What’s is: A dog is a product or business unit with a low market share and in a low-growth market. It is one of the four categories of the BCG matrix apart from the star, cash cow, and question mark.
Well, I will briefly discuss the three.
- Star – a product category with a high market share and is in a fast-growing market. It has the potential to become the next cash cow. A sensible strategy is to maintain or even increase this product’s market share until the market reaches a mature stage. It requires less investment than the Question mark.
- Cash cows – a product category with a high market share and operating in low growth markets. This category should generate large cash flow for the company. Companies can use them to invest in Star or Question marks to become the next cash cow. By doing so, companies can ensure sustainable growth.
- Question mark – a product category with a low market share and in a high-growing market. Companies should build and strengthen this category to gain a dominant position in the market. High market growth indicates that such a move (increasing market share) is possible. Still, companies need relatively more considerable investment.
What does Dog mean and what are the consequences for the company
A low market share indicates the product is less competitive. And, the company posted low sales. Consumers do not like it because of poor product quality and features or high prices. They prefer competitors’ products because they are better, for example, because they are cheaper, more unique, or even because of superior customer service.
Furthermore, low growth indicates a market that has entered a mature stage. Almost all consumers have used or purchased the product. Therefore, the primary source of growth was from repeat purchases, not from increasing new customers.
As new customers became increasingly rare, companies faced difficulty growing sales. Hence, to increase their market share, a possible solution is to grab customers from competitors.
Dogs generally have a low gain. Low market share means the company sells fewer goods and generates less revenue. Production capacity is less optimal due to low sales volume. As a result, the company must bear a higher unit cost than competitors.
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How the company manages it
The Dog probably made enough money to break even. However, companies rarely invest in this category because it is unfeasible. Instead, they will try to extract cash as quickly as possible by selling production equipment and reducing advertising spending.
Attempts to seize market share from competitors require significant resources. It is more difficult if it involves high switching costs because customers are loyal to competing products.
Furthermore, such efforts may be in vain if the market turns into a decline stage immediately. That means the additional profits may not be as big as the costs that the company incurs.
Due to low growth, any strategic move to increase market share is likely to provoke a strong competitive reaction. Of course, competitors, especially market leaders, are unwilling to lose their dominance.
Say, the company launched a low price to attract more competitors’ customers. That will likely lead to a price war as competitors will also take steps to defend their positions.
If the market is going into a decline soon, discarding the Dogs make the most sense. They are the main candidates for divestment because they are a money trap for the company. The company may try to sell its rights to another company or sell some assets (such as equipment) used in the production process. Thus, the company can focus its resources on other more competitive products such as the Star category.
And, if the mature stage lasts long enough, the company will probably keep Dogs if they contribute something to the business, for example, contributing to overhead costs or other strategic needs. Companies can maximize cash flow from Dogs by reducing all production and marketing costs to a minimum.