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When working with a product portfolio, there is a range of tools available to determine how each product, or group of products, is performing. One option is the Product Life Cycle, but for a current snapshot of how products are doing, the Boston Consulting Group Matrix is particularly useful.
Back in 1968, Bruce Henderson of the Boston Consulting Group created this chart to help organisations with the task of analysing their product line or portfolio. The matrix assesses products on two dimensions. The first looks at a product's general level of growth within its market. The second measures the product's market share relative to the largest competitor in the industry. Analysing products in this way provides a useful insight into the likely opportunities and problems associated with a particular product.
Products are classified into four distinct groups: Stars, Cash Cows, Question Marks (also known as Problem Children) and Dogs. Each one means something different for the product and the decision-making process.
Stars — High Share, High Growth
Star products have rapid growth and dominant market share, which means they can be seen as market-leading products. These products need a significant amount of investment to retain their position, both to support further growth and to maintain their lead over competing products. Star products also generate a good level of income, due to the strength they hold in the market. The main challenge for product portfolio managers is to judge whether the market is going to continue to grow or begin to decline. Star products can become Cash Cows as market growth starts to decline, provided they keep their high market share.
Cash Cows — High Share, Low Growth
Cash Cows do not need the same level of support as Stars. This is due to less competitive pressure in a low-growth market, and they usually enjoy a dominant position generated from economies of scale. Cash Cows still generate a significant level of income but do not cost the organisation much to maintain. These products can be used to fund Star products.
Dogs — Low Share, Low Growth
Products classified as Dogs always have a weak market share in a low-growth market. These products are very likely making a loss, or a very low profit at best, and they can be a significant drain on management time and resources. The question for managers is whether the investment currently spent on keeping these products alive could be better spent on something more profitable. The answer to this question is usually yes.
Question Marks or Problem Children — Low Share, High Growth
Sometimes referred to as Question Marks, these products can prove tricky for product managers. They exist in a high-growth market but do not appear to hold a high share of it. The reason for this could be that the product is very new to the market. If that is not the case, then some questions need to be asked. What is the organisation doing wrong? What are its competitors doing right? It could be that these products simply need more investment behind them to become Stars.
Using the Completed Matrix
A completed matrix can be used to assess the strength of an organisation and its product portfolio. Organisations would ideally like to have a good mix of Cash Cows and Stars. There are four assumptions that underpin the Boston Consulting Group Matrix:
- To gain market share, investment in a competitive package is needed, especially through investment in marketing.
- Market share gains have the potential to generate a cash surplus due to the effect of economies of scale.
- The maturity stage of the product life cycle is where any cash surplus is most likely to be generated.
- The best opportunities to build a strong market position usually occur during a market's growth period.
Watch the BCG Matrix Explained
The video below is part of the Professional Academy Marketing Theories Tutorials series, explaining how to use the BCG Matrix to examine products by market share and market growth, and how to apply it to improve and develop a product range.
How Professional Academy Supports Your Journey
The Boston Consulting Group Matrix forms part of the syllabus for several of the CIM courses offered by Professional Academy. With over 27 years of experience, Professional Academy helps marketers master these theories and apply them to real product portfolios. To further develop marketing knowledge and skills, explore the CIM marketing qualifications or the Marketing Theories page. If referencing is needed for an assessment, the Harvard Referencing guide can help.
