Boston Consulting Group developed this BCG Growth Share Matrix which helps you to determine what priorities should be given in your product portfolio of a product. BCG growth share matrix is a strategic management analytical tool. This provides guidance for all resource allocation among the company
‘s business units.
BCG matrix has essentially two dimensions – relative market share and market growth rate. It can be used to classify product portfolio in four business types based on four graphic labels including Stars, Cash Cows, Dogs and Question Marks.
Stars: Leaders of the business comes in stars group. Products in this category are in high growth rate & high market share. It generates high cash flow and requires high cash input. Cash flow is flat in this category.
Cash Cows: Foundation of the business (stars of past years). Products in this category are in low growth rate & high market share. They generate high cash flow with low cash input requirements.
Dogs: Drags of the business. Products in this category are in low growth rate & low market share. They must be avoided whenever possible. Liquidate as many as possible.
Question Marks: Ambiguity of the business – Products in this category are in high growth rate & low market share. It requires high cash demand and low returns. Usually new products are comes in question marks. If you keep new products in question marks, you must ensure increase in market share and deliver cash.
Strategies to Pursue BCG Matrix
Build: The product market share needs to be increased to strengthen its position. Short-term earnings and profits are intentionally forfeited because it is hoped that the long-term earnings and profit will be much higher than this. This strategy is suited to Question Marks if they want to become stars.
Hold: The objective is to maintain the current market share position and this strategy is often used for Cash Cows so that they continue to generate large amounts of cash.
Harvest: Company tries to increase short-term cash flows as far as possible even at no profit and no loss. It is a strategy suited to weak Cash Cows or Cash Cows that are in a market with a limited future. Harvesting is also used for Question Marks where there is no possibility of turning them into Stars, and for Dogs.
Divest: This strategy is to rid the organization of the products that are drain on profits and to utilize these resources elsewhere in the business to make greater benefit. This strategy is typically used for Question Marks that will not become Stars and Dogs.