- The BCG matrix is a strategic planning tool that helps companies evaluate their products and decide which ones to focus on.
- It consists of two dimensions: market share and market growth rate.
- Based on these dimensions, the company’s products fall into one of four areas: stars, question marks, dairy cows and dogs.
- Stars are products that have a large market share and are growing rapidly. They require a lot of investment, but have the potential to be very profitable in the future.
- Question marks are products with a low market share but are growing rapidly. They require a large investment, but their future profitability is uncertain.
- Dairy cows are products that have a large market share but are growing slowly. They are stable products that generate a steady income but do not require a large investment.
- They have a low market share and are growing slowly. They are unprofitable and the value of their future earnings is low
BCG Matrix (also known as BCG Portfolio Analysis) is a useful tool for analyzing a company’s products and services. It is one of the oldest and most well-known methods of portfolio analysis. It is named after the Boston Consulting Group, which was the first to use this tool in 1969.
Objective of portfolio analysis
Portfolio analysis is a process that allows you to make decisions about the range of products offered by the organization. Carried out effectively, it allows you to evaluate the different areas of a company’s operation, which in turn allows you to identify those that can provide competitive phone number list advantages and those that do not meet expectations. Portfolio methods allow the strategic formulation of variables in a coordinate system. They serve to determine the external and internal state of the company.
The BCG matrix not only allows for the assessment of the attractiveness and competitiveness of a company’s products and services, but also its sales growth potential and ability to generate profits. It thus facilitates strategic advice in the investment planning and decision-making process. It allows for answers the popularity of email marketing will not wane to questions such as which products should remain in the company’s product range and which products have the potential to be profitable in the future.
Main product evaluation criteria:
– the turnover generated by the product
– the relative market share of the product in question relative to that of its largest competitor, as shown on the horizontal axis
– the life cycle of a company’s product
Knowing these three estimated values, it is possible to assign the products to the correct categories in the BCG matrix and thus build the appropriate marketing strategy.
How should it be done? What categories are involved?
Strategic areas in the BCG matrix
They are market leaders with high growth rates. They do not usually generate large profits, as they require qatar data a lot of money to maintain high growth rates and defend themselves against attacks from competitors. However, it is profitable to invest in them due to favorable market trends and the great competitiveness and potential of the product. When growth rates begin to decline, stars become cash cows. The marketing strategy can be aggressive , relying on increasing their market share, or defensive, with the main objective of maintaining their current position in the market.
In the BCG matrix, the objects with a large relative share of a slow-growing market. These are established and successful products that provide the company with a considerable share of profits. Unlike the stars, they do not require such a large investment to maintain market share. In fact, one could argue that they are the cash cows that provide the cash that the company can use to pay fees or to support other units that need to invest. Only if the cash cow starts to lose its relative market share will the company be forced to increase investment to maintain its leadership position. Maintaining market share should be the producer’s primary objective. It is a defensive strategy .
Question marks
They have relatively low market share with high growth rates. They require a high level of investment if a company wants to get ahead in terms of production. Costs often incurred include, for example, the expansion of production facilities or investments in new technologies.
The company’s management certainly has an important question to decide: which question marks to turn into stars by increasing its market share ( aggressive strategy ) and which ones are better left out (using a harvesting strategy that involves abandoning a market that was previously intensively exploited).
There is a reason why the parallel name used is “crutches.” It is because they operate in very unfavorable market conditions. They have a large number of competitors and little growth prospects. There are times when products generate enough funds to sustain themselves. However, they are not expected to be serious sources of cash.
Therefore, the recommended strategies are: harvest strategy or escape strategy consisting of abandoning a specific market.
Building the BCG matrix
To build the BCG matrix, there is a horizontal axis, which indicates the market share of the product, and a vertical axis, which reflects the dynamics of the industry. The process results in a matrix that must be filled with detailed information about the organization’s offering. Each element of the offering must be carefully analyzed in terms of market share, compared to the largest competitor and the growth rate of the sector in which the company operates. This will assign each element to one of the four areas of the BCG matrix.