What is a 'BCG Growth Share Matrix'
The Boston Consulting Group (BGC) growth share matrix is a planning tool that uses graphical representations of a company’s products and services in an effort to help the company decide what it should keep, sell or invest more in. The BCG growth share matrix plots a company’s offerings in a four square matrix, with the y-axis representing rate of market growth and the x-axis representing market share. It was developed by BCG in 1970.
BREAKING DOWN 'BCG Growth Share Matrix'The BCG growth share matrix breaks down products into four categories: dogs, cash cows, stars and “question marks.” If a company’s product has low market share and is in a low rate of growth market, it is considered a “dog” and should be sold. Products that are in low growth areas but which the company has a large market share are considered “cash cows,” meaning that the company should milk the cash cow for as long as it can. Products that are both in high growth markets and make up a sizable portion of that market are considered “stars” and should be invested in more. Questionable opportunities are those in high growth rate markets but in which the company doesn’t maintain a large market share. Products in this quadrant are to be analyzed more.
The matrix is a decision making tool, and it does not necessarily take into account all the factors that a business ultimately must face. For example, increasing market share may be more expensive than the additional revenue gain from new sales. The matrix is not a predictive tool; it neither takes into account new, disruptive products entering the market or rapid shifts in consumer demand. Because product development may take years, businesses must plan for contingencies carefully.
Characteristics of Each Quadrant
Dogs, in the lower right quadrant of the grid, don't generate much cash for the company since they have low market share and low or no growth. Because of this, dogs can turn out to be cash traps, which tie up company funds for long periods of time. For this reason, they are prime candidates for divestiture.
Cash cows, in the lower left quadrant, are typically leading products in markets that are mature. Generally, these products generate returns that are higher than the market's growth rate and sustain themselves from a cash flow perspective. These products should be taken advantage of for as long as possible. The value of cash cows can be easily calculated since their cash flow patterns are highly predictable.
In the upper left quadrant are stars, which generate high income but also consume large amounts of company cash. If a star can remain a market leader, it eventually becomes a cash cow when the market's overall growth rate declines.
Question marks are in the upper right portion of the grid. They typically grow fast but consume large amounts of company resources. These should be analyzed frequently and closely to see if they are worth maintaining.