The BCG Matrix is a well-known management model for analyzing a company's product portfolio. 'BCG' stands for Boston Consulting Group, a well-known consultancy company that developed the BCG matrix in the 1970s.
The BCG matix contains the following four components:
In the BCG matrix, market growth and market share of the products (or service) of a company are compared to each other. This allows a company to determine whether they should invest in a product or whether they should de-invest, or even stop the product altogether. View a BCG matrix example below.
Cash cows - BCG Matrix example
The cash cows in the BCG Matrix are the products that have been on the market for some time. They have ended up in the so-called maturity stage of the product lifecycle. A product that can be classified as a cash cow in the BCG Matrix generally has a high market share, a reasonable margin, and limited growth or a slight decrease. The costs are low. The production line is largely recouped, and there is a limited investment in marketing. With cash cows it is important that you as a company optimize the profit. So go see how you can, for example, optimize processes and thus reduce costs. An example of a product that can be classified as a ‘Cash Cow’ is the Philips energy-saving lamp.
Stars - BCG Matrix example
The stars in the BCG Matrix are products at the start of the product lifecycle. The growth and market share are high. Because the product is at the start of the product lifecycle, the margins are usually also high. A lot is being invested in marketing. It is important for a company to have stars. Here you can earn big money. To get stars, for example, a company must invest in product development. If you have a star as a company, the strategy for this product must be aimed at gaining as much market share as possible. An example of a product that can be classified as 'Star' in the BCG Matrix is the LED lamp from Philips.
Dogs - BCG Matrix example
The dogs in the BCG Matrix are products at the end of the product lifecycle, or products that have had to compete against the competition. The margins are low, the market share is low and the market barely grows or even shrinks. The company will no longer invest in marketing. Many companies will choose not to produce the product at all. An example that can be considered as a ‘Dog’ in the BCG Matrix is the plasma TV from Philips.
Question marks - BCG Matrix example
The question marks in the BCG Matrix are the products of which the future is not entirely certain. The market growth is high, but the market share low. The company must make the choice: invest in marketing, and try to make the product a 'Star', or let the product flow down to become a ‘Dog’, or in other words stop investing and even stop the product in the future. The strategy for products that have been designated as a question mark must either be focused on growth (to turn the product into a star) or on cost savings (to turn the product into a cash cow). An example that can be considered as a ‘Question mark’ in the BCG Matrix is the tablet from Philips. The market is growing very fast, but it takes a fortune in marketing to gain a large market share in this. The question mark is sometimes referred to as 'problem child' in other explanations about the BCG matrix.
Create BCG matrix
Below we show a diagram in which questions are explained again about how to make a BCG matrix.
|STARS Which products or services grow the fastest and have the highest margins? You need to focus on this and invest in it.||QUESTION MARKS Which products or services have the potential to become very large, for example because the market is very large, but you only have a small market share? You have to choose: will it be a dog or a star?|
|CASH COWS Which products or services generate a good turnover in a stable way? How can you optimize the profit from this?||DOGS Which products or services do not grow or show a shrinkage and the market is also no longer interesting, e.g. by competition? You must stop this!|
Create an alternative BCG matrix
The BCG matrix is an excellent tool for analyzing the products or services of a company. However, you can also use the model to determine the priority for other matters within a company. For example, you can analyze your customer portfolio using the BCG matrix. How does this work? List all your customers, and determine the margin and (potential) growth per customer. It will soon become clear which customers are making real money. The customers with whom a lot of money is earned and where much growth can be expected are your stars. Customers who do have a high turnover, but whose margins or growth are lower, can be qualified as cash cows. Customers who can potentially generate a lot of revenue (for example because it is a large company), but where relatively little is earned can be qualified as question marks. You can qualify dogs that cost a lot of work, where there is little revenue, and where there is little potential to earn. Maybe you should say goodbye to these customers and use your sales and marketing power to get more out of the question marks and the stars. Also make sure that your cash cows are not forgotten. Start thinking about how you can optimize the profit of these customers.
Also don't forget to repeat this analysis once in a while. Clients that you first qualified as a question mark and still fall into this segment after a year, you may have to qualify as dogs. Focus on customers that are making a profit or that can achieve growth!
When Nokia's sales results started to decline at the beginning of 2000, the BCG matrix was also used there. Unfortunately, the implementation of the outcome did not go as planned and the company fell even further into the abyss. Read here the whole Nokia story .
Video with an explanation about the BCG Matrix
Watch a video with an explanation about the BCG Matrix below.