What is the BCG Matrix?
The Boston Consulting Group Matrix, or BCG matrix, is a Tool (a simple matrix) that categorizes products depending on:
- A product’s Market share.
- The overall Market growth.
Depending on these 2 variables a certain product can be:
- If it has a high Market share and the overall Market grows at high rates.
- When the product has a high Market share, but the overall Market grows at low rates.
A Question mark:
- When the product has a low Market share and the overall Market grows at high rates.
- When the product has a low Market share, and the overall Market grows at low rates.
What is considered high Market growth?
Market growth is something relative:
- If a certain market is growing at a 3.5% rate but the economy where the product is being commercialized grows at a 6% rate, we can say for sure that the Market growth is low.
- On the other hand, if a certain Market were growing at a 2% rate but the economy were shrinking, we could consider this Market to be growing at high rates.
The reference-line is always the Economy growth rate where the product is being commercialized.
What is BCG Matrix useful for? How can you use it?
In Business, the best you can always do is being focused.
The more focused, the better.
The BCG Matrix helps you to stay focused in your best products.
- Moreover, it also highlights the products that are not doing that well.
Depending on the quadrant to which your product belongs, you should develop one strategy or another.
But… Which strategies?
Strategies to develop for the different BCG product categories
Now, we’ll give you some Tips about what to do when a product belongs to a certain category:
Star product - BCG matrix
- Few people worry about this, but it is extremely important.
- If you have a product that is growing at high rates, you should be sure that it is a profitable product, else, you’ll have a magnificent “cash-eater” product.
Don’t alter the product. Let it be.
- Lots of companies are afraid that their “star products” get obsolete and start releasing new versions.
- However, rushing just makes things worse.
- Keep calm.
Cow product - BCG matrix
Watch the market.
- Specially, your competitors.
- In steady markets, competition ends up being fierce.
Look at the new trends.
- Steady markets also tend to decline over time.
- Check new Technologies, trends… that could be “the next big thing”.
Question mark product - BCG matrix
Assess whether the market is interesting or not.
- It is better not to fight a sterile battle.
- If the market is attractive and profitable, perfect.
- Else, it would be better to retreat.
Whenever the market is interesting, develop a strategic plan.
- Would it be better to remain “small and profitable” or to increase your market share?
- How much would it cost?
Dog product - BCG matrix
Compare the resources this product needs and the profit it generates.
- If the profits are bigger than the resources it consumes, you could keep the product.
- In addition, you could also develop a strategic plan in order to evaluate how to increase your market share.
- Else, you should remove the product from the market.
Let’s see some examples:
BCG matrix examples
Now we’ll share 4 real examples that explain perfectly these categories:
Windows – BCG matrix Star product example
In the 80’s and 90’s, the software and hardware market was booming.
If you had bought a powerful new computer on January, that computer would be obsolete by June. Literally.
In that battle, Microsoft was the software King.
Its MS-DOS was the most used software of all… but it was getting obsolete.
On November 20, 1985, Microsoft released the first Windows.
Although it was “just” a virtual simulation that required MS-DOS, it sat the first stone of what was about to come.
Windows (and its following versions) became the software “Emperor”.
- Its product was easy to use and visually appealing.
Its Market share increased to 90% and it has remained in that position until today.
If we have to say one “bad thing” about Windows is that sometimes, Microsoft developers wanted to innovate in the new versions released (see Windows Vista or 8) when they should have kept the environment users liked so much.
Windows 8 release was a “failure” since it changed completely the “environment” we were all used to.
Microsoft learnt the lesson with Windows 10.
Remember what we said before: If you have a Star product, don’t rush to release updates or new versions. Keep what your users like the most.
Some of you may be thinking: “well, Android OS is increasing…”.
- That is true for mobile phones and tablets.
- But the PC software Market is absolutely ruled by Microsoft for only one reason: It has the best product.
Coca Cola – BCG matrix Cow product example
If there is a product that best represents what a “Cow” is, that is Coca-Cola.
Well, the beverage Market is not a high growing market.
- And Coca-Cola’s Market share is huge.
Think about it: Which is the last “new” successful beverage you remember?
- Maybe “Monster”, but it is a niche drink rather than a mainstream product.
What have Coca-Cola done these last… 40 years?
- Basically, strengthen the engagement with its customers with “sensitive” marketing campaigns.
But the product has remained the same.
Moreover, it also has launched new versions with “zero calories” in order to satisfy new tendencies.
That is what we mentioned before for Cow products: watch the market and new trends.
iPhone – BCG matrix Question mark product example
This example will be a bit “controversial”.
Everybody would say that the iPhone is the perfect example of a Star product.
However, that is not completely true.
When Apple released its iPhone, the Smartphone Market was booming (starting, but booming).
There were already “touch” mobile phones on the market with internet, e-mail…
When Apple released its first iPhones, they didn’t even have 3% of the Market share.
And, although the product was amazing, it was expensive and not very profitable (the research and development costs were barely covered by the product).
Apple had a small Market share within a high growing rate overall market: That means a Question mark product.
Years went by and iPhones became more and more popular.
- Manufacturing costs decreased and profitability skyrocketed.
This Question mark product became a Star.
Maybe Apple doesn’t have Samsung’s Market share, but regarding profitability, it is the absolute leader.
However, if I were Apple’s CEO (Tim Cook) I would be worried about how fast the competitors are getting close to iPhone’s features and even reputation.
- Now, the Star should become a Cow because the Smartphone Market seems to be stagnant.
- What else can they add to a smartphone that makes people willing to pay more than $1.000? We don’t know.
Philips – BCG matrix Dog product example
Philips started producing carbon-based filaments for light bulbs.
Over the years Philips began to develop more and more electronic products.
Maybe you have a Philips shaving machine, a hair dryer…
Philips ended up with tons of different low-profitability products that practically had no added value.
- Nowadays, you can buy a shaving machine for few dollars and there is not a huge difference among them all.
All these products had in common:
- They were not added-value products.
- Philips had small Market shares.
- Those Markets were not growing, and the competition is/was fierce.
- The profitability was reduced.
Philips was selling dozens of Dog products that were not just making the company to lose money but also “poisoning” its band name.
On the other hand, the company realized that healthcare Market:
- It is an added-value Market.
- Is Profitable.
- It has high entry barriers.
- Therefore, competition is not that fierce.
In June 2016 Philips decided to focus all its activity in the healthcare market.
- They analyzed their Dog products and decided to get rid of them all.
So… Keep your Philips hair dryer, maybe in 50 years it is a museum item.
BCG’s matrix is a useful Tool that not only categorizes products according to their Market share and the overall Market growth. It is a Tool that can help you taking important decisions affecting the future of your company.
Depending on the category to which a certain product belongs, you should:
- Ensure profitability.
- Don’t alter the product.
- Watch the market.
- Look at the new trends.
Question Mark product:
- Assess whether the market is interesting or not.
- Develop a strategic plan.
- Compare the resources this product needs and the profit it generates