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A stylized example of a BCG matrix. The products in the same color belong to the same market. The products framed in black identify the company’s products. The chart was created using the Fancy BCG Matrix online tool
Bcg Growth Share Matrix Example
Boston Box, BCG Matrix, Boston Matrix, Boston Consulting Group Analysis, Portfolio Chart) is a chart created in collaboration with BCG employees: Alan Zakon first sketched it and then refined it together with his colleagues.
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BCG founder Bruce D. Hudson popularized the concept in a 1970 article called “The Product Portfolio” in the BCG Perspectives publication.
The purpose of the matrix is to help companies analyze their business areas, i.e. their product lines. It helps the company in resource allocation and serves as an analytical tool in brand marketing, product management, strategic management and portfolio analysis.
To use a chart, analysts draw a scatter chart to rank the business units (or products) based on their relative market shares and growth rates.
Stars need high funding to fight the competition and maintain their growth rate. When industry growth slows, when they remain niche leaders or among the market leaders, stars become cash cows; Otherwise, they will become dogs due to their relatively small market share.
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As a particular industry matures and its growth slows, all business units become cash cows or dogs. The natural cycle of most businesses is that they start as question marks and become stars. Eventually the market stops growing; This makes the business unit a cash cow. On d of the cycle, the cash cow becomes a dog.
Only a diversified company with a balanced investment portfolio can leverage its strengths to truly take advantage of its growth opportunities. In the balanced portfolio there are: stars, whose high rate and high growth guarantee the future; cash cows that provide funds for that future growth; and question marks, which become stars with the addition of funds. Practical application [edit] To be successful, a company needs to have a portfolio of products with different growth rates and different market shares. Portfolio composition is a function of the balance between cash flows. High growth products require cash inputs to grow. Low growth products should generate excess cash. Both types are necessary at the same time.- Bruce Hederson[7]
For each product or service, the “area” of the circle represents their sales value. The growth share matrix thus provides a “map” of the strengths and weaknesses of the organization’s products (or services), at least in terms of current profitability as well as likely cash flows. Common spreadsheet applications can be used to create the matrix. Dedicated online tools are also available.
Indeed, the need that created this idea was cash flow management. It is argued that one of the key indicators for cash production is relative market share, and one that indicates cash utilization is the growth rate of the market.
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This indicates reasonable cash generation, as the higher the percentage, the more cash is generated. Due to economies of scale (a basic premise of the BCG matrix), it is assumed that the higher the proportion, the faster these returns will grow. The exact measure is the share of the brand compared to its major competitor. So if a brand had a 20 percent share and the biggest competitor had the same, the ratio would be 1:1. If the largest competitor had a 60 percent share, the ratio would be 1:3, meaning that the company’s brand is in a relatively weak position. If the largest competitor had a share of only 5%, the ratio would be 4:1, meaning that its brand is in a relatively strong position, which can be reflected in profits and cash flows. When using this technique in practice, this scale is logarithmic, not linear.
On the other hand, it is controversial what exactly a high relative rate is. The best evidence of this is that the most stable position (at least in fast-moving consumer goods markets) is when the leading brand has twice the share of the second brand and three times that of the third brand. Brand leaders in this role are very stable – and profitable; The rule of 123.
The choice of the relative market share index was based on its relationship to the experience curve. The market leader will have a greater experience curve, resulting in a cost leadership advantage.
Another reason for choosing relative market share rather than just profit is that it contains more information than just cash flow. It shows where the brand is positioned compared to its main competitors and indicates where it is expected to go in the future. It can also show what kind of marketing activities are likely to be effective.
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Businesses strive for rapid growth in fast-growing markets; But the problem, as we have seen, is that they usually use net cash – they have to be invested. This is because growth is often “bought” by the high investment, with a reasonable expectation that a high market share will eventually translate into a solid investment in future profits. The theory behind the matrix thus assumes that a higher growth rate indicates associated investment needs. The cutoff point is usually chosen to be 10 per ct per year. Determining this threshold, the rate above which growth is considered significant (and likely to result in an additional cash requirement), is a critical requirement of the art; And this, in turn, makes the use of the growth share matrix problematic in some product areas. Additionally, at least in fast-moving consumer goods markets, the most typical pattern is very low growth of less than 1 percent per year. This is outside the range typically considered in BCG matrix work, which may make the application of this form of analysis impractical in many markets.
However, when applicable, the rate of market growth says more about a brand’s position than just its cash flow. This is a good indicator of the strength of this market, its future potential (its “maturity” in terms of the market life cycle) and also its attractiveness to future competitors. It can also be used in growth analysis.
While theoretically useful and widely used, several academic studies have questioned whether the use of the growth share matrix actually helps companies succeed, and the model has since been removed from several major marketing textbooks.
A study (Slater and Zwirlein, 1992) that examined 129 companies found that those using portfolio planning models such as the BCG matrix had lower returns.
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There are other criticisms of the BCG matrix. The matrix defines dogs with a low market share and a relatively low market growth rate.
The matrix was used in situations where it could be used to graphically represent portfolio composition as a function of cash flow balance.
If it is used with this level of sophistication, its use will still be valid. However, later practitioners tried to oversimplify their messages.
In particular, the late use of names (Solution Children, Stars, Cash Cows and Dogs) overshadowed everything else – and most Studts and practitioners remember this.
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However, the clear implication of his four-quadrant form is that there should be a balance of products or services across all four quadrants; And that is indeed the main message he aims to convey. Therefore, money from “cash cows” must be diverted to finance the “stars” of the future as “cash cows” inevitably become “dogs”. There is an almost inescapable hypnotism in the whole process. It attracts attention and funding to the “stars”. It assumes and almost demands that “cash cows” become “dogs”.
The reality is that only the “cash cows” really matter – all other elements are supporting players. This is stupid Vdor diverting funds from a ‘cash cow’ needed to extend the life of this ‘product’. While it is necessary to recognize a “dog” when it appears (at least before it bites you), it would be extremely foolish to create one to balance the picture. Indeed, the Vdor who has most of his (or her) products in the Cash Cow quadrant should consider himself (or herself) lucky and an excellent marketer, although he or she might consider adding a few stars as insurance to create policies against unexpected developments. Future and maybe add additional growth. There is also a common misconception that “dogs” are a waste of resources. In many markets, “dogs” can be considered as having a loss that are not profitable in themselves, but lead to higher sales in other profitable areas.
As with most marketing techniques, there are several
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