BCG, as many of you might be aware, stands for Boston Consulting Group.
So how come we’re discussing it here, and that too, in connection to a matrix?
BCG Matrix is also known as Product Portfolio Matrix, portfolio diagram or Boston Box. It refers to the growth-share matrix. Tweet!
Wanna find out more?
Keep reading and you’ll come to know about the awesomeness of BCG Matrix. You’ll understand how it can help corporations and startups alike in deciding the cool factor of the product. It also takes competitors and the market into consideration.
As nothing in this world is perfect, this method too has certain limitations.
What is BCG Matrix?
It’s a method of product/service portfolio planning. Bruce Henderson (An entrepreneur himself!), the founder of Boston Consulting Group created the model. And thus came the name BCG Matrix.
The good old 70s!
It’s the relationship between market share and market growth. It gives due consideration to major competition in the market. The high-lows of this plot give a total of 4 different sections, which enables you to identify your product(s) in one of these categories.
Let’s take a dive into these 4 categories and know more about them.
The Cash Cows
These products are the ones that generate money for your company regularly. It is an indicator of a stagnant market, having low market growth. In such a market, having high market share helps you keep milking the money out of these products. These products are already well established and are helpful in maintaining the business. Thus, they don’t need much investment. In such a market, you’ll have to capture someone else’s market share to make room for yourself.
These are the products who don’t have a high relative market share and have a low relative market growth. These products have trapped the cash from your business. They don’t let the investment reach its full potential. Or even release them for alternate opportunities. That’s evil!
The companies should start looking for ways of divesting the money invested in them.
These are the star performers. The show stoppers. The attention grabbers.
They have relatively high market growth and high market share as compared to their competition. Just like stars, they generate huge amounts of cash (These stars don’t do lights). But just like the stars burning bright, they need a large amount of fuel- CASH.
As a star, it can’t keep burning bright forever. Thus, as the market growth declines, these will start converting to cash cows.
The Question Marks
Also known as the problem child, a question mark has high relative market growth, thus consuming a lot of cash. Yet they’re not able to capture the intended market share. These often have the potential to become the stars due to the investment that has gone into it. But if they get stuck in the wrong market, they’ll eventually turn into dogs and trap the money invested.
The above 4 categories show that deciding upon the market is as crucial as having a powerful idea or product. Money gone into a product for a wrong market would trap the cash. A sound judgement backed by hard facts and strong decision-making should back the decision to enter a market.
Such an analysis should have sound research foundation. With that, BCG Matrix will empower you to understand the positioning of your product portfolio across the market. Further, it’ll help you understand which product strategies have to be updated if a product is to be moved between the quadrants.
The Assumptions in Picture
There are 2 main assumptions that BCG Matrix inherits. These are-
- With power, comes competitive advantage. Well… That’s what the first assumption is. A powerful competitor in the market will have a better competitive edge over you. This could be in terms of the profit thus generating higher cashflows.
- Companies allocate their activities as per the phase in the product lifecycle (PLC).
And Finally… The Limitations
As we head towards the article’s end, here are a few of the underlying limitations-
- The most obvious limitation is the generalized outcome. The lack of specificity to a particular scenario… Well, you’ll have to manage that. (PS- It, however, gives a fairly good idea… Doesn’t it. What a beauty!)
- Yet another issue is defining the threshold of power we are talking about. How do you define how powerful your competitor is, and by the way, which competitors? A standardized parameter doesn’t exist and thus, it’ll vary across markets and sectors. BIGTIME.
- And finally, the assumptions themselves pose certain limitations over the model. The assumptions limit the scope to the boundaries defined by them. Beyond that, the model can fail like anything.
With all that being said, the BCG Matrix is a really powerful and useful tool to get the feel of your product portfolio.
You got a range of products across the market. Try this model out, and be ready to be amazed by the results. But make sure that you have sufficient data (Yours and your competitors’).
Get. Set. Go…