The BCG matrix – also known as the Boston Consulting Group matrix or Growth Market Share matrix is a strategic management tool used to evaluate a company’s product portfolio. It was developed by the Boston Consulting Group in the 1970s and is still widely used today.
BGC in other terms is a competitive analysis of business potential and the evaluation of the environment.
Understanding the BCG Matrix
The BCG matrix is based on the idea that a company’s products can be classified into four categories based on their market share and market growth rate.
(Image source: management study guide)
The horizontal axis represents the portion of the market share of a product and its strength in any particular market. Using Relative Market Share helps measure a company’s competitiveness. The vertical axis depicts the growth rate of a product and its potential to thrive in a particular market.
Resources are assigned to the business units as per their situation on the grid. The four cells of the BCG matrix are called – stars, cash cows, question marks and dogs. Each of these cells illustrates a particular type of business.
- Question marks: Products with high market growth + low market share
- Stars: Products with high market growth + high market share
- Dogs: Products with low market growth + low market share
- Cash cows: Products with low market growth + high market share
Products having a high market share in a fast-growing market. These products are expected to continue to grow and generate substantial profits. Companies should invest in these products to maintain their market position and capitalize on their growth potential. They do generate cash, but due to the fast-growing market,
Products having a high market share in a slow-growing market. These products generate significant profits but have limited growth potential. Companies should milk these products for cash to fund the growth of other products in their portfolio.
Products having a low market share in a fast-growing market. These products require significant investment to increase their market share and become stars, or they should be divested if they do not show promise.
Products having a low market share in a slow-growing market. These products are not expected to generate significant profits and should be divested or phased out unless they provide a strategic advantage or complement other products in the portfolio.
The BCG matrix is a strategic management tool that helps companies evaluate their product portfolio and make strategic decisions. By using the BCG matrix, companies can identify which products to invest in, which products to milk for cash, which products to invest in for growth, and which products to divest or phase out.
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