BCG Matrix: Explained with Examples & Templates

The Boston Consulting Group (BCG) created BCG Matrix, also known as Growth-Share Matrix, in 1970 to manage strategic experimentation and predict some rapid changes and behaviors in the company. As the name suggests, the Growth-Share Matrix helps businesses with long-term strategic business planning. When we create a BCG Matrix, we primarily analyze the growth opportunities by reviewing the market share of any services or products and further decide where a company should invest to gain the maximum profit.

As stated in the definition, the primary purpose of BCG Matrix or Growth-Share Matrix is to make investment decisions on a corporate level. It should be noted here that any company cannot go ahead and invest in any product or brand. They need to do complete market research and see how investing in a particular product or brand can help them. This evaluation and analysis of services can be done by creating four different category labels: Dogs, Question Marks, Cash Cows, and Stars. There are several reasons why creating a BCG Matrix is important for your business, like:

• With BCG Matrix, a company will know how all management parts can contribute to its progress.
• By creating the Growth-Share Matrix, the management team will learn which parts of the organization should provide resources in specific areas.
• By analyzing the BCG Matrix internally, an organization will be able to identify the problems in the early stages and do the necessary work to rectify any issue.

Following is a quick representation of a BCG Matrix:

A Boston Consulting Group (BCG) Matrix helps companies decide how to prioritize different businesses. 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).

2 Axes of BCG Matrix

Relative Market Share:
In BCG Matrix, relative market share helps different companies identify their position in the market compared to their most prominent competitors.

Relative Market Share Formula:
Relative Market Share = {Individual Market Share(%)/Largest Industry Market Share (%)}*100

Market Growth Rate:
In BCG Matrix, a market growth rate is defined as the rise in sales within a given targeted audience over a specific period.

Market Growth Rate Formula:
Market Growth = [{Market Value (current year)/Market Value (previous year)}-1]*100%

Important Components of BCG Matrix

The growth-share matrix was built on the logic that market leadership results in sustainable superior returns, which can be identified by assigning each business to one of the four categories: Dogs, Question Marks, Cash Cows, and Stars.

1 Stars

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

• A Star is a High Growth, High Share:
  Companies should invest in such brands or businesses with relatively high growth and share opportunities.
• Example of Stars in a Company:
  For a company like Apple, its Star product is undoubtedly the range of iPhones. With every new launch, Apple records a significant rise in its yearly sales.
• 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.

• A Cash Cow is a Low Growth, High Share:
  Companies should carefully examine such opportunities as they present low growth but high share volume.
• Example of Cash Cows in a Company:
  Taking the example of the BCG Matrix of Apple, Cash Cows can be Apple iTunes and Apple MacBook. Even though there is huge competition in the market, Apple's iTunes and MacBook systems have attained the position of being a cash cow due to the loyalists who prefer Apple products 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.

• A Question Mark is a High Growth, Low Share:
  The future of such companies remains undefined because no one knows whether these companies will become a 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:
  A great example of a Question Mark would be the BCG Matrix of Apple, where we see that Apple TV can be treated as a question mark, as due to the heavy competition in the market, it is not reaching 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.

• A Dog is Low Share, Low Growth:
  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 the 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.

A BCG Matrix is a business-oriented framework that all companies use to evaluate their products. Once you have identified Dog, Question Mark, Stars, and Cow, you can start evaluating them to strategize the future of your business. A well-created BCG Matrix will help you understand your Hero product, which product needs your immediate attention, which products have performed great in the past but are not doing so well these days, which products failed your company's expectations, and more.

Here are four different ways you can use BCG Matrix to strategies for your business:

• If your company's primary goal is to focus on innovation and release a new product line every quarter, you should invest in Stars and Questions Marks.
• If you have limited funds and cannot spend more on any product, ensure you keep your Cash Cow in the same quadrant. The Cash Cows do not require much effort to maintain and will ensure a steady cash flow.
• You can increase the overall productivity of any product by reducing your investment and taking out the maximum cash flow from a product.
• If you see that there are Dogs present, you should immediately liquidate your funds and apply them to different lines of products.

A BCG Matrix shows how a matrix is separated into four quadrants dependent on an investigation of market development. Some of the BCG Matrix Examples that help you understand this business framework are mentioned here. It should be noted here that these BCG Matrix Examples are created using EdrawMind, which comes with free BCG Matrix templates that ease our efforts in creating and sharing simple and complex BCG Matrix diagrams.

1. BCG Matrix of Coca-Cola
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   BCG Matrix of Coca-Cola

   

   

   Even though several beverages are currently ruling the market, Coca-Cola remains a big player. According to the BCG Matrix of Coca-Cola, Thumbs Up, Maaza, and Kinley are its Stars; Fanta and Sprite are its Question Marks, Limca and Coca-Cola drinks remain the Cash Cows, and Minute Maid's Pulp drinks are its Dogs.

2. BCG Matrix of Samsung
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   BCG Matrix of Samsung

   

   

   Samsung has remained one of the biggest competitors to Apple. As per the BCG Matrix of Samsung, its TV, refrigerator, and mobile phone are the Stars; the printer is the Question Mark; with great market share, Samsung's kitchen appliances remain its Cash Cows; and Samsung Watch which failed to compete against Apple's iWatch is considered Dog.

3. BCG Matrix of Apple
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   BCG Matrix of Apple

   

   

   According to the Apple BCG Matrix example, dogs are the products that can create a huge demand but cease to grow due to slow market share (Apple iPods); whereas the Apple MacBook has managed to attain customer loyalty over the past couple of years and is considered a Cow.

4. BCG Matrix of Amazon
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   BCG Matrix of Amazon

   

   

   Amazon Prime and Music were launched into the market when their rivals were already present; they have mostly been cash cows for Amazon. As per the BCG Matrix example, Amazon's Alexa and Kindle are considered Stars.

Now that you have understood how BCG Matrix helps any company make investment-related decisions let us walk you through some of the pros and cons of using a BCG Matrix in 2022. A few advantages and disadvantages of using BCG Matrix are:

When we study the BCG Matrix of any company, we quickly observe that the BCG matrix is heavily dependent upon the products, and hence all the BCG Matrices have a strong connection with any product life cycle. In any BCG Matrix, the Question Marks indicate the products are still in the introduction phase. Stars depict those products performing well and have started showing significant growth. Similarly, when some products exceed your expectations and improve sales, they reach their maturity phase and become Cash Cows. As per Product Life Cycle, this is that phase of any product when there are little to no chances of any growth, and slowly we see a fall in the sales number. It is that phase where your Star products start to become a Dog.

At the same time, when you create a BCG Matrix, you must understand the cash flow of any company. Cash flow is the money moving in and out of your business or product. Cash flows of any company's cash cows are high and are generally used to finance Stars and Question Marks. In simpler terms, if a company needs to grow, they need a cash flow because, with the right amount of cash in hand, a company can boost their Star or Cash Cows or even take a risk with Question Marks.

If you get a good command of your Cash Cows and avoid the Dogs, you are on a sure-shot path to becoming a market leader. As discussed here, BCG Matrix helps understand the product life cycle and lets you understand how the cash will flow and which areas one needs to invest in. As depicted in BCG Matrix Examples, a company always requires a balanced portfolio consisting of Cows, Stars, Question Marks, and even Dogs to compete in this highly volatile business market. In order to handle all this information, business analysts usually go with Ansoff Matrix.

Like BCG Matrix, Ansoff Matrix is also a tool used by companies to analyze and plan their strategies for growth.

A BCG Matrix is not only useful for a small startup or a bootstrapped business but is highly regarded in big enterprises where there are several products in the making. In the BCG Matrix examples, a company should always have a balanced portfolio because it is hard to predict which products or services will start showing some result or which Cow product will eventually turn into a dog! In order to stay at the top of your game, it is recommended to create BCG Matrix diagrams using EdrawMind. With EdrawMind, you can easily customize all the free templates and share your BCG Matrix diagrams in multiple formats. What is amazing about this product is its cloud feature that stores all of your files. So, whenever you need to make any revision or changes in your matrix, you can easily customize or update it without worrying about the formatting.

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