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Understanding the BCG Matrix

The document summarizes the Boston Consulting Group (BCG) Matrix, which was developed in the 1970s as a portfolio planning model. It classifies businesses into four categories - Stars, Cash Cows, Question Marks, and Dogs - based on their relative market share and the market growth rate. Stars have high market share in high growth markets, while Cash Cows have high market share in low growth markets. Question Marks have low market share but are in high growth markets, while Dogs have low market share and are in low growth markets. The matrix is used to assess products/businesses and allocate resources accordingly.

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Rishab Mehta
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37 views19 pages

Understanding the BCG Matrix

The document summarizes the Boston Consulting Group (BCG) Matrix, which was developed in the 1970s as a portfolio planning model. It classifies businesses into four categories - Stars, Cash Cows, Question Marks, and Dogs - based on their relative market share and the market growth rate. Stars have high market share in high growth markets, while Cash Cows have high market share in low growth markets. Question Marks have low market share but are in high growth markets, while Dogs have low market share and are in low growth markets. The matrix is used to assess products/businesses and allocate resources accordingly.

Uploaded by

Rishab Mehta
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

 BOSTON CONSULTING GROUP (BCG)

MATRIX is developed by BRUCE


HENDERSON of the BOSTON CONSULTING
GROUP IN THE EARLY 1970’s.

 According to this technique, businesses or


products are classified as low or high
performers depending upon their market
growth rate and relative market share.
To understand the Boston Matrix you
need to understand how market share
and market growth interrelate.
  
• Market share is the percentage of the total market that is
being serviced by your company, measured either in
revenue terms or unit volume terms.

• RELATIVE MARKET SHARE

• RMS = Business unit sales this year


Leading rival sales this year

• The higher your market share, the higher proportion of


the market you control.
 Market growth is used as a measure of a market’s
attractiveness.

 MGR = Individual sales - individual sales


this year last year
Individual sales last year

 Markets experiencing high growth are ones where the


total market share available is expanding, and there’s
plenty of opportunity for everyone to make money.
 It is a portfolio planning model which is based on the
observation that a company’s business units can be
classified in to four categories:
 Stars
 Question marks
 Cash cows
 Dogs

 It is based on the combination of market growth and


market share relative to the next best competitor.
 Stars are leaders in business.
 They also require heavy investment, to
maintain its large market share.
 It leads to large amount of cash consumption
and cash generation.
 Attempts should be made to hold the market
share otherwise the star will become a CASH
COW.
Low growth , High market share

 They are foundation of the company and


often the stars of yesterday.
 They generate more cash than required.
 They extract the profits by investing as little
cash as possible
 They are located in an industry that is
mature, not growing or declining.
 Dogs are the cash traps.
 Dogs do not have potential to bring in much
cash.
 Number of dogs in the company should be
minimized.
 Business is situated at a declining stage.
 Most businesses start of as question marks.
 They will absorb great amounts of cash if
the market share remains unchanged, (low).
 Why question marks?
 Question marks have potential to become
star and eventually cash cow but can also
become a dog.
 Investments should be high for question
marks.
To assess :
 Profiles of products/businesses

 The cash demands of products

 The development cycles of products

 Resource allocation and divestment

decisions
 Identifying and dividing a company into SBU.
 Assessing and comparing the prospects of each
SBU according to two criteria :
1. SBU’S relative market share.
2. Growth rate OF SBU’S industry.
 Classifying the SBU’S on the basis of BCG
matrix.
 Developing strategic objectives for each SBU.
 BCG MATRIX is simple and easy to
understand.
 It helps you to quickly and simply screen the
opportunities open to you, and helps you think
about how you can make the most of them.
 It is used to identify how corporate cash
resources can best be used to maximize a
company’s future growth and profitability.
 BCG MATRIX uses only two dimensions,
Relative market share and market growth rate.
 Problems of getting data on market share and
market growth.
 High market share does not mean profits all
the time.
 Business with low market share can be
profitable too.
 MAHINDRA & MAHINDRA
 HLL
 IES
scorpio

Jeep
balero
Though BCG MATRIX has its limitations it is one
of the most FAMOUS AND SIMPLE portfolio
planning matrix ,used by large companies
having multi-products.

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