The BCG Matrix Explained the Easy Way (With Examples)
Consultants solve problems using consulting frameworks. In fact, in-depth knowledge of various consulting frameworks and using the right ones at the right time is what makes consultants successful in their career.
Out of all consulting frameworks, Boston Consulting Group’s growth-share matrix, also known as BCG matrix, is very popular in the industry—particularly because of a term that’s included in this framework, ‘cash cows’, which we will discuss in detail further in this article.
The BCG matrix was created by Bruce Henderson as a tool to assess the potential of any given company’s products and services, and then advise which ones a company should keep, sell, or invest more in.
The fact is, not every product a company sells becomes popular and generates profit, and not every product that is not popular yet can be considered to have flopped.
This is why it’s important to use tools like the BCG matrix to understand the position of different products and services that a company is selling.
In this article, we will explain the BCG matrix in a very digestible way and apply this framework to a practical example to ensure that you fully understand this concept.
4 Components of the BCG Matrix
On a BCG matrix graph, the vertical axis considers the growth rate from low to high, whereas the horizontal axis considers the relative market share from high to low.
The axes help divide the matrix into four different quadrants: Dogs, Question Marks, Cash Cows, and Stars.
Let’s discuss each quadrant one by one.
These are the products or services that have a low growth rate as well as a low relative market share. So, what does that mean? Well, if a product or service lies in this quadrant, it means that it doesn’t have much potential now and is unlikely to fuel a company’s growth in the future as well. The products in this group can cause huge losses to an organization and could result in debts. That’s why divesting should be considered once a product is identified as a ‘dog’.
A high growth rate, but low relative market share—that’s what this quadrant represents. As the name suggests (question marks), the potential of products in this group is uncertain. Maybe the products aren’t doing well presently, but their popularity could take off in the future—or maybe it won’t. It’s very uncertain. That is why it is important to keep an eye on the products in this quadrant in order to decide whether one should increase the investment or pull out of the market.
Even if you had never heard of the BCG matrix before, you have probably heard of the term ‘cash cows’. This quadrant represents a low growth rate, but a high relative market share. This includes those products that are already doing very well and don’t need further investment. But even when a product is generating lots of profits without much effort, companies should still maintain using strategies to ensure that the revenue keeps coming.
These are the products that have both a high growth rate and a high relative market share. Generally, the products in this quadrant provide a better return on investment as compared to those in other quadrants. What differentiates ‘stars’ from ‘cash cows’ is the attention and investment they require to maintain the ‘star’ status. It is also possible for stars to turn into cash cows someday.
BCG Matrix Examples
All right. Now it’s time to discuss some practical examples so that you know how to actually apply the BCG matrix in a real-life situation. Today, we will apply the BCG matrix to Apple.
Great. Hope you liked the BCG matrix examples and have understood the concept well. This framework can come in handy when you’re helping a company choose the right products to invest in and improve its profitability. Feel free to share this article with someone who wants to understand BCG’s growth-share matrix in a less complicated way.