BCG Matrix

BCG

planning tool used to evaluate a firm’s Strategic Business Units (SBUs) or product lines based on their market growth rate and relative market share

Quadrants

4

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Purpose

helping top management allocate capital effectively

what units to harvest and divest

Market Share

as the one that holds the leading position over the competitors,

higher relative market share leads to higher cash generation

Market Growth Rate (Industry Attractiveness)

High-growth markets require significant cash reinvestment to fund expansion and marketing.

The industry is growing, the competitors and innovations, and potential consumers are coming into the industry.

The company must invest and adapt or lose their place.

Horizontal Axis of the BCG Matrix represents

Relative Market Share

(Internal competitive strength: SBU’s market share divided by the market share of its largest competitor)

Star

High Market Growth, High Relative Market Share.

Rapid growth, strong market position.

Generates high cash but requires heavy investment to sustain growth.

Net cash flow is typically neutral or slightly positive.

Cash Cow

Low Market Growth, High Relative Market Share.

Mature market leader.

Generates significantly more cash than it requires for reinvestment.

Primary source of profits to fund other SBUs.

Question Mark

High Market Growth, Low Relative Market Share.

High potential due to rapid market growth, but weak competitive standing.

Requires massive cash injection to build market share into a Star, or risk becoming a Dog.

Dog

Low Market Growth, Low Relative Market Share.

Weak competitive position in a slow-growth/declining market.

Generates low profits or losses; rarely generates substantial cash.

Build Strategy

Invest heavily to increase market share.

Applied primarily to Question Marks (to turn them into Stars) and Stars (to maintain leadership)

Hold Strategy

Invest just enough to maintain current market share and position. Applied to healthy Cash Cows to keep them generating steady cash flow.

Harvest Strategy

Invest enough for now, regardless of future standing.

Maximize short-term cash flow without regard to long-term market share. Applied to weak Cash Cows, Dogs, or failing Question Marks.

Divest Strategy

Liquidate or sell off the business unit to reallocate capital elsewhere. Applied primarily to Dogs or unpromising Question Marks.

Success Steps

Launch as a Question Mark

Invest heavily to become a Star

Transition into a Cash Cow as market growth matures

Eventually decline into a Dog.

Loss Strategy

A Star loses market share due to underinvestment and drops into a Question Mark, or a Question Mark fails to gain share and devolves directly into a Dog.