The BCG Matrix: How to Strategically Improve Your Product Portfolio

Written by Dale Hart

BCG Matrix

Blog » The BCG Matrix: How to Strategically Improve Your Product Portfolio

What is the BCG Growth Share Matrix?

The Boston Consulting Group’s growth share matrix (commonly referred to as the BCG matrix) is a business tool that reviews a company’s product portfolio or SBUs (strategic business units) to help them decide in what to invest, what to discontinue, and which products to develop further.

The BCG matrix does so by plotting a business’s products or SBUs on a four-square matrix. The y-axis represents the market growth rate and the x-axis relative market share.

By placing their business offerings into one of these four categories, companies determine where resources should be allocated to generate the most value or which to cut loose and minimize losses.

The quadrants of the BCG Matrix are split into the following four categories:

  • Cash cows (low growth, high share)
  • Stars (high growth, high share)
  • Question marks (high growth, low share)
  • Dogs (low growth, low share)

BCG growth share matrix

 

BCG Matrix Cash Cow

Products with relatively low-growth rates but with large market shares are known as “cash cows”.

Typically located in the lower-left quadrant, cash cows are a company’s flagship products in mature markets.

As such, little investment is required to fight off competition making these some of the most profitable assets. Companies should therefore milk their cash cows and divert funds to more experimental projects, i.e. “question marks”.

 

BCG Matrix Star

Products with the lion’s share of a fast-growing market are known as “stars”.

Located in the upper-left quadrant, stars generate a lot of income, but in order to fight off competitors and perhaps even increase their market share, they’ll still require significant cash investment.

If a star continues its position as the market leader for an extended period of time, it will fall into the cash cow quadrant, as market growth begins to decline.

BCG Matrix Question Mark

Products in the “question mark” quadrant compete in a rapidly growing market with little to no market share. However, if managed effectively, question marks have the potential to grow into future “stars” (literally 😅).

Of course, the opposite is also true – when managed poorly they could drop down into the “dog” quadrant.

These products are typically the most challenging for businesses as initially, they’ll require a lot more cash investment than they can generate if you hope to increase their market share.

Investments in question marks are typically funded by cash flows from the cash cow quadrant.

 

BCG Matrix Dog

Finally, products within this quadrant hold a low market share in a slow-growth market.
In other words, these are the products that break-even, neither creating nor consuming large amounts of cash.

Therefore, businesses typically want to liquidate or divest money from dogs into more promising ventures – gradually phasing out the product. However, they do provide a certain balance and stability to your portfolio, so further investigation should be undertaken before prematurely killing off the unit.

You may have noticed that the BCG matrix has a strong connection with a product life cycle:

Product life cycle

The question marks represent products in the introduction phase, recently introduced to the market.

Stars are products in their growth phase, with yields steadily increasing as a larger market share is attained.

Cash cows represent products in their maturity phase when yields are at their highest but market share is starting to level off.

Dogs represent products in their decline phase, with revenue, market share, and growth steadily falling.

 

How to Use the BCG Matrix

To begin plotting your own products or SBUs on a BCG Matrix, you are first going to need to figure out two things:

  • The product or SBU’s relative market share.
  • The growth rate of the markets they are competing in.

I’ll quickly run through how to do both.

Calculating Relative Market Share

Relative market share indicates how your business or product line fares against the leading competitor.

To calculate your relative market share, you must divide your market share (revenue) from the market share of your leading competitor.

For example, imagine your product line accounted for 20% of the market revenue and your leading competitor 45%.

Your product’s relative market share would be:

“20% / 45% = 0.44”

Calculating relative market share

There are other factors with which to measure competition and market attraction such as Porter’s Five Forces.

However, for the purpose of analyzing the BCG Matrix, we’ll stick to relative market share.

 

Calculating Market Growth

The best way to calculate market growth is to subtract the overall market size from year one from the market size for year two.

You then divide the difference between years one and two and multiply by 100.

For example, imagine year one market size is valued at $100 million, but year two saw an increase to $110m.

This increase of $10m is then divided by year one market value ($100m) to give you a market growth rate of 10%.

“Difference between year one and two ($10m) / Year one market value (&100m) = Market Growth Rate (10%)”

Market growth rate

The market growth rate is then used as a median to compare your product’s growth rate relative to the market standard.

 

Plot Result on the BCG matrix

Once both calculations are made, you should be able to plot your product or SBU onto a BCG matrix template:

BCG MATRIX example

 

BCG Matrix Template

If you’re looking for a BCG matrix template to try out, then feel free to save or download one we’ve already put together:

BCG Matrix template

 

BCG Matrix Examples

To give you a better idea of how the BCG matrix is applied to a real-life setting, let’s take a look at a couple of examples of modern-day businesses.

Apple BCG Matrix

Apple BCG Matrix

 

Cash Cow

The Apple Macbook sits at the head of a maturing market and can therefore be considered a cash cow.

It requires relatively low levels of investment to maintain its commanding position largely due to its loyal following of iOS supporters.

The iPad, Apple’s sole representative in the tablet industry, is currently transitioning from star status into a cash cow.

The tablet market is definitely maturing, meaning less investment should be required to hold their market position.

 

Star

Without question, the brand’s star product is the iPhone.

The market is extremely competitive (because of its high growth potential) and the iPhone holds a large portion of that market share.

Each new iPhone launch is kicked off by an aggressive marketing campaign, with a lot of investment poured into R&D to ensure the products stave off threats from competitors such as Samsung, Sony, and Google.

 

Question Mark

An experimentative product Apple has yet to really breakthrough with is the HomePod. Their version of a voice-activated smart speaker sits some way behind market leaders Amazon (Echo) and Google (Nest) with just 2% of the market share.

However, the smart speaker market is still in its infancy and there’s room for Apple to continue to grow if significant investment and ground are made up on its competitors.

Another relatively new product to fall into the question mark category is AirPods.

With the removal of head sockets from several leading smartphone producers (initiated by Apple, of course) the demand for TWS (True Wireless Stereo) headphones has increased.

While this caused Apple’s market share to fall from 41% to 29%, it means the market growth potential is on the rise and the product is starting to shift towards the star category.

You could also add Apple TV+ to the list…

Despite significant investment being made into new movies and shows for their streaming service, Apple TV+ holds just a meager 3% market share.

If significant improvement is not made soon, it could find itself sliding down into the dog category.

 

Dog

Falling market demand for the mp3 player has forced Apple iPods into the dog quadrant of the BCG Matrix.

However, the iPod still remains a popular alternative to music listeners of a younger age group. Therefore, the product line continues to generate revenue for other areas of the business (with greater future potential) so shouldn’t be discontinued just yet…

 

Disney BCG Matrix

Disney BCG Matrix

 

Cash Cow

Disney’s Parks segment is comprised of theme parks and resorts in Orlando, California, Hawaii, Paris, Hong Kong, and Shanghai.

Traditionally, this has been a solid cash cow for the company. Whilst new attractions are added to the parks (which has obvious cost implications) relatively little R&D is needed to maintain their commanding position at the head of a mature market.

However, in its annual financial report released at the end of 2020, Disney announced that the impact of COVID will force them to let go around 32,000 employees. Unfortunately, most of those work in the Parks segment of the business, which could have strategic implications for the company.

You could also argue that Disney’s Cruise Line operation is in a similar boat (excuse the pun).

Before the pandemic, it accounted for 2% of cruise line market share (compared to Carnival’s 18%) – a relatively low figure. Low growth and low market share would typically have this placed in the Dogs quadrant, especially considering

However, the pre-pandemic profitability ($1.6bn) of this business segment combined with the fact that Directors announced plans to invest as soon the situation allows for it, could see this slide over to become a cash cow.

Star

Ever since Snow White and the Seven Dwarfs was released back in 1937, Walt Disney Studios has been one of the most iconic movie production companies to date.

Several acquisitions (and decades) later, their portfolio includes the likes of Marvel, Walt Disney Pictures, Walt Disney Animation Studios, Pixar, Lucasfilm, and Searchlight Pictures.

In 2019, Disney accounted for 33.1% of the total U.S. box office market share, and $9.6bn in annual revenue.

Movies being what they are, and the competitive landscape on which Disney competes, significant investment is needed for them to maintain their position.

 

Question Mark

Hovering between a question mark and star is Disney’s Media and Entertainment segment. Some of its primary assets include ESPN, ABC, The Disney Channel, Disney+, and Hulu.

Now, this is an interesting one.

This arm of the business actually accounts for 47% of the company’s total revenue. Almost double the next nearest segment, Disney Parks.

But because it operates in such a ginormous market and holds a relatively short market share, it’s technically still considered a question mark. However, Disney+ has just jumped into the third spot on the SVOD rankings (behind Netflix and Amazon Prime) so it won’t be long before this one moves over into the star quadrant.

 

Dog

Finally, the Consumer Products segment of the Walt Disney Company can be placed in the dogs quadrant because of the low growth and market share.

It seems Disney is in agreement as they franchised their stores who are now, like so many other businesses, suffering from the impact of the COVID pandemic with 60 locations expected to close their doors for good in 2021.

 

BGC Matrix vs. The Ansoff Growth Matrix

If you’ve taken a look at our online business program, you’ll have noticed that the Ansoff Growth Matrix is another product portfolio management matrix we look at.

Many of our students have asked what the differences are between the two, so we thought it worth quickly worth going over here.

Both the BCG Matrix and Ansoff Growth Matrix help companies assess how to develop their product portfolio.

While the BCG Matrix focuses on understanding how new products can be developed into “stars” and eventually “cash cows”, the Ansoff Matrix looks at whether or not to develop existing/new products or existing/new markets.

Ansoff Growth Matrix

 

Should I Use the BCG Growth Share Matrix?

Since the BCG Matrix’s introduction to the scene back in the late 70s, early 80’s, the global scene has changed drastically.

This leads us to the question, is the BCG Matrix still a viable business tool?

The answer is unequivocal – yes. However, some alterations are needed.

Advantages in technology, communication, logistics, and well, just about every facet of business mean the playing field is changing at unprecedented speed.

If companies are to keep up, they need to be agile, flexible, but most of all, adaptable to this constant change.

The focus should be redirected towards experimentation increasingly in new products, markets, and business models – echoing the ideas of lean startup methodology.

If you’d like to learn more about how to develop your product portfolio and maximize the profits from your business, take a quick look at the curriculum for our upcoming business class.

You’ll find the knowledge gained from the program can be actively applied to your current business and unlock previously unforeseen opportunities for growth.

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