BCG Matrix examples

I was asked to establish a BCG model during on of my MBA course. The BCG (Boston Consulting Group) Growth-Share Matrix, also known as the BCG Matrix or the Boston Matrix, is a strategic planning tool used to analyze a company's portfolio of businesses or products. It helps businesses allocate resources and make decisions based on the growth potential and market share of each business unit or product. The BCG Matrix categorizes these business units or products into four quadrants:

1. Stars:

   • High market share in a high-growth market.

   • These are the growth engines of the company.

   • Require heavy investment to maintain or increase market share.

   • When successful, stars can become cash cows.

2. Cash Cows:

   • High market share in a low-growth or mature market.

   • These businesses generate significant cash flows and profits.

   • Minimal investment is required to maintain market share.

   • They are a source of funds for investing in other businesses.

3. Question Marks (or Problem Children):

   • Low market share in a high-growth market.

   • These are businesses with growth potential but uncertain outcomes.

   • They require investment to increase market share or may be discontinued if growth prospects do not materialize.

   • Some question marks can become stars, while others may turn into dogs

4. Dogs:

   • Low market share in a low-growth or declining market.

   • These businesses typically do not generate significant profits.

   • Companies may consider divesting or liquidating dogs unless they serve a strategic purpose.

The BCG Matrix helps companies assess the performance of their various business units or products and make informed decisions regarding resource allocation. It's important to note that the matrix is a simplification of the complex business landscape and should be used in conjunction with other strategic analysis tools to form a complete strategic plan.

By analyzing and classifying their portfolio using the BCG Matrix, companies can make strategic decisions about which business units or products to invest in, divest, or maintain. This approach can be valuable for optimizing resource allocation and maximizing the overall profitability and growth of a company.

Each of the four quadrants represents a specific combination of relative market share, and growth:

Low Growth, High Share. Organizations should milk these “cash cows” for cash to reinvest.

High Growth, High Share. Organizations should significantly invest in these “stars” as they have high future potential.

High Growth, Low Share. Organizations should invest in or discard these “question marks,” depending on their chances of becoming stars.

Low Share, Low Growth. Organizations should liquidate, divest, or reposition these “pets.”

Examples

1. Technology Company:

   • Stars: A technology company has a new, cutting-edge product in a rapidly growing market, such as a revolutionary smartphone in a market with increasing demand.

   • Cash Cows: An established line of software products with a dominant market share in a mature market.

   • Question Marks: The company is entering the wearable technology market with a new product, and its market share is uncertain.

   • Dogs: An old software product with declining market demand.

In this case, the company may allocate resources to support the stars and cash cows while closely monitoring and investing cautiously in the question marks. They might consider phasing out or divesting the dog product.

1. Consumer Goods Company:

   • Stars: A popular line of organic, plant-based food products in a market experiencing strong growth due to health-conscious consumer trends.

   • Cash Cows: A range of traditional snack products with high market share but in a saturated market.

   • Question Marks: A newly launched line of eco-friendly cleaning products in a competitive market.

   • Dogs: A declining brand of carbonated soft drinks.

In this scenario, the company may invest heavily in marketing and expanding the product line of the stars, continue to generate profits from the cash cows, invest in research and development for the question marks, and consider discontinuing or selling the dog brand.

1. Retail Chain:

   • Stars: High-end fashion retail stores in prime locations in a growing economy.

   • Cash Cows: Grocery store chains with a dominant market presence in mature markets.

   • Question Marks: A recently launched e-commerce platform with a niche product line.

   • Dogs: A chain of outdated bookstores facing declining sales.

The retail chain might allocate resources to expand the high-end fashion stores and grocery chains, carefully invest in the e-commerce platform, and consider phasing out the unprofitable bookstores.

1. Automotive Manufacturer:

   • Stars: A line of electric vehicles (EVs) in a rapidly growing market.

   • Cash Cows: Traditional gasoline-powered cars with a stable market share in a mature market.

   • Question Marks: Entering the autonomous vehicle market with an initial product.

   • Dogs: An older model with declining sales.

The automotive manufacturer may prioritize investments in EVs and continue to generate profits from traditional cars, invest cautiously in the autonomous vehicle line, and phase out the older model with declining sales.

Here are some examples of how companies have used the BCG Matrix for strategic portfolio analysis:

• GE - Historically used the BCG matrix to categorize business units into dogs, cash cows, stars and question marks. This helped drive resource allocation and divestment decisions. For example, GE divested its appliance division in 2016 since appliances were a "dog" with low market share and low growth.

• Microsoft - Reportedly has used the BCG matrix to analyze its various product lines like Windows, Office, Azure, Dynamics etc. Windows and Office would be cash cows with high share and low growth. Azure would be a star with high growth prospects, and Dynamics a question mark.

• Coca-Cola - Each drink brand in their portfolio was mapped on the BCG matrix. Established brands like Coca-Cola and Fanta were cash cows. New drinks like Coca-Cola Zero were question marks. The analysis helped plan marketing spend.

• Procter & Gamble - Mapped its laundry detergent brands like Tide, Gain, Cheer etc. on a growth-share matrix. Used this to determine which brands were deserving more investment vs. divestment/cost-cutting.

• IBM - Historically used the BCG matrix to decide which divisions to fund more. For example, mainframe computers moved from cash cow to dog so IBM cut investment in that product line. Meanwhile analytics moved from question mark to star as BI grew.

• Netflix - Likely uses some form of growth-share analysis on its content portfolio. Original shows with high growth may get renewed while older licensed cash cow shows eventually get cut.

The BCG Matrix remains a useful strategic tool for multi-business companies to allocate resources across business units or product lines based on market share and growth rates.

Sash Barige

Dec/07/2017

Sources: https://www.bcg.com/about/overview/our-history/growth-share-matrix