What is The Business Growth Matrix (BCG Matrix) and How it is Used

The growth-share matrix is a chart used to help corporations to analyze their business units, that is, their product lines.

The matrix is also known as

  • Product portfolio matrix
  • Boston Box
  • BCG-matrix
  • Boston matrix
  • Boston Consulting Group analysis
  • Portfolio diagram

This matrix was created by Bruce D. Henderson for the Boston Consulting Group in 1970.

The most frequent use of the growth-share matrix is in product portfolio planning and management.

The box plot of the growth-share matrix identifies four types of product/market scenarios.

These scenarios enable the marketer to decide what action should be taken with a particular product, line, or brand.

The four types of scenarios are:

Stars

Stars are products that appear in markets that are growing rapidly and that have a high market share.

Stars possess an attractive power to generate cash, but they can decrease in the near future.

Action: Companies should hold these markets or invest more in these markets.

Cash Cows

These products appear in markets that are not growing quickly and usually have a high market share.

They produce a lot of cash, which can be used to finance other marketing investments.

Action: Companies should liquidate these markets as soon as possible.

Question Marks

These products appear in markets that are growing quickly, but have a low market share.

They require large amounts of cash to maintain their market position, but if they become successful, they can turn into stars.

Action: Companies should invest in these markets strategically.

Dogs

These products appear in markets that are not growing quickly and have a low market share.

They contain no potential for growth and use up more cash than they generate.

Action: Companies should divest from these markets.

Explaining the Growth Matrix

The BCG matrix divides products or services into four categories, based on the size of their market and the growth rate of that market.

Products or services in the high-growth, high-market share category are considered a “star”.

Those with a low-growth, low-market share are classified as a “dog”.

Products with a high-growth, low-market share are referred to as a “question mark”.

Those with a low-growth, high-market share are known as a “cash cow”.

The growth-share matrix is a simple graphical representation of a company’s products or services.

It helps in assessing the overall financial performance of that company.

The four different categories of the BCG matrix can be represented by squares that appear in a matrix form.

The x-axis of the matrix indicates the relative market share.

The y-axis indicates the relative market growth rate.

The matrix can be used to identify –

  1. Products or services the company should invest more in
  2. Products or services that should receive less focus or should be discontinued.

The “star” category of the BCG matrix represents products or services with a high growth rate and high market share.

These are typically new products or services, and they require aggressive product marketing and a lot of advertising.

Because of their high growth rate, these products or services often generate large amounts of revenue for the company.

Stars can result in a larger market share if properly marketed.

The “cash cow” category of the BCG matrix represents products or services with a high market share and low growth rate.

These are typically products or services that are established and have a loyal customer base.

These products or services may require less marketing and advertising.

To keep their market share, mostly minimal investment is required, as they have a steady stream of income.

The “question mark” category of the BCG matrix represents products or services with a low market share but high growth rate.

These are typically products or services that are in the process of being developed.

Typically they require a large amount of investment and research and development.

This type of product or service is often considered to be high risk.

These products or services may not yield the same amount of revenue or growth as those in the “star” and “cash cow” categories.

The “dog” category of the BCG matrix represents products or services with a low market share and low growth rate.

These are typically considered to be mature and are no longer in demand.

They may require minimal investment and research and development, as there is typically no potential for them to increase their market share or growth rate.

Criticism of Growth Matrix

Growth-share matrix has come under criticism for the following reasons –

It focuses too much on market share: This may lead to a narrow, single-minded focus on market share at the expense of customer and brand value.

This approach may prevent managers from gaining an overall understanding of customer needs and demands.

It doesn’t account for competitor activity: Analyzing the market share of one’s own company does not take into account the activity and success of their competitors.

This can lead to a false sense of security or failure to react timely due to lack of understanding of the full market.

Too simplistic: The growth-share matrix does not account for the dynamics of today’s markets, which are highly complex and multi-faceted.

The market share alone cannot provide a complete understanding of the marketplace and requires a more in-depth analysis.

Relies on outdated data: The growth-share matrix typically uses only publicly-available, historical data to make decisions.

This data is often outdated and may not be the best indicator of current trends and customer demands.

Misinterpretation: Even though the growth-share matrix can be a useful tool, it is easy to misinterpret the data and make erroneous decisions.

This is due to the fact that the data is presented as a two by two matrix, which can lead to oversimplification of complex market dynamics.