Within
the world of product management and strategic planning, few strategies are as
well recognized and appreciated as that of the Boston Matrix, which comes from
the world-renowned Boston Consulting Group. The matrix is recognized as the
preeminent tool for classifying individual product lines within a company’s entire
product portfolio, and for outlining the marketing strategies these companies must
use to maximize their products’ returns.
Often referred to as simply the BCG Matrix, its purpose isn’t merely to identify a company’s strongest product lines, but also to provide guidance as to 1) which product line the company should prioritize, 2) which product line the company should retain, 3) which product line it should kill, and finally, 4) which product line needs further definition and analysis. So, how does the BCG Matrix help define these four product classes? More importantly, how can your company use the BCG Matrix?
Understanding the Boston Consulting Group Matrix
Each of these aforementioned product offerings are defined by their potential market growth and existing market share. The matrix merely places these four product lines under their appropriate headings, and then uses those headings to define each product’s appropriate market growth and market share. Ultimately, the tool aims to identify where a company should invest its working capital. As such, some product lines are classified in terms of their ability to fund the development of other, potentially more lucrative product lines, while still others are classified in terms of their diminishing returns. In essence, it quickly becomes a question of which product lines should be prioritized and invested in, versus which product lines should be scaled back, and ultimately, which product lines should be terminated altogether.
It’s important to note that the BCG Matrix forms part of a product's life-cycle management strategy. Product life-cycle management dictates that products have a beginning and end in terms of their usefulness within a given market. Since each product has a life in its market, the BCG Matrix helps to define a company’s priorities within its existing product portfolio. Which product lines are new, versus those that are considered mature? Which product lines are at the initial stages of their market introduction, versus those that are at the end of their life in the market? The BCG Matrix uses the answers to these questions in order to prioritize which product lines the company should continue investing in. Here are the four product categories followed by the BCG Matrix itself.
Boston Consulting Group Matrix
1. Stars: High Market Growth and High Market Share
When thinking of “stars” think of those product lines whose market share is high in a high growth market. These stars require a consistent influx of capital in order to maintain their momentum. A star can be considered the company’s “flagship” product line. If it maintains its high market share, then it will no longer require as much capital and will ultimately become a “cash cow”.
2. Cash Cows: Low Market Growth and High Market Share
When thinking of cash cows, think of those product lines that have high market shares but are in a market with little to no growth. These are often referred to as the company’s mature product lines and ones that require minimal investment of capital. The profit emerging from cash cows allows companies to continually improve their stars. In essence, the cash cows fund the company’s other product lines.
3. Question Marks: High Market Growth and Low Market Share
Question marks are products with low market share being sold into high growth markets. While there is potential for these product lines to grow, the company must invest heavily in order to increase brand awareness. While the company may have a solid product offering, it must ultimately decide whether to continue to pursue the market, or let the product offering die. The focus is on increasing awareness and avoiding the product line from becoming a dog.
Simply put, dogs are those product lines with low market share in markets with little to no growth potential. They are high cost product lines that are often seen as draining the company’s resources. They rarely break even and are product lines the company should strongly consider eliminating.
The BCG Matrix is a simple tool that companies can use to identify where they should invest their cash with respect to their product portfolio. It helps companies isolate those high market share products, in high growth markets, that require a consistent infusion of cash in order to maintain their momentum. It identifies those high market share products, in mature markets, that no longer require as much investment. Finally, it identifies those product lines that are either at the end of their life in the market, or have a potential for growth with the right attention and resources.
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