What is the BCG matrix? Detailed analysis of the BCG matrix

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BCG Matrix designed to support businesses in the process of long-term strategic planning, consider opportunities, products to decide to continue investing or stop producing that product. So what is the BCG matrix? Together Johnson's Blog More detailed analysis through this article.

What is the BCG Matrix?

The BCG matrix, also known as the Boston Consulting Group matrix, is a strategic management tool used to analyze a company's product portfolio or business units based on market growth. markets and their relative market shares.

The Boston Consulting Group designed the BCG matrix (Boston Consulting Group) in the 1970s. It is one of the most well-known product portfolio planning methods, based on the product life cycle concept. It examines the reciprocal relationship between growth prospects and market share. The initial assumption is that a company needs to have a product portfolio that includes both fast-growing products to meet cash-back needs and slow-growing products that can generate extra cash to ensure success. Castle.

The BCG matrix is considered as a model capable of assessing the competitive position and development potential of each product type through the SBU (business unit) analysis process.

Name: BCG . Matrix
Other names such as: Boston matrix, BCG . model
BCG is an abbreviation of the phrase: Boston Consulting Group

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Axes in the BCG Matrix

The BCG matrix consists of 2 axes:

Market growth rate: This represents the rate at which the market for a particular product or business unit is growing. This can be calculated by examining historical growth rates or by analyzing current trends and potential future growth.

Relative market share: This represents the company's market share relative to other companies competitor. It is calculated by dividing the company's market share by the market share of its largest competitor.

Market growth rate

Market growth rate is one of the key components of the BCG matrix and it refers to the growth rate of the market for a particular product or business unit. This growth rate can be calculated by examining historical growth rates or by analyzing current trends and potential future growth.

High market growth rate indicates that the market is expanding rapidly, which can create opportunities for companies to invest and capture a larger share of the market. On the other hand, a low market growth rate indicates a mature or possibly declining market, which may require companies to focus on maintaining their positions or consider divestment.

Understanding the growth rate of the market is essential to determining the growth potential of a product or business unit, and it is an important factor in BCG matrix analysis.

Relative market share

Relative market share is another important component of the BCG matrix and it refers to a company's market share relative to its competitors. It is calculated by dividing the company's market share by the market share of its largest competitor.

Relatively high market share indicates that the company has a larger market share competitor, which may suggest that the company has a competitive advantage or is a market leader. A relatively low market share indicates that the company has a smaller market share than its competitors, which may suggest that the company has a weaker position in the market.

Relative market share is important to consider in BCG matrix analysis because it helps determine the competitive position of a product or business unit in the market. A relatively high market share may indicate that a product or business unit is a dairy cow or star, while a relatively low market share may indicate that a product or business unit is a question mark or child. dog. Companies can use this information to make strategic decisions about how to allocate resources and prioritize investments in their product portfolio or business units.

What are the 4 quadrants of the BCG matrix?

The BCG Matrix classifies a company's products or business units into one of four quadrants, based on their market growth and relative market share. The four quadrants are:

Star: A product or business unit with a high market share in a rapidly growing market. These products or business units have the potential to generate large revenues and profits. They often require investment to maintain or increase market share, but can become future dairy cows if market growth slows down.

Question mark: A product or business unit with a low market share in a high growth market. These products or business units require significant investment to increase market share and may become stars or may fail. Companies need to carefully consider whether to invest in these products or business units or discontinue them.

Dairy cow: A product or business unit with a high market share in a slow-growing market. These products or business units generate significant cash flow for the company but require no additional investment. Companies can use cash generated from dairy cows to invest in stars or question marks or to distribute to shareholders.

Dog: A product or business unit with a low market share in a slow-growing market. These products or business units have little growth potential and may not generate significant profits. Companies need to consider carefully whether to continue these products or business units or divest them.

Star

Stars represent products or business units with high market share in a rapidly growing market. These products or business units have the potential to generate large revenues and profits.

Stars often require investments to maintain or increase their market share, but can become future dairy cows if market growth slows down. Companies can consider investing in stars to increase their market share and capitalize on the growth potential of the market. This may involve launching new products or services, expanding distribution channels, or ramping up marketing and advertising efforts.

Companies may also choose to prioritize stars over other products or business units in their portfolio because of the potential to generate high returns in the future. However, companies need to carefully balance their investments in stars with their other products or business units to ensure that they are maintaining a healthy portfolio overall. body.

Question mark

The question mark is one of the four quadrants in the BCG matrix, representing products or business units with low market share in a high growth market. These products or business units require significant investment to increase market share and can either become stars or fail.

The question marks are often new or untested products or business units that have the potential for future success, but require significant investment and effort to develop. Companies may choose to invest in question marks to capitalize on the growth potential of the market, but this involves taking on more risk.

Companies need to carefully consider whether to invest in question marks or stop them based on their analysis of the market, their resources and their strategic goals. If the growth potential is high and the company has the necessary resources and capabilities, they may choose to invest in question marks to try to turn them into stars. However, if the market potential is low or the company does not have the resources to invest, they may choose to divest or cease operations.

Dairy cow

Dairy cows represent high market share products or business units in a slow growing market. These products or business units generate significant cash flow for the company but require no additional investment.

Dairy cows often have a long and established customer base trademark well-known, allowing the company to generate profits without significant investment. Companies can use cash generated from dairy cows to invest in stars or question marks or to distribute to shareholders. Dairy cows are often the most profitable products or business units in a company's portfolio.

Companies need to carefully manage their dairy cows to ensure that they continue to generate profits over the long term. This could involve improving operational efficiency, reducing costs, or expanding the customer base through marketing and promotional efforts. Companies should also consider investing in new products or business units to replace aging dairy cows and maintain an overall healthy portfolio.

Dog

Dogs represent products or business units with low market share in a slow-growing market. These products or business units have little growth potential and may not generate significant profits.

Dogs generally require little investment, as they do not have significant growth potential. Companies may choose to continue dogs in their portfolios if they provide some strategic benefit, such as additions to other products or business units, or if discontinuing them would result significant cost.

However, companies need to be careful not to allocate too many resources to the dogs at the expense of other more promising products or business units. In some cases, it may be more profitable to divest or stop selling dogs and focus on more profitable or strategic products or business units.

In general, dogs are not a desirable product or business unit to have in a company's portfolio, as they do not generate significant profits or growth. Companies need to carefully manage their portfolios to ensure that they are focusing on the products or business units with the greatest potential for success.

By placing each product or business unit in one of these four quadrants, the BCG matrix helps companies analyze product portfolios or business units and make strategic decisions about how to allocate resources, prioritize their investments and manage their portfolios.

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Advantages of the BCG matrix

The BCG Matrix offers several benefits to companies looking to analyze and manage their product portfolio or business unit:

Simplify complex information: BCG matrix provides a simple and clear way to classify products or business units based on relative market share and market growth, which can be useful for making strategic decisions .

Identify growth opportunities: By highlighting products or business units in high growth markets with high market shares, the BCG matrix helps companies identify potential growth opportunities.

Help with resource allocation: The BCG matrix can be useful for determining how resources should be allocated across different products or business units. For example, companies may prioritize investing in stars or question marks to maximize growth potential, while maintaining dairy cows to generate cash flow.

Provides facility for portfolio management: The BCG matrix can serve as a basis for portfolio management, helping companies evaluate their overall portfolio and make decisions about which products or business units to divest, stop or invest in.

Encourage strategic thinking: The BCG Matrix encourages companies to think strategically about their product portfolio or business units, rather than just focusing on individual products or business units.

The BCG Matrix is a useful tool for companies looking to analyze and manage their product portfolio or business unit, helping them make informed decisions about resource allocation, growth opportunities and investment portfolio management.

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Disadvantages of BCG matrix

While the BCG matrix can be a useful tool for analyzing and managing a company's product portfolio or business units, it also has some limitations that should be taken into account:

Limited scope: A BCG matrix that takes into account only two factors – market share and market growth – may not be enough to capture the full complexity of a business unit's product or operations.

Lack of context: The BCG matrix does not take into account external factors that may affect the performance of the product or business unit, such as technological changes, consumer preferences or competitive dynamics.

Focus on market share: The BCG Matrix emphasizes market share as a key determinant of success, which may not always be accurate or relevant in all contexts.

Incomplete analysis: BCG matrix provides a high-level overview of a company's product portfolio or business units, but may not provide the analytical depth needed to make informed decisions about products or units specific business.

Ignore profitability: The BCG matrix does not take into account the profitability of a product or business unit, which can be an important factor in making strategic decisions.

Limited predictability: The BCG Matrix is primarily a retrospective tool, providing a snapshot of a company's portfolio at a particular point in time. It may not be useful for predicting future performance or identifying emerging trends.

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How to create the Boston Matrix?

To create a BCG matrix, you need to follow these steps:

Identify your business units or products: The first step is to identify the business units or products you want to analyze. These can be individual products, product lines, or business units.

Determine the growth rate of the market: Determine the market growth rate for each business unit or product you have identified. This can be done by analyzing industry reports, market research or internal data.

Calculate relative market share: Calculate the relative market share for each business unit or product by dividing its market share by the market share of the largest competitor in the same market.

Plot the data on the matrix: Once you've determined the market growth rate and relative market share for each business unit or product, plot the data on a matrix with market growth on the x-axis and relative market share on y-axis.

Classification of business units or products: Classifies business units or products into one of four quadrants based on their position on the matrix. Products with relatively high market shares in high growth markets are classified as stars, while those with relatively low market shares in high growth markets are classified as question marks. Products with a relatively high market share in slow-growing markets are classified as dairy cows, while those with relatively low market shares in slow-growing markets are classified as dogs.

Analyze the results: Once you've categorized your business units or products, analyze the results to determine how to allocate resources, manage your portfolio, and make strategic decisions about each business unit. business or product.

In general, BCG matrix generation involves analyzing market growth rate and relative market share to classify business units or products into one of four quadrants, providing a framework for strategic decision making.

Epilogue

BCG Matrix is a useful tool for companies looking to analyze and manage their product portfolio or business unit. By categorizing products or business units into one of four quadrants based on market growth and relative market share, companies can identify growth opportunities, allocate resources and make strategic decisions about your portfolio.

The BCG matrix is useful in driving decisions when managing a portfolio of products, but it cannot be used as a sole tool for determining market strategy. Surely through the content of the above article you have understood what the BCG matrix is. If you have any questions, please contact us immediately Johnson's Blog for support!