BCG Matrix Model

How to Use the BCG Matrix Model for Your Business?

What are the keys to be successful in business? It’s the question that persistently keeps on alarming in the minds of a young entrepreneur. Remember! There isn’t any rocket science behind being a successful entrepreneur. Instead, it’s a simple approach, but many authors, business tycoon, and management gurus complicate it in their business management article, books, or in interviews. To give your competitors, fierce competition constantly keeps on evaluating market trends and changes. You can find lots of business tools online to conduct competitor analysis, market research, evaluating product performance, etc. Business models aim to provide products and services that are profitable for the business; it also attempts to identify the changes that can keep business profitable in the future.

If you are working with a product portfolio, you will have multiple tools to scale how one or group of products are performing. You can consider using the product life cycle model. But if you want to get a current snapshot of how your product is performing and how it could benefit more in the future, then you should try using BCG Matrix Model. Boston Group Matrix assists the business with the task of analyzing their product line or services.

What is BCG Matrix Model?

bcg matrix model

The BCG Matrix, also known as Boston Growth-Share Matrix, is a portfolio management matrix that helps organizations prioritize their different businesses. BCG Matrix assesses the company product portfolio. After assessments guide the management in their long-term strategic planning of the company's portfolio. The model indicates where to invest, which product to discontinue or develop products.

The matrix represents the company’s product and services using graphical representation to help the company make exemplary decisions on where to invest, what to keep, or sell.

The graph divides the matrix into four quadrants and 2 dimensions based on market growth and relative market share. Each quadrant is classified into high and low performing. The first dimension looks at the product or service basic level of growth in the general market. The second share calculates the product’s market share relative to its biggest competitors. Analysis of the product in such a way gives the management insight about the opportunities and the problems with the product.

How Does BCG Matrix Works?

Boston growth-share matrix is a business model used to evaluate the business portfolio’s strategic position and its potential. The business methodology was developed by a clever chap and founder of Boston Consulting Group, Bruce Henderson, in the year 1986. It was published in BCG’s shorts called Perspectives. Since then, it was widely used by most of all fortune 500 companies. And still being taught in business school on strategy. The BCG business models helped the businesses gain insight into which products best help them capitalize on market share growth and gain competitive advantage.

The Boston matrix projects companies’ products using a graphical representation, where the horizontal axis of the graph represents product market share and its strength in the market. But using relative market share helps the analyst to scale business competitiveness. In contrast, the vertical axis represents the product’s growth rate and its potential to grow in the market. If you struggling to map Boston Matrix in your presentation, then check out of the best BCG Matrix Templates.

There are four quadrants of the BCG Matrix:

  • Questions Marks: Product with high market growth with low market share.BCG Matrix ICON
  • Stars: Product with high market growth and high market share.bcg Matrix Icons
  • Dogs: Product with low market growth and low market share.BCG Matrix Icons
  • Cash Cows: Product with low market growth and high market share.BCG Matrix Icons

Let’s Drill down the topic and have a concise study of the four quadrants of the BCG matrix.BCG Matrix Model

  • Question Marks: Products in question mark quadrants are in a market that is growing exponentially, but the product has a low market share. These products are really tricky for product managers and require a lot of consideration. It has the power to gain market share and become stars, which will turn into cash cows. Question marks do not always succeed after investment and strive to gain market share and eventually becomes dogs.BCG Matrix Model
  • Dogs: Products in dog quadrants have a weak market share in a low growth market. These products generate loss or very low profit at its best. These products are not worth investing as they generate low profit or even negative cash returns. That isn’t always true. These products can start generating profit over a long period of time. These products act as a defence to counter the moves of competitors.
  • Stars: Product in star quadrants operates in a high growth market with a high product BCG Matrix Modelshare. These products can be seen a market leads products. It incurs lots of investment to maintain its position, further growth, and maintain its position over competitors. Stars are both, the cash generators and cash users. It’s the product where the company needs to invest as they are soon expected to become cash cows.
  • Cash Cows: Products in cash cows quadrants are in a slowing growing market with the product share. These products dominate the market. These products don’t require assistance as before due to the slowly growing market and low competition. Cash BCG Matrix Modelsgenerated through cash cows is high and which is generally used to support question marks and stars. The product doesn’t require any investment as it already has a significant amount of investment.

How to Use the BCG Matrix?

Although the Boston growth-share matrix has lost its importance due to limitations. But it can be useful too if you follow these steps:

  1. Choose a Unit: BCG Matrix can be used to analyze SBU units, separate brands, products, or even a firm as a unit. But do remember the unit you choose impacts the whole analysis. Therefore option the unit is vital.
  2. Define the Market: Defining is the most prominent step of the BCG Matrix. Because inaccurately defining the market can lead to poor classification. For Ex: An Audi A4 analyzed in a passenger car segment will be a dog with a small market share. But when analyzed in a luxury car will be a cash cow.
  3. Calculating Relative Market Share: Its where you require mathematical knowledge. Market share is the total percentage of the market captured by your company. It can be measured in unit terms of revenue or unit volume. In BCG Matrix we use, relative market share, we compare our product sales with that of our leading rivals.
    • The Formula for Relative Market Share = Product sold this year/Leading rivals sales this year.
  4. Finding Market Growth Rate: The market growth rate can easily be assessed by market reports which are easily available online. Even it can be calculated by determining the average growth revenue of a leading firm.
  5. Plot the Circles on the Matrix: As of now, you have calculated all the measures. You should now plot it into a matrix. The X-axis represents the relative market share, and the Y-axis represents the market growth rate. For each brand, product, or unit, you should draw a circle, but the circle’s size should not correspond to the proportion of business value generated by that brand.

Since 1986 BCG Matrix has been used by many fortunes and even small businesses to analyze their products and determine which product to invest and let go. It’s the most simplistic business model available to evaluate a product. But do remember to use this method cautiously; recklessly using it without precise analysis can end up giving misleading analysis and generating losses.

 

 

 

 

 

 

 

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