The BCG Matrix commonly known as the Growth - Share Matrix was created by Bruce D. Henderson in 1970 for Boston Consulting Group to help them deeply study their various product lines & decide the resource allocation in various products offered by the company based on two factors: the growth rate of the product & the total share in the market of that particular product.
The BCG Model is today used all over the world for strategic decision making to help business analyse growth opportunities in various products offered by a business. It is a graphical representation of a company's product & services to help them analyse which product to keep, which one to sell or invest on.
Let us understand how the matrix works
As discussed earlier BCG Matrix is a graphical representation based on two factors: the market growth rate of the product & the relative market share of the product. So we have relative market share on the X axis & market growth rate on the Y axis.
The products are categorized into four categories namely Stars, Question Marks, Dogs & Cash Cows. Let us see what do they all signify:
Dogs: Talking about dogs, we can see that dogs have low growth rate & low market share. Dogs are all those products that have low share in the market as compared to competitors & they do not generate enough cash as they don’t have growth opportunities. It is usually advised that dogs should be removed from product portfolios as they drain the company's resources.
Cash Cows: Cash Cows are those products that have low growth rate but a large market share as compared to the competitors. Cash Cows are market leaders that generate more cash than what they consume. The revenue from cash cows can be put to stars or question marks. The simple rule is milk your cow & do not kill them. That is, invest in your cows.
Stars: Stars are those products that have a high growth rate & large market share. They generate the maximum cash for any business. They are both cash generators & cash users. Stars consume a lot of a company's resources. If stars can sustain to become market leaders they become cash cows when the growth rate declines.
Question Marks: The products in these categories have a high growth rate but a low market share. As the name suggests it is unknown if it will become a star or a dog. Question Marks require a lot of investment to make it a star product. Companies should closely study if these products are worth investing.
We know that the companies have to utilise their scarce resources in the most optimum manner. This is where this matrix plays a major role. It helps to decide how should be the allotment of various resources in the four categories discussed above & which product to promote & which to drop from the product line.
Let us apply the BCG Matrix to understand it more clearly:
Let us apply the BCG Matrix to the ITC Group that we all can relate to.
Star: The Star products of ITC are paperboard and packaging, Agri business and hotels. These sectors have a high growth rate and ITC has a large market share compared to competitors. ITC is investing immensely in these sectors, these are the greatest revenue generating products for the company.
Cash Cows: The cash cows of ITC are FMCG cigarettes. ITC Ltd offers 80 percent of the cigarettes in India. Cigarettes are a less growing sector with much legal regulations so it is a cash cow for ITC & ITC regularly milks this sector.
Question Marks: Question marks of ITC are FMCG food. This sector has a high growth rate but ITC has a smaller market share in it due to many players in the market. So, ITC is investing in this sector to convert it into a star. Dogs: The dogs of ITC are ITC InfoTech. ITC Infotech is centered around making esteem through Domain, Data, Digital, Design and Differentiated Delivery for Supply Chain based Industries. This is a dog category for ITC because of its low growth rate & low market share. ITC’s competency is not its Infotech business.
The BCG Matrix has a universal application. It can be applied to small businesses & even in digital marketing. You may have an account on Twitter, Snapchat, Instagram & Youtube. You can arrange all the platforms on BCG & study how you can allocate your resources & time to each of the platforms.