BCG Matrix (Boston matrix)

The BCG Matrix (Growth-share matrix) is a method that comes from the consulting company Boston Consulting Group (BCG), thus the name BCG matrix or Boston matrix. The BCG matrix is used for the evaluation of a organization’s product portfolio in marketing and sales planning. It aims to evaluate each product, i.e. goods and services of the business in two dimensions:

• Market growth
• Market share

The combination of both dimensions creates a matrix into which the products fromthe portfolio are placed:

Each type of products may be seen as:

• Cash cows - do not require high investment, these products form the basis of the company’s profitability
• Stars - have the potential to become cash cows, it is necessary to invest in advertising, incremental innovation, etc.
• Question marks - it is necessary to differentiate between them, promising products may become cash cows
• Dogs - these dampen production, they should be withdraw from the market

How to use of the BCG matrix in practice?

The BCG matrix is used for evaluation of a company´s product porfolio, it can also be used to assess key business units such as divisions or individual companies of a large corporation. Both market share and growth rate are essential in the assessment of a product´s value. A product´s marketshare and the rate of its growth vary in time. The producer must therefore manage the good´s lifecycle, the provider must manage the service´s lifecycle. BCG matrix analysis results help the organization to identify the strategic plan of the entire product portfolio so that each of the quadrants contains the products of the organization. The products in the quadrants must be balanced so that products defined as cash cows allow for the funding of other products. However, with the product life cycle, it is necessary to have a future potential in the form of stars and question marks in the portfolio. On the basis of its specific strategy, situation and reasons of the position of the products in the quadrants, the organization must decide on its product strategy. It is appropriate to add to the model a third dimension of profitability of a product or a service which can be either high or low. The square thus becomes a three-dimensional cube. Within the cube, the quadrants which correspond to high profitability are most significant. It is also necessary to consider whether there are reasonable prospects of high profitability of products or services in the future.

BCG matrix is in practice used very often and it is one of the most practical and most comprehensible analytical techniques for an organization. It is crucial for the determination of the correct product strategy of every business.