The BCG matrix (Boston Consulting Group) was established around 1960 by Bruce Henderson. He is considered “the founder of strategic thinking”.
A business portfolio management tool, the BCG matrix makes it possible to set priorities in terms of investment and actions on products (launch, maintenance or discontinuation). It is therefore a decision support tool. It is also used to check the consistency and balance of the portfolio of products or activities.
How to make and use a BCG matrix? When is it necessary to create a BCG matrix? How to analyze the BCG chart? In this article, we explain precisely how to integrate this tool for your business strategy.
When to use the BCG matrix?
The BCG matrix should be used:
- When developing the annual marketing plan in order to define priority actions and budgets for products or DAS (strategic activity areas, in other words business sectors).
- When you want to analyze which strategy will be the most effective before launching a new product. For this, you need to know the market as a whole in order to know whether or not your investment will be profitable at a given moment.
Strategic decisions cannot be made if you do not base yourself on concise and precise matrices. This analytical marketing tool helps you visualize the market share of your company in a sector of activity in relation to its growth rate.
BCG matrix: 4 product categories
The BCG matrix consists of positioning your products or DAS on two axes:
- Relative market share (your market share / competitor’s market share);
- The growth rate of the market.
The BCG matrix is divided into four categories:
Milk cow products from the BCG matrix
The “cash cows” are positioned in a weak growth market, but with a dominant position there, in other words a strong market share. They therefore do not represent a lot of investment compared to the substantial margin from which the company benefits. These products ensure the financial strength of the company. These are often the flagship products that have allowed the company to develop (yesterday’s “star” products) . They should therefore be kept as long as they do not become “dead weight”.
The star or star products of the BCG matrix
Featured or “star” products are positioned in a booming market with a dominant market share. These are today’s leading products! They help grow the business. However, they require a significant investment especially in communication and marketing in order to stand out from the competition.
The dilemma products of the BCG matrix
“Dilemma” products face strong competition and generate few profits. They are represented by the targeted products with a low market share. They will eventually become either star products or dead weight.
The deadweight products of the BCG matrix
They are the representatives of a small market share in a market in weak evolution. They are called “dead weight” because they have no added value on the growth and profits of the company. . Indeed, these are products that do not (or no longer) bring profitability.
Product life cycle and BCG matrix
The BCG matrix is based on the life cycle of a product in four 4 phases: that of launch, that of growth, that of maturity and then of decline.
1. Product launch
At the first stage of the project of launching a product in a market, it is seen as a dilemma. As the name suggests, that means you don’t know yet whether it will be profitable or not.
2. Growth phase
During the growth phase, if the product is successful it is considered a star. During this phase, the product becomes more and more profitable.
3. Maturity phase
During the third phase, the product enters the category of milking cows. This is the time when investments are low and profits are maximum. Ideally, cash cows are used to finance investments in other products.
4. Decline phase
When the market share decreases, the product becomes less profitable to evolve into a deadweight product, the so-called decline phase. BCG recommends giving up or stopping the marketing of these products.
Knowing the different phases of the product makes it possible to anticipate marketing actions.
Why use the BCG matrix?
The BCG matrix is used to balance your product portfolio and arbitrate investments. It has several advantages:
- This tool allows you to situate all of your company’s activity thanks to a simplified and visual diagram. You thus draw up a precise diagnosis in order to find the adjustments and improvements to be made to reach your objectives.
- The matrix makes it possible to identify the fast-growing markets in which to position yourself.
- It alerts on the investment needs to maintain the leading products.
- It forces reflection on product dilemmas and deadweight: should we invest? To preserve? To give up ? Etc.
The BCG matrix provides a basis for having an overview of your products. It allows you to decide on your future actions in order to sustain your business.
How to make and analyze a BCG matrix?
To create your matrix, collect information about your company, the market and your product.
Look at the growth of the market with reliable data and calculate your relative market shares for each product (or DAS). To get this data, you need to do the math: the company’s market share divided by the average market share of the main competitor.
Once you have all of this comparative data, you can plot your chart.
The matrix consists of a y-axis which is assimilated to the growth rate of the market. The x-axis represents the relative market share. These different axes are then cut in half. We obtain the matrix with the four categories.
You can, if you wish, improve your BCG matrix even more, by using colored circles which will signify a value to be notified in the legend. The size of the circles can also be representative of the turnover of the products. If needed, you can add other values with captions if you feel they are important for your analysis.
Global analysis of the BCG matrix
Milk cow products are profitable, they make it possible to finance other activities. These are the ones that are usually old and need to be renewed when they become dead weights.
Deadweight meanwhile no longer brings in profits. We must therefore stop the investments above and consider abandoning them (or ensuring that they do not lose money).
Star products should be kept at the top of the scale even if they require a strong financial investment. These are the leading products in a growing market!
Regarding dilemma products, the strategic decision is more complicated. You have several solutions, the most radical is to abandon them, but you can also choose to invest in them. They can become “star” products thanks to more appropriate communication. These indicators are to be studied according to your sectors of activity.
The BCG matrix is a simple and easy to understand model. The ideal is to cross the results with other matrices like the SWOT , the PESTEL and Porter’s 5 forces . Indeed, this diagram provides an overview, but should in no case be the only decision-making tool.
BCG matrix: definition, analysis and use: in conclusion
- The BCG matrix is a company product portfolio management tool or DAS;
- It makes it possible to visualize the position of each activity that makes up a company’s portfolio, which makes it possible to arbitrate investments;
- BCG is a strategic decision support tool;
- It can be associated with other matrices such as PESTEL and SWOT analysis;
- It is carried out at the time of the annual marketing plan or during a new product launch.
BCG matrix: to summarize in three questions
En quoi consiste l'analyse BCG ?
The BCG matrix is an activity portfolio management tool (or products) which is based on the attractiveness of the market and the competitive position of the company. It allows you to position all the products in your portfolio on two axes (market growth and relative market share). The graph then offers 4 categories to classify your products (star, cash cow, deadweight and dilemma). The model makes it possible to determine the actions to be implemented for a given product.
Quel est l'intérêt d'utiliser une matrice BCG ?
The BCG matrix combines several advantages. First of all, it is a simple and easy to understand tool. In addition, the matrix enables analysis of your products based on market growth and their relative market share. Thus, you visualize the potential of each product in your portfolio. Finally, it is a decision support tool that helps you decide on future investments and decide on the next marketing actions.
Qu'est-ce qu'un produit vache à lait ?
It is a product in your portfolio that has a high market share in a low growth market. For this product, your investments have already been amortized, which allows it to generate profits. We can say that a cash cow product is one that provides “working capital” at time T.