A business planning tool used to evaluate the strategic position of a firm's’ brand portfolio
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The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product portfolio matrix, is a business planning tool used to evaluate the strategic position of a firm’s brand portfolio. The BCG Matrix is one of the most popular portfolio analysis methods. It classifies a firm’s product and/or services into a two-by-two matrix. Each quadrant is classified as low or high performance, depending on the relative market share and market growth rate. Learn more about strategy in CFI’s Business Strategy Course.
Understanding the Boston Consulting Group (BCG) Matrix
The horizontal axis of the BCG Matrix represents the amount of market share of a product and its strength in the particular market. By using relative market share, it helps measure a company’s competitiveness.
The vertical axis of the BCG Matrix represents the growth rate of a product and its potential to grow in a particular market.
In addition, there are four quadrants in the BCG Matrix:
- Question marks: Products with high market growth but a low market share.
- Stars: Products with high market growth and a high market share.
- Dogs: Products with low market growth and a low market share.
- Cash cows: Products with low market growth but a high market share.
The assumption in the matrix is that an increase in relative market share will result in increased cash flow. A firm benefits from utilizing economies of scale and gains a cost advantage relative to competitors. The market growth rate varies from industry to industry but usually shows a cut-off point of 10% – growth rates higher than 10% are considered high, while growth rates lower than 10% are considered low.
Learn more about strategy in CFI’s Business Strategy Course.
The BCG Matrix: Question Marks
Products in the question marks quadrant are in a market that is growing quickly but where the product(s) have a low market share. Question marks are the most managerially intensive products and require extensive investment and resources to increase their market share. Investments in question marks are typically funded by cash flows from the cash cow quadrant.
In the best-case scenario, a firm would ideally want to turn question marks into stars (as indicated by A). If question marks do not succeed in becoming a market leader, they end up becoming dogs when market growth declines.
The BCG Matrix: Dogs
Products in the dogs quadrant are in a market that is growing slowly and where the product(s) have a low market share. Products in the dogs quadrant are typically able to sustain themselves and provide cash flows, but the products will never reach the stars quadrant. Firms typically phase out products in the dogs quadrant (as indicated by B) unless the products are complementary to existing products or are used for a competitive purpose.
The BCG Matrix: Stars
Products in the star quadrant are in a market that is growing quickly and one where the product(s) have a high market share. Products in the stars quadrant are market-leading products and require significant investment to retain their market position, boost growth, and maintain a competitive advantage.
Stars consume a significant amount of cash but also generate large cash flows. As the market matures and the products remain successful, stars will migrate to become cash cows. Stars are a company’s prized possession and are top-of-mind in a firm’s product portfolio.
The BCG Matrix: Cash Cows
Products in the cash cows quadrant are in a market that is growing slowly and where the product(s) have a high market share. Products in the cash cows quadrant are thought of as products that are leaders in the marketplace. The products already have a significant amount of investments in them and do not require significant further investments to maintain their position.
Cash flows generated by cash cows are high and are generally used to finance stars and question marks. Products in the cash cows quadrant are “milked” and firms invest as little cash as possible while reaping the profits generated from the products.
More Resources
Thank you for reading CFI’s guide to the BCG Matrix. To keep learning and advancing your career, the additional CFI resources below will be useful:
- Aggregate Supply and Demand
- Market Positioning
- Network Effect
- Substitute Products
FAQs
The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product portfolio matrix, is a business planning tool used to evaluate the strategic position of a firm's brand portfolio. The BCG Matrix is one of the most popular portfolio analysis methods.
What are the 4 quadrants of the BCG matrix? ›
It is a table, split into four quadrants, each with its own unique symbol that represents a certain degree of profitability: question marks, stars, pets (often represented by a dog), and cash cows.
What are the 4 categories of Boston Consulting Group? ›
The BCG growth share matrix includes four distinct categories: dogs, cash cows, stars, and question marks.
What are the four different categories in the Boston Consulting Group BCG matrix? ›
The BCG Matrix is used to help companies analyze their product portfolio by categorizing them into four distinct categories based on their market shares and growth rates relative to their largest competitors. These four categories include: cash cows, dogs, question marks, and stars.
How prestigious is Boston Consulting Group? ›
BCG is ranked number two on the Vault Top 50 Consulting Firms list for the second year in a row.
Why is Boston Consulting Group so famous? ›
The concept of time-based competition, first introduced by BCG in the 1980s, is a demonstration of the power of time management. These breakthrough ideas that BCG developed—and continues to develop today—have become business canon and have helped establish our reputation in the marketplace.
How do you solve a BCG matrix? ›
How do you use a BCG matrix template?
- Step 1: Choose the product. ...
- Step 2: Define the market. ...
- Step 3: Calculate the relative market share. ...
- Step 4: Find out the market growth rate. ...
- Step 5: Add all the information to the matrix. ...
- To increase investment in a product to capture additional market share.
The BCG matrix uses a 2x2 grid (four boxes) to evaluate products and services. McKinsey developed a 3x3 matrix (nine boxes) that makes a deeper, more nuanced analysis based on market attractiveness and competitive strength.
What is BCG matrix chart? ›
The BCG matrix is a strategic marketing model used to help a company decide where to allocate its resources. The matrix is divided into four quadrants: -Stars: high market share and high growth. -Questrels: high market share but low growth. -Cash Cows: low market share but high growth.
What do BCG people call themselves? ›
Part of the BCG Family
Once a BCGer, always a BCGer.
Global Chair at Boston Consulting Group (BCG)
This article is part of a series on BCG's five purpose principles: Bring Insight to Light; Drive Inspired Impact; Conquer Complexity; Lead, with Integrity; and Grow by Growing Others.
What is unique about Boston Consulting Group? ›
We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
What is the hierarchy of Boston Consulting Group consultants? ›
Within the BCG consulting path, the hierarchy includes such roles as (in ascending order) associate, consultant, project leader, principal, partner, and finally managing director.
What is the BCG matrix theory? ›
The Boston Consulting group's product portfolio matrix (BCG matrix) is designed to help with long-term strategic planning, to help a business consider growth opportunities by reviewing its portfolio of products to decide where to invest, to discontinue, or develop products. It's also known as the Growth/Share Matrix.
Is Boston Consulting Group a big 4? ›
The Big Three is one of the names given to the three largest strategy consulting firms by revenue: McKinsey, Boston Consulting Group (BCG), and Bain & Company. They are also referred to as MBB. The Big Four consists of the four largest accounting firms by revenue: PwC, Deloitte, EY, and KPMG.
What is the Boston Matrix model? ›
The Boston Matrix helps you to classify your organization's business units, product lines or products, based on their market growth and market share. In turn, this helps you to determine which products warrant future investment and which you might need to abandon or sell.
What is the McKinsey matrix and BCG? ›
The BCG matrix uses a 2x2 grid (four boxes) to evaluate products and services. McKinsey developed a 3x3 matrix (nine boxes) that makes a deeper, more nuanced analysis based on market attractiveness and competitive strength.
What is the purpose of the Boston Consulting Group? ›
BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
