2.3 BCG Portfolio Matrix

One of the most common methods used to deal with complexity in companies, is the BCG Product Portfolio Matrix. It was developed by Bruce Henderson of the Boston Consulting Group in the 70s’. 

It helps prioritising products and brands into four main categories in order to determine their future potential. 

The two measures in the model that appear for the axes of the diagram are market growth and market share. It is separated into 4 quadrants that each show a stage or state of a brand. Based on those metrics, brands can be categorized as one of four states:

2.3.1 The four states

1.Dogs are brands/products that are low in relative market share and part of markets with low or negative growth. They usually live at the break-even point and generate little to no incremental income for the business.  Dogs should be sold off since the amount of money required to revive them is much bigger than creating a new brand altogether or putting that money into question marks with the intention of making them stars. In other terms, the marginal return on spending for dogs is lower than any other quadrant.

2. Question marks (also known as adopted children or Wild dogs) are businesses dealing with a low market share in a high-growth market. They are a starting point for most businesses. Question marks have the potential to gain market share and become stars, and eventually cash cows when market growth slows. If question marks do not become a market leader, then after a few years of cash consumption, they will turn into dogs when market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.

3. stars

The goal of every brand manager: to create a star brand/product and to keep it at that point

. The star quadrant is often where brands that used to be question marks begin to break even. These brands or products still require a relatively high amount of investment to maintain their market and share position but they also have the benefit of now generating large amounts of income. If they are maintained for a long period of time then they could eventually move to the end of their holy grail quest and achieve the cash cow status. But if they do not properly defend their market leadership position, they can fall down and go back to the question mark quadrant and continue to use up investment without ever providing the big payoff that companies seek.

4. Cash cows are brands/products where a company has high market share in a slow-growing industry. These units normally generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, yet corporations value owning them due to their cash-generating qualities. Companies keep them alive continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.

2.3.2 The Matrix

Illustration1: BCG-Matrix
Reference: https://tutorialsforexcel.com/bcg-matrix-template/

For companies to deal with the complexity of their brands and products and to  invest more purposeful and beneficial, the BCG Product Portfolio Matrix can help them to shrink their assortment by doing the most profitable selections. Looking at the matrix, they realise they need to get rid of the poor dogs, since they require high investments but do not bring enough cash to the company.  The Product Portfolio Matrix also helps the business to identify which products are worth to invest in. 
Subpages (1): Market share
Julia Kölm,
Jun 11, 2019, 9:20 AM