Feb 16, 2023 / By Vicente Ajenjo

The BCG Matrix: How to Strategically Improve Your Product Portfolio

what does question mark symbolize in bcg matrix

Dogs represent products in their decline phase, with revenue, market share, and growth steadily falling. The question marks represent products in the introduction phase, recently introduced to the market. 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. The use of the BCG Matrix lies in estimating which businesses are the net cash generators and which are the net cash consumers. The portfolio has to be balanced in terms of those businesses that generate revenue and are likely to generate revenue versus their resource consumption.

  1. Stars are a company’s prized possession and are top-of-mind in a firm’s product portfolio.
  2. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.
  3. For example, if SBU Y has a market share of 40 percent and its largest rival has a market share of 10 percent, then SBU Y’s relative market shareis40/l0 or 4 0.
  4. If it’s to expand globally, focus on the market expansion of an existing cash cow product.

The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product portfolio matrix, is a business planning tool used to evaluate the strategic position of a firm’s brand portfolio. The BCG Matrix is one of the most popular portfolio analysis methods. It classifies a firm’s product and/or services into a two-by-two matrix. Each quadrant is classified as low or high performance, depending on the relative market share and market growth rate. Products in the question marks quadrant are in a market that is growing quickly but where the product(s) have a low market share.

Boston Consulting Group (BCG) Matrix

Models often include feedback loops to monitor execution and notify the next round of planning. The BCG Matrix can help you make sense of your portfolio of products and make smarter decisions about future investments in both R&D and marketing. Below, we’ll cover a real example and showcase how the different categories work. Typically located in the lower-left quadrant, cash cows are a company’s flagship products in mature markets.

How to use the BCG Matrix to improve your marketing strategy

what does question mark symbolize in bcg matrix

The iPad, Apple’s sole representative in the tablet industry, is currently transitioning from star status into a cash cow. The Apple Macbook sits at the head of a maturing market and can therefore be considered a cash cow. The best way to calculate market growth is to subtract the overall market size from year one from the market size for year two. For example, imagine your product line accounted for 20% of the market revenue and your leading competitor 45%. Products with the lion’s share of a fast-growing market are known as “stars”.

It is a graphical representation of a two-by-two (4-celled) matrix created by Boston Consulting Group, USA. It analyses the growth and share of the firm in the market compared to its rivals. To make a truly educated decision about your company’s future, you must also consider overall market size, profit margins, operating costs, cash flow, and much more. Depending on variations in market size and product type, dogs can actually earn more than cash cows.

The growth rate of an SBUs industry may be faster or slower than the economy’s growth rate. A corporate strategy for each SBU is set in such a way that it becomes consistent with the resource capabilities of the overall company. The structure of the BCG Matrix strategic management is explained below.

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The decision-maker must assess the resource requirement of the different businesses plotted on the matrix to allocate resources. Candidates for divestment include businesses that have little room for cost savings and those that just break-even or operate at a loss. Sometimes divestment can work to the advantage of both the seller and the buyer. It is a highly profitable firm and generates a substantial amount of cash.

what does question mark symbolize in bcg matrix

The relative market share is one of the key metrics you use in the BCG Matrix. Instead of focusing on dying products or cash cows that sustain themselves without much effort, your company can focus on creating new winning products and businesses. It’s a portfolio management tool that helps your company prioritize different businesses or products to get the best long-term results. On a BCG matrix graph, the vertical axis considers the growth rate from low to high, whereas the horizontal axis considers the relative market share from high to low. The BCG matrix was created by Bruce Henderson as a tool to assess the potential of any given company’s products and services, and then advise which ones a company should keep, sell, or invest more in. 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.

Some of its primary assets include ESPN, ABC, The Disney Channel, Disney+, and Hulu. Another relatively new product to fall into the question mark category is AirPods. 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. 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. However, unlike former strategic-planning efforts, which rested mostly in senior managers’ hands, today’s strategic planning has been decentralized.

In the BCG matrix, SBU(Strategic Business Unit) is a company that has a separate mission and objectives and can be planned independently from other company businesses. Are you willing to learn about strategic management with multiple type questions? Then this guide will help you to learn all about it in the easiest way. So for best results, use it in combination with other frameworks and data when planning budgets and marketing campaigns. For example, Avis had a legendary marketing campaign where the company pointed out that it wasn’t the market leader.

If more cash is poured down into this SBU and properly nurtured, it may become a star Strategic Business Unit (SBU). For example, if SBU Y has a market share of 40 percent and its largest rival has a market share of 10 percent, then SBU Y’s relative market shareis40/l0 or 4 0. If SBU X has a market share of 10 percent and its largest rival has a market share of 30 percent, SBU X’s relative market share is 10/30 or 0.3.

Further, the organization can develop a functional strategy to support what does question mark symbolize in bcg matrix its options and sub-options. Developing a corporate parenting strategy involves three analytical steps. To construct a visual depiction of its various businesses, the organization uses the Portfolio matrices.

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