The BCG matrix was developed by Bruce Henderson for the Boston Consulting Group in 1970. This tool helps businesses analyze their product lines and business segments. Learn about its components and how you can use the BCG matrix in your small business.
What is the BCG Matrix?
The BCG matrix, also called the growth-share matrix, Boston matrix, or product portfolio matrix, is used to analyze company products. When drawn as a graph, the X-axis rates relative market share from high to low (not low to high) and the Y-axis rates the market growth rate from low to high. The four combinations of products are:
- Low market growth, low market share = Dogs
- Low market growth, high market share = Cash Cows
- High market growth, low market share = Question Marks
- High market growth, high market share = Stars
Each product is different in its characteristics. It is important for small business to review each of its products to place it into one of the four quadrants. A BCG analysis can help a business evaluate its current product mix. It provides a basis for future product decisions and a basis for action for all current products – whether business decides to expand, maintain, or eliminate a particular product.
Dogs have low market share and a low growth rate. Often, these types of products just break even. Since they don’t produce much profit, dogs are considered cash traps and a waste of company resources. The company should eliminate its dogs as soon as possible so all the resources tied up in those products can be redeployed on other product types.
Cash Cow Products
Cash cows generate more cash than they use and are leaders in their marketplace. Not only do they maintain themselves, but they consistently generate profits for the company. They are strong and reliable products. Businesses should do everything possible to keep the cash cows at their current level of cash flow productivity. They should be maintained until they shift to becoming dogs.
Question Mark Products
Question mark products usually start by producing little profit. They may consume a lot of cash and quickly become a dog. However, since the low market share can quickly turn into high market share, question mark products have the potential to become stars quickly. These types of products need to be analyzed more frequently than any other product type so company resources can most efficiently be used.
Star products have high market share and high growth rates. These types of products generate the most cash for a business compared to the three other product types. On the other hand, star products tend to consume large amounts of cash. First-to-market products and monopoly products are usually stars. Companies should invest in stars because they are likely to turn into cash cows eventually.