BCG Matrix

When we talk about what brand is good enough from the perspective of people like you and me, we approach brokers to guide us, but have you ever wondered, how these blue-chip companies decide what product is worth putting money in for their product range? How do they finalize which product range needs more investment and which product has degraded from a well-performing product to an obsolete one?

It is obvious that any company cannot simply invest in any product or brand. They need to have complete market research and see how investing in a particular product or brand will be beneficial.

One technique to support this decision is BCG Matrix i.e., Boston Consulting Group (BCG) Matrix, also known as Growth-Share Matrix, which was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or products to analyze their product portfolio and determine their investment priorities.

A BCG Matrix helps companies decide how to prioritize different businesses. This assessment of products or services can be done by creating four different categories: Dogs, Question Marks, Cash Cows, and Stars. The BCG Matrix system depicts the company's portfolio on a quadrant along the relative market share axis (horizontal) and speed of market growth axis (vertical axis).

Important Components of BCG Matrix with examples:

1. Stars

In BCG Matrix, Star represents business units that have large market share and generate cash for a company to survive in the fast-growing market.

• Example of Stars in a Company: A corporation like Apple's line of iPhones is without a doubt its flagship product. Apple sees a big increase in its yearly sales with each new product announcement.

• What should a company do with Star: Star products can become cash cows if the company invests in them at the right time.

2. Cash Cows

In any business or organization, a Cash Cow represents business units with a large market share in a mature, slow-growing industry.

• Example of Cash Cows in a Company: Apple iTunes and the MacBook are two examples of Cash Cows from the BCG Matrix of Apple. Apple's iTunes and MacBook systems have become a cash cow despite the fierce competition in the industry because of the devoted customers who favour Apple goods and services.

• What should a company do with Cash Cows: As you see here, Apple's iTunes and MacBook bring cash to the table, and these cow products should be milked to generate a higher return on investment.

3. Question Marks

Unlike Stars and Cash Cows, a Question Mark is a business unit with a low relative market share and is located in a high-growth industry. The future of such companies remains undefined because no one knows whether these companies will become Star or not. So, a company should invest in or discard these question mark companies based on their services, products, management team, and previous records.

• Example of a Question Mark in a Company: The Apple TV product might be viewed as a question mark in the BCG Matrix of Apple because of the intense market rivalry, which is preventing it from realizing its true potential.

• What should a company do with Question Mark: Question Mark products or services of any company might become the problem child, and their management should watch their performance carefully to analyze the next steps.

4. Dogs

Dogs illustrate those units of any businesses or organizations with weak market shares in low-growth markets. Companies should liquidate or reposition such products or services which had all the potential to grow but have failed to create the magic due to slow market growth.

• Example of a Dog in a Company: For Apple, its iPod range would be called Dogs. Apple iPods were considered the next big thing in the line of entertainment devices, but to impress a large chunk of their customers.

• What should a company do with Dog: As you saw, Apple iPods increased the sales of Apple iPhones, which means that the company's Dog product helped identify the Star product.

EXAMPLE:

Coca-Cola BCG MATRIX

Introduction

Coca-Cola is a large-scale beverage company operating for more than a century. It all started on May 8, 1886, when Dr. John Pemberton sold the Coca-Cola drink at Jacobs' Pharmacy in downtown Atlanta.

Coca-Cola BCG Matrix Analysis

1. Dogs

Dogs are products having high growth potential, but they are not working because of the slow market growth. It makes these products a source of loss for the company; therefore, it does not provide more investment for these products.

Due to the diminishing market for carbonated soft drinks and the rising desire for healthier alternatives or low-calorie drinks, Coca-Cola is a possible dog product according to the BCG matrix.

2. Stars

The cash cows of a business are its most successful goods, yet there is room for growth in their sector as well.

Bottled water is a section that is categorized as a star product in Coca-Cola's BCG matrix. Coca-Cola has two bottled water brands that operate in different regions, Kinley and Dasani. This division of Coca-Cola is anticipated to increase its market share and provide better opportunities for future investment as the demand for bottled water and healthy beverages grows.

For this reason, Coca-Cola is investing more in flavoured and sparkling water products.

3. Cash Cows

We are aware that Coke has been a big source of revenue for the corporation and the market leader in the carbonated soft drink sector. Coke is a money maker i.e., a cash cow for the Coca-Cola Corporation because of its widespread recognition and long history as a trusted brand.

4. Question Mark

We can see from Coca-Cola's BCG matrix that they are introducing numerous new brands and product lines, including Diet Coke and bottled water. These items are intended to promote healthy non-carbonated beverages and active lifestyles. Coca-Cola is also making investments in new goods and promoting them. These products are question marks for the company.

LIMITATIONS OF BCG MATRIX:

BCG is a pretty straightforward technique for evaluating the market share of various brands and goods to determine where to put more money and where there are no opportunities for growth. However, this oversimplification is cause for concern because experts think there are numerous other elements, such as local demographics, brand power, competition, etc., that affect how the market responds to any product. A choice based only on the BCG matrix is thus extremely dangerous.

It is also noteworthy that the BCG matrix was initially created for various production and manufacturing facilities controlled by a single company group. Therefore, adapting this framework for other items is inappropriate. For instance, using the Coca-Cola BCG matrix for Coke, Kinley, and Dasani is not the right application of this framework.

The grey zones or areas of medium growth and medium market share in the real world are not taken into account by the BCG matrix, which is another drawback.

PRODUCT LIFE CYCLE:

The Question Marks in any BCG Matrix signify that the products are still in the introduction stage. Stars represent those goods that are doing well and have begun to grow significantly. Similar to how some items mature and turn into Cash Cows when they outperform your expectations and boost sales. According to the Product Life Cycle, this is the stage of any product when there are minimal to no opportunities for growth, and sales gradually decline. In this stage, your Star items start to turn into Dogs.

Written By :- Mukti and Gitali