We all know that strong strategies are behind the success of companies today. So, what factors should companies take into account when determining their strategies? In this article, I will talk about the guiding information about the BCG Matrix, which guides the world’s giant companies.
What is the BCG Matrix?
The BCG Matrix, developed by the Boston Consulting Group in 1970, helps a business evaluate growth opportunities by reviewing its product portfolio to help long-term strategic planning, to decide what to invest in, to develop or sell its products.
On the other hand, the purpose of this matrix is to make investments in the right areas by minimizing costs with the decisions taken.
There are two important components in the matrix that you need to analyze when making decisions about the sector you are in. These are “Market Growth Rate” and “Relative Market Share”. According to these components, the products owned by companies are positioned as Stars, Question Marks, Cash Cows and Dogs.
How to Create BCG Matrix?
Start by placing the market growth rate on the y-axis of the matrix and the relative market share on the x-axis.
- Stars
They are products with a large market share in a fast-growing market. They require continuous investment and innovation and generate higher returns than other products.
- Cash Cows
Cows represent products with a large market share in a slow-growing sector. There is no need to invest a lot in this representation system. The main reason why they are called cows is because of the steady flow. Over time, as new competitors enter the industry, the market share of Cows declines and they turn into dogs. Protecter & Gamble is an example of a “Cash Cow” company.
- Question Marks
Question marks are products with low market share in a rapidly growing market. In such cases, uncertainties and question marks are commonplace. Competition is not very fierce. If the company can increase the market share of the product, it can be promoted to the stars, otherwise question marks can turn into dogs.
- Dogs
In this part, we call the company dogs if it has both low market share and slow growth. The businesses neither generate cash nor need to pay out a lot of cash. These companies are recommended to be sold or invested in other areas.
Why use the BCG Matrix?
- With the BCG Matrix, you can draw the ideal path to follow from the Start-Up position in the market to the market leader position.
- It is an effective way to decide which products to invest in and which not. This way you can push a Question Mark product to the Stars and eventually to the Cows.
- You will definitely need the BCG Matrix to ensure a healthy cash flow and to have products that can secure your future.
You can contact us whenever you want, and you can ask every question.
This article was translated from the Turkish original via deepl.com. Click here for the original version of the article.
Source: