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Business Studies 101: Inside the BCG Matrix

UserLucy Wilson time26 November,2019

Simon sighs as he puts his satchel down by the bed. Returning to his dorm after a long day at lectures, he has suddenly remembered all about that pending essay on the BCG matrix. With next to nothing written for the essay, he starts panicking. Finally, he decides to wing it and ends up with a hurriedly written essay that is sure to get him an average grade, taking down his CGPA by quite a few points for the course.

Many of you may have felt this way over the course of a particularly difficult term when the constant flow of pending assignments seemed never-ending at times.

However, it could all have been avoided with a simple trick: loading up on some preliminary knowledge on the BCG matrix. And that is precisely what this blog aims to do. Here you will find the definition for BCG matrix along with a few examples that help you understand the topic.

The basic understating of the concept will keep you from feeling like a deer in the headlights when it is time to write an essay or assignment on the BCG matrix. Read on and bookmark this blog to know all about the foundations of the BCG matrix and how it helps to shape business decisions the world over.

BCG Matrix

What is the BCG matrix?

Bruce Henderson, the founder of the Boston Consulting group, came up with the concept of the BCG matrix in 1968. BCG matrix is said to be inspired by the product life cycle theory.

For newbies to this one, the product life cycle theory traces the journey of a product from introduction to the eventual growth of decline. The Boston Consulting Group matrix uses this theory to determine company’s strongest and weakest products.

BCG Matrix Definition

The encyclopedias put forth the BCG matrix’s definition as a theory of business that helps business owners decide which products to roll back and which to invest in more for the future. It is thus, in essence, like a roadmap that helps a business identify its strong suits while keeping an eye out for the weak links.

As students of business studies, marketing or management, you may be required to prepare a report based on the BCG matrix of a company of your choice. Knowing what BCG matrix is about and how businesses use it to determine their future investment plans will thus be a good place to start.

What are the elements of the BCG matrix?

Businesses need to break down their trade of products into four quadrants when using the BCG matrix analysis. The dividing line for each quadrant differs for different types of businesses. Factors such as competition and the performance of each product need to be taken into consideration for this one. The four quadrants of the BCG matrix are as follows.

  • Stars

As the name suggests, this quadrant of the BCG Matrix indicates those products that are a huge hit among the clientele. Products that are first-to-market or monopolies usually fall under this category. However, producing stars at massive rates costs the business quite a lot of money. And at times it is equal to the money that they get in as profits. Companies invest in stars as they eventually become cash cows until the decline of their market growth.

  • Cash Cows

Generating more profits than the money going into producing them, cash cows are the biggest players for any business. They are generally identified as having a vast market share but seemingly lower capacities of growth over time. Sometimes, cash cows can provide the extra cash needed to turn question marks into market leaders, fund research and development, cover the administrative cost of the company or pay the dividends to shareholders. Companies like to invest in cash cows to keep the level of productivity undisturbed.

  • Question Marks

Products or aspects of the business with high growth prospects but comparatively lower market share are the question marks in BCG Matrix. They consume a lot of cash at the production stage but bring in very few returns of significance. However, with the correct analysis of market factors and the right kind of back-up, question marks can turned into stars, and eventually cash cows. Companies only invest in question marks if they believe they have long-term potential. The wise move for question marks with a questionable profit margin is to sell them off.

  • Dogs

Finally, come the dogs or pets in the BCG matrix model. These do not take up much cash and do not bring in any significant returns either. They have low market share and low growth rate. Usually, these are cash traps for companies that have money tied up in them with almost no returns to show. Hence it is best to do away with these at the earliest. Divestiture is the best way to deal with the dogs, according to the BCG approach.

A Summary of different product groups in BCG Matrix

Star
High market growth
High market share
Cash neutral
Hold
Problem Child
High market growth
Low market share
Cash absorbing
Build
Cash Cow
Low market growth
High market share
Cash generating
Harvest or milk
Dog
Low market growth
Low market share
Cash neutral
Divest

These four sections of the BCG matrix help businesses come up with new strategies for taking wise business decisions and raking in bigger profits.

What are the benefits of BCG Matrix?

  • BCG Matrix helps decision-makers evaluate the strategic position of products in their portfolio.
  • BCG Matrix helps companies decide which product to invest more in and which product to discard, thereby increasing profitability
  • It helps the company decide the time and opportunity for expansion.

BCG Matrix Model

THE BOSTON MATRIX

The BCG model, when put into the BCG matrix template, can be varied in nature. Here are a few examples to help you understand the quadrants of the concept even better.

  • Stars: Honey Nut Cheerios, the leading product in the category of breakfast cereal in the USA is a great example of a star product from General Mills.
  • Cash Cows: Products from P & G, like Pampers nappies and Lynx deodorants of varied kinds, are all considered cash cows for they bring in a ton of profits each year.
  • Question Marks: Take the case of Rovio, the creator of Angry Birds. While you may know of the most popular one, the company has plenty of other games that have not brought significant returns as of yet.
  • Dogs: While Coca-Cola has plenty of star products, in some areas of the world, the Monster energy drink from the beverage company can sometimes be considered as a dog product.

BCG Matrix Examples

With these BCG matrix examples, you will now be able to write your assignment with renewed confidence. Once you get thinking, you will be able to come up with more such examples on your own, as well.

Parting words

The next time you are wracking your brains over a challenging assignment on BCG matrix, make sure you keep this blog handy. From definition to examples, you can use it all for your next assignment on the topic. Sure, wrapping your head around the concept may seem tricky at first. But we hope that this blog has been helpful in clearing out a lot of confusion when it comes to the BCG matrix. As a business studies or marketing student, you are expected to know the BCG matrix like the back of your hand. So why not make the most of this resourceful blog to score a straight A for your next assignment? Good luck!

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