Boston Consulting Group (BCG) matrix or Boston matrix is a management tool for analyzing the performance of a product portfolio or business unit in a company. Boston Consulting Group introduced it in 1970.
BCG matrix is useful for you in developing business strategies. It helps you by identifying the most profitable products/business units.
Four BCG matrix categories
The matrix combines two variables: market share and market growth rate. You then map the products/business units into four categories, based on these two variables.
Star – high market share in fast-growing markets.
Your unit business/product has a strong market position and is starting to generate significant revenues. To maintain market share, your company needs to spend a considerable investment.
Why investment? Let’s say you are the market leader. Because competitors have the opportunity to shift you. High market growth implies they can generate more sales than you. They might adopt aggressive strategies to replace your market position.
Cash cow – a high market share in a slow-growing market.
Business units or products generate significant cash flows with a strong market position. The market is mature, and there is little chance for competitors to replace your position. You can use money from this unit/product to support investment in other products, especially stars.
Question mark – low market share in fast-growing markets.
Business units or products face tremendous competitive pressure. If you want to increase market share, it will need a substantial investment, more significant than products in the star category.
Will you support it or not?
Dog – low market share in a slow-growing market
Business units/products face an uncertain future. The market has matured, and companies are unable to compete. Maintaining it will only drain your money. A reasonable option is to divest or eliminate them.