When launching a product, it is important to find the correct strategy to help us determine the best projection for it. In the business world, it is not only important the current position of our products, but also analyzing how they will evolve and what we will expect from them in the future. Boston Consulting Group Matrix “BCG Matrix” is one of the best-known.
The BCG matrix or Boston Consulting Group Matrix was developed by the consulting firm Boston Consulting Group and published by its president Bruce D. Henderson in 1973. It is one of the best-known instruments in the company world to strategically analyze the product portfolio and strategic business units of a company.
What is the BCG Matrix and what is it for?
The BCG Matrix or growth-participation matrix is an essential strategic marketing tool for companies. This matrix helps companies analyze their product portfolio to propose the most recommended strategy to carry out.
The matrix is made up of two axes. The vertical axis represents the growth rate of the market (demand for a product in a market), the horizontal axis represents the market share (sales of our product / total sales of the product in the market).
It is a very simple matrix for decision-making, it is made up of a 2 × 2 quadrant, and depending on the situation of each of them, it proposes the most recommended strategy to carry out.
This matrix allows you to carry out internal analysis to give us the pertinent indications so that the company can decide in which products it is more profitable to invest its resources and in which to withdraw them.
What are the components of the BCG matrix?
As I mentioned earlier, each axis defines a different dimension; the vertical axis measures the growth of the market, while the horizontal axis of the matrix measures the market share. From the axis a quadrant is formed with the different types of products and their situations detailed below:
In the Boston Consulting Group Matrix “BCG matrix”, the star products have high growth and a high market share. They are great generators of liquidity and are in a dynamic environment, so it is important to pay the necessary attention to them. They also need constant investment to consolidate its market position and thus become a mature product, which would become a product cow.
However, in those markets that are constantly subjected to technological innovation, star products can end up turning into dog products, since, even by investing large amounts of resources, competitors can take them out of the market.
They are products with high growth, but with a weak market share. When faced with high growth, it usually requires high financial investments, but having a low market share, the income it generates is low.
At this point in the BCG matrix, it is recommended to reevaluate the strategy, since they absorb large amounts of resources and do not always evolve positively. In this phase, this type of product or Strategic Business Unit can evolve into star products or, on the contrary, into dog products.
These are products with a high market share and a low growth rate, which translates into fully consolidated mature products in the sector.
Vaca products are mainly a source of cash generation for the company since the amount of investment they require is relatively low. It is recommended that the cash generated to be used to develop new star products that may become new vaca products in the future.
It has a low market growth and also a low market share. These products are not recommended for the company since they consume fixed costs, but provide little or nothing in return. It is advisable to assess their removal from the product portfolio since they can lead to negative results.
Products go through different phases and stages, and although a company will always try to keep them in the most favorable positions, changes will inevitably occur.
We could make a chronological order of the life cycle of a product, and by its different stages: introduction, growth, maturity, and decline. Making an analogy with the BCG matrix, the product would start with a question mark, followed by a star, and later become a cow, and finally end up like a dog. As we already know it is not a written rule, and it does not have to follow exactly this itinerary since a product can take different paths or shortcuts.
Is the BCG Matrix effective?
Within this matrix, we can find multiple advantages but also disadvantages:
How to make a BCG matrix?
Step 1: the selection of products, brands or strategic business units
The first step is to select, depending on the breadth of our portfolio, whether we are going to work under strategic business units, individual brands, or products.
For example, within an SME with a small product portfolio, we will be able to work on their products individually. On the contrary, in a multinational like Nestle, with several brands, we will probably work under different strategic business units.
Step 2: identification of the market in which you operate
The next step in preparing the BCG matrix is to correctly identify the market in which you are operating. If you have a local company, you must take into account the geographical location in which you operate, or if, for example, you have a chain of low-cost fashion retail stores, you should assess whether to locate it in front of the fashion sector in general or only in the fashion segment. low-cost fashion.
Step 3: calculating market share
To continue, we must calculate the participation or market share of our company.
Market share is the percentage of sales of a product of a company with respect to the total sales of the market.
Market share = Sales of our product / Total sales of the product in the market
Step 4: calculating market growth
To calculate the market growth rate, it is necessary to know the initial sales value and the value of the final sale of all the participants. As you can guess, it is a complex data to calculate, so I recommend going to specialized magazines, digital portals, government sources, sector studies, and other similar types of public sources.
Step 5: create the BCG Matrix
Finally, it is time to create the matrix. To do this, we have to create a vertical axis with market growth and the horizontal axis with market share. Next, we will divide the matrix into four quadrants: star, question mark, cow, and dog.
The location of each product in the matrix will depend on its market share values and market growth.
BCG Matrix Practical Example
Next, we are going to analyze a practical example of the application of the matrix.
BCG Coca Cola Matrix:
Coca Cola has a multitude of products on the market, in order to illustrate this example, we are going to carry out the practical exercise with 6 of its main products: Coca Cola Original, Coca Cola Zero, Coca Cola Light, Coca Cola Zero sugar and Zero caffeine, Coca Cola with Coffee and Coca Cola Energy.
Without a doubt, Coca Cola Original is an empty product, since it is a fully consolidated product, with a large market share that provides the company with the main source of income.
On the other hand, we have Coca Cola Zero is a star product that is having rapid growth, the company allocates constant investments to try to turn it into an empty product and achieve its consolidation in the market.
Coca Cola with Coffee, Coca Cola Energy, and Coca Cola Zero sugar and Zero caffeine within the BCG matrix are questioning products, they are in a growing market but with low participation. They require exhaustive monitoring since they can grow and evolve into stars or, conversely, become dog products.
Coca Cola Light is a product for those who want to take care of themselves, but it is clearly being replaced by Coca Cola Zero, which does not contain sugar the same as Coca Cola light but maintaining the flavor of Original Coca Cola. Clearly Coca Cola Light is a dog product with a low market share, the company will have begun to study its possible withdrawal from the market in the coming years.
Many companies forget how important it is to develop and work strategic marketing in a business, in order to control the strategies, they want to carry out.
The choice of a good strategy will be what determines the correct achievement of the business objectives set. As we have observed, the BCG matrix will help us to make strategic decisions about the investment and management of our product portfolio.
Have you ever used the BCG matrix in your company? Has it helped you to distinguish between what products are worth keeping and those that need to be divested? Leave your comments if you found this article useful.