To succeed in business, you must develop a portfolio of products or services that customers want so you can make some money. Trying to decide which products belong in that portfolio can be a daunting task.
The Boston Consulting Group (BCG) matrix (the product portfolio matrix and the growth share matrix) can help you understand which products sell well and provide value, which products need more attention, and which products should be sold or retired.
In this post, we’ll discuss the BCG matrix and how you can use it to make informed decisions about your company’s product portfolio.
What is the BCG matrix?
Developed by the Boston Consulting Group in the 1970s, the BCG matrix is a tool that helps you prioritize and categorize products based on the market growth rate and relative market share. This enables you to make informed decisions about how to proceed with the development of each product.
The BCG matrix is similar to other decision-making or prioritization matrices, such as the Eisenhower matrix. It is a matrix with four quadrants where you can categorize and prioritize your product portfolio. One axis represents the market growth rate, and the other represents the relative market share:
- Market growth rate: This is the rate that a market or industry is growing over a period of time. It helps you determine if the products in your portfolio are still in demand or if demand for them is growing.
- Relative market share: This is the share of business your products get within a specific market. This helps you measure and understand how well your products are positioned against your competitors.
After you have placed each offering into one of these quadrants, you have a better idea of which products to keep, which to invest more money in, and which to retire or sell off.
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The four quadrants of the BCG matrix
The BCG growth share matrix lets you categorize your products into one of the following quadrants: stars, cash cows, question marks, and dogs (pets).
Products and services with a high market growth rate and relative market share are placed in this quadrant. These are your “star” products that typically have growth potential and bring in a significant amount of money. To maintain or improve market share and growth, you’ll need to invest more resources in developing and improving them.
A “cash cow” is a product or service with a significant cash flow over a long time. Products in this quadrant have a low market growth rate but a high relative market share. This means that the products are well established in mature, slow-growing markets, with customers who keep coming back to rebuy the products. Cash cows represent a steady source of revenue. Many companies use this revenue to support other areas of development.
Also referred to problem children, this quadrant is for products with a high market growth rate and a low relative market share. These products are available in fast-growing markets but haven’t established a strong market position. Further evaluation can help you determine the potential of these products. Can they be turned into “stars” with the proper investment, resources, and strategic plan, or should they be moved to another quadrant?
Products in this quadrant have low market growth rates and relative market share. These products don’t sell well and generate minimal profits. You’ll want to evaluate the value of these products and determine whether they should be divested, restructured, or discontinued.
Using the BCG matrix to define your strategy
Creating a BCG matrix is relatively easy, especially using this Lucidspark BCG matrix template. The quadrants are already there for you—you just need to determine where your products fit.
To use the BCG matrix, follow these steps:
- Identify the products you want to analyze.
- Determine the market growth rate for each. You’ll need to analyze growth rate and evaluate the market’s potential for future growth. Then, assess your product’s potential growth within that market.
- Evaluate the relative market share for each product. Compare your company’s market share against your competitors' market share to determine the potential strength of each product in the market.
- Based on the market growth rate and relative market share, place each product in one of the corresponding quadrants on the BCG matrix.
- Analyze each quadrant to ensure the right products are in the appropriate place.
- Determine a strategy for each product based on which quadrant they are currently in. For example, a strategy for products in the “stars” quadrant might include a significant investment in research and development to maintain or increase growth and market share.
- Review and refine as needed. There will always be changes in the market. Reassess your BCG matrix regularly and adjust your strategies to keep up with these changes.
Limitations of the BCG matrix
The BCG matrix is a useful tool to help you make strategic decisions about your product portfolio, but its decision-making focus is limited to market growth and market share. Other things to consider when making decisions and developing strategic plans include demographics, customer preferences, industry trends, and company strengths and weaknesses.
To more fully define your company’s strategies, consider using your BCG matrix in conjunction with other analysis and decision-making matrices, such as:
- SWOT analysis: The SWOT template lets you analyze your company based on its strengths, weaknesses, opportunities, and threats. This analysis helps you identify areas that need improvement and develop strategies to increase performance.
- SOAR analysis: A SOAR analysis helps you visualize your company’s capabilities and potential. It focuses on strengths, opportunities, aspirations, and results. While it is similar to the SWOT analysis, it emphasizes current strengths and future possibilities more.
- PESTEL analysis: A PESTEL analysis assesses the impact that external factors (political, economic, social, technological, environmental, and legal) might have on your business. This analysis helps you identify opportunities, threats, and potential challenges associated with external factors. That way, you can more effectively develop strategic plans, manage risks, and make informed market entry decisions.
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