What is BCG Matrix? How it can helpful?
The Boston Consulting Group created the BCG matrix in 1968. It is a portfolio matrix application for larger firms to map, compare, and assess their existing business divisions (strategic business units) or product groups. The Boston Consulting Group matrix is sometimes referred to as the development matrix, the BCG matrix, and the BCG model.
It is a popular marketing model found in many marketing textbooks, notably in the chapter on marketing strategy. It is also frequently covered in marketing strategy courses, either as part of the internal analysis section or as a standalone chapter on portfolio grids.
What exactly is the BCG Matrix?
The BCG Matrix is a basic grid with one axis representing Market Growth Rate and the other representing Relative Market Share. The market's growth rate: Is the demand in which the product is sold increasing swiftly, slowly, or not at all? Relative market share: Is the product's actual market share high or low?
Each product in a company will be evaluated against both of these criteria before being placed in the matrix. As a result, each product in the inventory will fall into one of four categories.
1. Cash Cows
These are elevated products in a slow-growing market. They are profitable, have high margins, and generate excess cash without requiring major expenditure. Cash Cows must be milked for profit while requiring the least amount of investment. To put it briefly, we want to milk these products without killing the cow.
These are products with a large market share in a developing market. These stars have the potential to deliver a significant share of the company's future income. It is thus prudent for a company to invest in these products to maintain market leadership and secure future earnings as the market expands.
These are low-growth products having a small market share. If these items are not profitable, you may want to consider divesting them or pursuing a red ocean approach. If a dog is profitable, you should invest as little as possible in it, and you should even think about selling it.
4. Question Marks
These are products having a small market share in a rapidly growing market. As a result, their future growth rate is uncertain, and more research is required to determine what to do with these items. These products may become stars, but they may also fail because predicting a future star is difficult.
Advantages of BCG Matrix
It is straightforward to apply and comprehend.
Larger corporations can utilize it to seek volume and experience effects. It forecasts a company's future activities. As a result, the organization can determine its right management plan.
Managers can use this tool to assess balance in the firm's present portfolio of Stars, Cash Cows, Question Marks, and Dogs.
According to the matrix, the company's earnings are directly connected to its market share. As a result, if a company appears profitable, it might expand its market share.
It contains only four categories, allowing it to work straightforwardly and efficiently.
Limitations of BCG Matrix
In the BCG matrix, company and business are classed as low or high. Still, they can also be classified as intermediate. As a result, the firm's true character may be disguised.
The line between high and low is extremely subjective.
BCG analysis cannot help managers and Assistant managers identify synergies among the various SBUs in the product portfolio.
In this paradigm, the market is not properly delineated.
The difficulties in obtaining data on market share and growth.
The framework presupposes that each business unit is self-contained.
When Should You Use the BCG Matrix?
To control cash flow, the BCG matrix should be employed as part of strategic portfolio management. The matrix allows you to identify which assets have the potential to generate future revenues and make investment decisions that guarantee money is allocated to the appropriate assets.
The program can identify portfolio flaws that may jeopardize a company's future cash flow. If a company isn't creating many Question Marks, it should think about where its money will come from in the future.
Application of BCG in Digital Marketing
The BCG matrix will help you identify which products to market and sell through methods, distribution, and channels, influencing your total digital strategy. You can also use it to evaluate your digital channels and, as a result, determine whether your focus is being applied properly.
Is paid search, for example, a cash cow or a dog? The importance of this channel is frequently questioned. Thus being able to justify where your channels belong on the BCG matrix is an excellent method to describe how your channel strategy will be maintained.
Shifting SEO out of the question mark to a star is a typical objective for organizations with poor natural search performance but know how to improve.
The BCG Matrix is a method of analyzing a product portfolio based on relative market share and relative market growth. As a result, the portfolio is divided into four categories: stars, cash cows, dogs, and question marks. The data in the matrix can then be used to build the optimal portfolio mix (or a balanced portfolio). In other words, the inventory should have enough stars to ensure the organization's future rapid growth. It should have enough cash cows to sustain this future growth, as well as a good number of question marks in the portfolio with the ability to become future stars.