What is the BCG Matrix?

How do companies use this tool?

BCG Matrix

A matrix that classifies the products of a business into high and low market share and market growth categories.

Question mark and Problem Child are the same

Product Life Cycle

Question marks (also called problem children or wild cards)

• Products with low market share but in a high growth market.
• Product is at the introduction (launch) stage in the product life cycle.
• These products use up the firm’s finances (negative cash flow) but are yet to be profitable.
• These products may also have suffered from relatively inferior marketing or product quality.
• They require the most amount of funding as there is uncertainty for such products in the market. i.e., they represent a high level of risk.
• Marketers may attempt to convert question marks into stars, although this needs investment.

Question marks What to do?

1. Increase funding/investment to increase market share
1. (high risk, but possible high reward). Tolerate negative cash flow.

or

1. Hold (if there is positive cash flow)

or

1. Disinvest (if negative cash flow)

Stars

• Successful products with high market share in industries with high market growth.
• Stars are at the growth stage in their product life cycle.
• They require funding and investment to maintain their position in the BCG matrix, but less so than question marks, i.e., the level of risk is lower as star products are already established in the market.
• Marketers aim to invest in these products in order to turn them into cash cows.

Stars - What to do?

• Preserve or Increase funding/investment in resources or marketing to maintain or increase market share
• Tolerate possible negative cash flow

Cash Cows

• Products with high market share, in mature markets with low market growth.
• Cash cows are the most profitable in a firm’s product portfolio as they are at the maturity stage in their product life cycle.
• The products are well established in the market so are the main cash earners for the business.

Cash Cows - What to do?

• Harvest/Milk
• Preserve market share (often requires little to not maintenance)

Dogs

• Dogs are products with low market share in markets with low or declining growth.
• These products are at the decline phase of the product life cycle.
• They can still be profitable, at least in the short-term, so removing them is not always necessary.
• Firms with too many dogs in their product portfolio will suffer from poor cash flow.

Dogs - What to do?

1. spend money on extending the life of such products

or

1. divest in order to prevent further losses since they drain cash from the business.

Find a business and show your BCG matrix to another group. Explain what the company should do.

Example:

Apple

Congratulations on finishing 4.1!

Additional 4.1 Review

https://lewwinski.com/4_1_introduction_to_marketing