Question

Boston Consulting Group’s (BCG) now classic matrix, a company classifies each of its strategic business units.

Please explain the matrix, identify each of the quadrants in the matrix (including axis labels) in detail. Please explain how marketers should allocate their financial resources for SBU's in each quadrant. Include SBU examples for each quadrant.

Answer 1

The BCG matrix was developed by the Boston Consulting Group to portray or show companies or products on a quadrant along market growth rate (vertical axis) and relative market share (horizontal axis). The primary use of the matrix is to help the management understand, which products to divest and on which they should invest. The matrix evaluates the business potential and suggests investment strategies depending on the position on the quadrant. Higher the market share, higher is the cash inflow. If the market growth rate is high, the business could generate higher earnings. However, it will require additional investments.

· Stars: Products in this category have high market share and high growth rate. Additional investment should be made as they have the potential to generate even higher cash. Example: Philips LED lamps

· Cash cows: These are the most profitable products. Additional investment is not required for growth, instead cash should be used only to support the products. The cash should be invested into stars to promote their growth. Example: Coca cola soft drinks.

· Dogs: They operate in a low market share and low growth rate environment. It is not worth investing. Products in this quadrant may be divested. Example: Plasma TVs

· Question marks: Products in this quadrant are characterized by low market share but have a high growth rate. More resources are required in this category as they have the potential to gain market share and become stars. Market and product development are suggested for products in this quadrant. Example: Nokia mobile phones