BCG Product Portfolio Matrix
Overview
One of the best known product portfolio analysis frameworks, this matrix was developed by Boston Consulting Group’s Bruce Henderson in the 70s’. It serves to prioritize products and brands into four basic categories in order to determine their future potential. It is a relative matrix in the sense that the placement of the brands in the matrix is determined by their position vis a vis other brands in the company’s portfolio as well as competitive brands. However, absolute levels are sometimes used as benchmarks for growth and market share. While the model is sometimes considered a pure strategy framework, it is well served in marketing since it is best applied to branding decisions.
The model explained
The two measures in the model which represent the respective axes are market growth and market share. The matrix is separated into four quadrants which each represent a stage or state of a brand. Based on those metrics, brands can be categorized as one of four states.
Market Growth – in the simplified version of the model, the market growth can be demarcated as high versus low growth rates or even growth versus no-growth. This will obviously vary greatly by industry. High growth for many tech industries for instance might be double digits whereas high growth in commodities or industrials might be a much more modest 1-3% depending on the year. Does this mean that a steel company should halt production and start making MP3 players instead? Of course not. What it does mean is that creating new star brands in mature or dying industries is difficult and often not worth the investment.
Market Share – likewise market share can be examined based on high versus low for a relative comparison. Problems may arise however in deciding what constitutes high market share. Does double digit market share mean high growth even if the brand is third or fourth tier brand in the category? Is being the market leader enough even if overall brand share is single digits. Clearly this can vary by industry. Some methods use a more strict interpretation whereby only category leading brands can inhabit the left quadrants.
Assumption
The underlying assumption of the matrix is that brands with high market share tend to generate higher amounts of cash as well as enjoying more significant cost advantages than those with low relative market share. Similarly, brands in growing industries/markets/categories require more cash and investment capital to meet growing demand.
4 quadrant BCG Matrix
Dogs
Dogs are brands that show low/poor relative market share and are also unlucky members of categories or markets with low or negative growth. They typically live at the break-even point and generate little to no incremental revenue for the enterprise. The prevailing wisdom concerning dogs is that they should be sold off since the amount of money required to revive them – and turn them into stars – is disproportionately greater than creating a new brand altogether or putting that money into question marks with the ambition of making them stars. In other words, the marginal return on spending for dogs is lower than any other quadrant.
Question Marks
These brands are exactly what they sound like. They are brands with potential. They have the benefit of being in a market with relatively strong growth yet their market share lags the leaders. In theory, proper guidance and management can lead these brands into the star quadrant where they will increase their relative market share and begin generating significant cash for the enterprise. The reality of question mark brands is that only a few can become stars. For every market leader there are typically dozens of laggards.
Stars
The ambition of every brand manager: to create a star brand and then to keep it there. The star quadrant is often where brands that were previously question marks begin to break even. These brands still require a fairly high amount of investment to maintain their market and share position but they also have the benefit of now generating large amounts of cash. If they are maintained for a significant period of time (and that will again be determined by the industry) then they may eventually move to the end of their holy grail quest and achieve cash cow status. I say ‘eventually’ because, if they do not properly defend their market leadership position, they can slip back into the question mark quadrant and continue to eat up investment without ever providing the big payoff that enterprises seek.
Cash Cows
Once a brand has established a strong position of market leadership it can begin to think about cashing in on its brand equity. As the market or category matures and year over year growth slows, successful brands start to see the most significant return to this point in their lifecycle. Cash cow status allows a brand to recoup initial investment and begin providing substantial profits for the enterprise. Because the market is mature and the competitive landscape is well established and more static, cash cow brands require less investment to maintain share and sales. The duration of this phase can differ greatly depending on the nature of the industry, trends, competitive landscape and many other variables.
Analysis
One of the clear benefits of the matrix is that it can highlight strategic mistakes in regards to a company’s treatment of its brands. For instance, companies often feed their largest business units or brands with the largest budgets when in reality this could be akin to plowing money into a cash cow and is simply going to erode profit margin. Similarily, if this comes at the expense of supporting fledging, unproven question marks then those brands are doomed to stay there in limbo without the proper investment to flourish and become stars.
On the flip side it has been criticized for over-simplification. Relying on market position and market growth as the sole determinants of success and profit generation can ignore other key factors that make a market attrative and tenable. See Porters Five Forces.
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I need to the diagram bcg portfolio