The BCG matrix is used to determine in which products a company should invest, and in which products it is best not to invest. The BCG matrix compares a company's market share for specific products or services with overall market growth. This can provide you with important insights. Read an explanation of how to use the BCG matrix here.
BCG matrix explanation
The BCG matrix was developed in the 1970s by the Boston Consulting Group. The matrix is formed by a horizontal axis (relative market share) and a vertical axis (market growth).
- Relative market share is the market share the company has in certain products or services compared to its biggest competitor. Anything to the left of the centre indicates a lower market share than this competitor. Anything to the right of the middle indicates a higher market share.
- Market growth is the growth in the market for a particular product or service. Anything below the middle means less than 10% growth. Anything above the middle means more than 10% growth.
The BCG matrix allows you to analyse a company's portfolio of services and products. This is useful if a company offers a large number of products and services. Sometimes it makes sense to discontinue some products or services and/or focus more on other products or services.
Template BCG matrix
After researching market growth and relative market share, you can fill in the BCG matrix template. In doing so, you classify the company's products and services into four categories based on a comprehensive analysis.
This looks as follows:
Market share
|
|
High |
Low |
|
More than 10% |
Star |
Question mark |
|
Less than 10% |
Cash cow |
Pet |
Example analysis with BCG matrix
As you can see, there are four groups of products and services:
- Stars are products or services for which the company already has a large market share and for which there is also a growing market. If a company makes the right investments, a Star can turn into a Cash Cow. Often, Stars have high sales but require large investments. As a result, net profits are limited.
- Cash Cows are products or services in which the company has a high market share, but in which the market is not growing as fast. You hardly need to invest in these products or services and they generate a stable profit. As long as these products remain profitable, they offer a simple way to realise profits.
- The Question Marks are products or services for which there is a growing market, but in which the company does not yet have a large market share. It may be interesting to do more with these, but the company does not necessarily have to. The company has to choose: are they going to make it a Star, or do they decide to make it a Pet and thus stop investing in this product?
- Pets are products or services that a company is probably better off not investing too much in. For this, the market share is low and market growth is also limited. Eventually, every Cash Cow will become a Pet. This means that demand for it is declining or competitors are too strong. Companies often put as little marketing costs as possible into Pets, because these products or services also yield little. If the costs become too high, it is better to divest Pets.
Need more tips for your analysis?
Have you arrived at the analysis for your thesis? The BCG matrix can be useful if you want to analyse the current range for your client. Also be sure to check out our overview of other models you can use for your thesis, such as the SWOT analysis or the DESTEP analysis.
Has your analysis been completed? Then you will find practical tips for presenting your results in the results chapter on our website.