Get the Most Out of Your Resources: Why the BCG Matrix is still effective and relevant?
The BCG Matrix is still effective primarily because it helps firms to focus on their core business.
It helps managers determine which industries would be best to focus on, and which industries are better to avoid. It also helps them decide where to invest their resources — in the core business, or in an emerging business.
The core business is the market segment in the upper-left quadrant (low share, high growth). The emerging business is the market segment in the lower-right quadrant (high share, low growth).
The core business is already established with a high market share, and you would want to invest in it to increase its growth and profits. The emerging business is a market segment that is growing rapidly. You would want to invest in it to grow it into a core business.
What is a major limitation of the BCG matrix?
The BCG Matrix has been criticized for being too simplistic. The criticism is that it doesn’t consider all factors that influence growth, such as product quality and price, and that ignores the overall industry environment.
The BCG Matrix assumption a high market share does not always leads to high profits. Growth rate and relative market share are not the only indicators of profitability.
Typical BCG Matrix Use Cases
Create transparency regarding the company’s business units, product portfolio or brand portfolio. Reduce complexity within our strategic analysis and discussions.
Apply the BCG Matrix to evaluate strategic directions based on the current portfolio structure, while balancing the investments needs between exploration in new business segments and exploitation of established segments.
The excel template is free and fully editable. It can be used for
- business plan analysis
- strategy assessments
- Info teasers for acquisitions projects
- M&A investor decks
- Due Diligence analysis
- corporate strategy presentations
- university case studies
BCG Matrix Excel Template
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Looking for a way to implement the BCG Matrix? Look no further than the BCG Matrix Excel template and PDF introduction.
The excel template is fully editable and will help you make informed decisions about your company strategy.
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