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Pricing policy with a cash cow strategy. BCG matrix, its construction and use in marketing. Types of companies in the BCG matrix

To analyze the relevance of the company's products, based on their position in the market relative to the growth of the market for these products and the market share occupied by the company selected for analysis.

This tool is theoretically justified. It is based on two concepts: the life cycle of a product and the economies of scale of production or the learning curve.

The axes of the matrix show market growth (vertical axis) and market share (horizontal axis). The combination of estimates of these two indicators makes it possible to classify the product, highlighting four possible roles of the product for the company that produces or sells it.

Classifications of types of strategic business units

"Stars"

High sales growth and high market share. Market share must be maintained and increased. "Stars" bring a very large income. But, despite the attractiveness of this product, its net cash flow is quite low, as it requires significant investment to ensure a high growth rate.

"Cash Cows" ("Money Bags")

High market share but low sales volume growth. "Cash cows" must be protected and controlled as much as possible. Their attractiveness is explained by the fact that they do not require additional investments and at the same time provide a good cash income. Proceeds from sales can be directed to the development of "Difficult Children" and to support the "Stars".

"Dogs" ("Lame Ducks", "Dead Weight")

The growth rate is low, the market share is low, the product usually has a low level of profitability and requires a lot of attention from the manager. Get rid of dogs.

"Difficult Children" ("Wild Cats", "Dark Horses", "Question Marks")

Low market share, but high growth rates. Difficult children need to be studied. In the future, they can become both stars and dogs. If there is a possibility of transfer to the stars, then you need to invest, otherwise, get rid of it.

disadvantages

Strong simplification of the situation;
The model takes into account only two factors, but high relative market share is not the only success factor, and high growth rates are not the only indicator of market attractiveness;
Lack of consideration of the financial aspect, the removal of dogs can lead to an increase in the cost of cows and stars, as well as negatively affect the loyalty of customers using this product;
The assumption that market share corresponds to profit, this rule may be violated when a new product is introduced to the market with large investment costs;
The assumption that the market decline is caused by the end of the product's life cycle. There are other situations in the market, for example, the end of the rush demand or the economic crisis.

Advantages

theoretical study of the relationship between financial receipts and the analyzed parameters;
objectivity of the analyzed parameters (relative market share and market growth rate);
clarity of the results obtained and ease of construction;
it allows you to combine portfolio analysis with a product life cycle model;
simple and easy to understand;
it is easy to develop a strategy for business units and an investment policy.

Construction rules

The horizontal axis corresponds to the relative market share, the coordinate space is from 0 to 1 in the middle with a step of 0.1 and then from 1 to 10 with a step of 1. Market share estimation is the result of an analysis of sales of all industry participants. Relative market share is calculated as the ratio of own sales to sales of the strongest competitor or the top three competitors, depending on the degree of concentration in a particular market. 1 means that own sales are equal to sales of the strongest competitor.

The vertical axis corresponds to the growth rate of the market. The coordinate space is determined by the growth rate of all company products from maximum to minimum, the minimum value can be negative if the growth rate is negative.

For each product, the intersection of the vertical and horizontal axes is set and a circle is drawn, the area of \u200b\u200bwhich corresponds to the share of the product in the company's sales.

Notes

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See what the "BCG Matrix" is in other dictionaries:

GROWTH-MARKET SHARE MATRIX, or BCG matrix- one of the most common, classic tools of marketing analysis, and in particular portfolio analysis of company strategies. The matrix gained fame and name thanks to the work of the Boston Consulting Group (BCG, or, in Russian, Boston ... ...

BCG MATRIX (BOSTON ADVISORY GROUP)- a two-dimensional matrix with which you can identify winners (market leaders) and establish the degree of balance between enterprises in the context of the four quadrants of the matrix: enterprises that have won large market shares in growing sectors ... ... Big Economic Dictionary

The BCG matrix (eng. Boston Consult Group, BCG) is a tool for strategic analysis and planning in marketing. Created by the founder of the Boston Consulting Group, Bruce D. Hendersen, to analyze the position of the company's products on the market ... ... Wikipedia

- (product market matrix) an analytical tool for strategic management, developed by the founder of this science, an American of Russian origin, Igor Ansoff, and designed to determine the product positioning strategy ... ... Wikipedia

PORTFOLIO ANALYSIS- [English] portfolio analysis portfolio analysis] in marketing, the analysis of product types (activities or types of projects) using the classification of all product markets of the company according to two independent measurement criteria: market attractiveness and ... ... Marketing. Big explanatory dictionary

Bruce D. Hendersen Bruce D. Henderson Occupation: Entrepreneur, author of the BCG Matrix, founder of the Boston Consulting Group Date of birth: 1915 (1915) ... Wikipedia

Hendersen, Bruce D Bruce D. Henderson Bruce D. Henderson Occupation: Entrepreneur, author of the BCG Matrix, founder of the Boston Consulting Group Date of birth: 1915 ... Wikipedia

Material from the site

Brief information about the tool

Method BCG Matrix (BCG Matrix) is one of the most famous business management tools. BCG was created by Bruce D. Hendersen, founder of the Boston Consulting Group, in the early 1970s. The purpose of this matrix is to analyze the relevance of the company's products depending on the growth of the market for these products and their share. The BGK matrix has another name - "Growth - market share".

Corporate Portfolio Management

The BCG model is a fairly well-known business portfolio optimization tool that focuses on the following questions:
1) Portfolio balance.
2) Achieving a certain market position as a formulated goal for a particular business in a given strategic perspective.
3) The attractiveness of the products in the portfolio in terms of profitability or growth rate.
4) In what specific areas of activity should investments or revenues be directed in this strategic period?
5) The level of compliance with other types of business in terms of creating synergies.
Also known as the "market share - growth rate" matrix, as it represents a mapping of the position of a particular business in a strategic space. This matrix shows the relative share of a particular product of a company in a particular market for that product. As well as measuring the growth rate of the market for the corresponding product, that is, the growth in consumer demand for a particular product.

Construction of the BCG matrix

It represents the intersection of the axes, where the horizontal axis corresponds to relative market share. It is calculated as the ratio of own sales to sales of the strongest competitor or the three strongest competitors, depending on the degree of concentration in a particular market.

The vertical axis corresponds to the growth rate of the market.

Thus, four quadrants are obtained in the BCG matrix, each of which contains different companies.

The Boston Matrix is based on the product life cycle model. It is based on two assumptions.

A business with significant market share gains a competitive cost advantage as a result of the experience effect. It follows that the largest competitor has the highest profitability when selling at market prices and for him the maximum financial flows.
Presence in a growing market means an increased need for financial resources for its development, i.e. renewal and expansion of production, intensive advertising, etc. If the market growth rate is low, such as a mature market, then the product does not need significant financing.

Four stages of the BCG matrix

Accordingly, the product goes through four stages of development.

Access to the market

Access to the market (product - "problem"). This item is also called "Difficult Children", "Question Marks", "Wild Cats", "Dark Horses". A characteristic feature is a low share in a rapidly growing market. This is a weak position that requires large investments and does not provide tangible profits. In this situation, you need to either make serious investments in the business, or sell it, or invest nothing and get a possible residual profit. But you need to remember that under certain conditions and competent investments, the goods of this group can become "Stars".

Growth

Growth (product-"Star") These are leaders in a rapidly growing market. They give high profits, but they need investments to maintain their leading positions. When the market stabilizes, they can move into the category "Cash Cows".

Maturity

Maturity (product - "Cash cow"). This product is also called "Money Bags". As a rule, these are yesterday's "Stars", which constitute the main asset of the company. Products are distinguished by high market share in the markets and low rates of development. The profit from Cash Cows is greater than the investment. It is expedient to allocate proceeds from the sales of "Cash Cows" to the development of "Difficult Children" and to support the "Stars".

recession

recession (product-"dog"). This item is also called "Lame Ducks", "Dead Weight". The product is characterized by a low growth rate and a small market share. Usually goods are unprofitable and need additional investments to maintain their positions. "Dogs" are supported by large firms if they are related to their direct activities. If there is no such need, then it is better to get rid of them or minimize their presence in the company's assortment policy.

BCG matrix quadrant

The quadrant of the BCG matrix is a typical set of strategic decisions for specific business segments:
Stars are divisions that have a relatively high market share in high-growth industries. Therefore, they must be strengthened and protected. That is, to maintain or increase the appropriate share of the business in a given market.
"Cash cows" - since these business units bring more profit than they require investment, therefore, one must take advantage of these opportunities, but not forget about control. You should also not forget about a certain share of investments and costs for this business segment, but the amount of investment should be set optimal.
The excess cash that cows give is also not worth spending thoughtlessly. This money should be used for a strategic perspective, that is, directed to the development of other areas of business.
“Difficult children” or “question marks” need a special approach. This segment of the business is worth studying, analyzing, and predicting its prospects. It is quite possible that with the help of targeted investments this segment of the business can be transferred to the "stars". In the most unoptimistic case, this market share can be reduced, but it must be retained, in no case liquidated.
“Dogs” are weak growth prospects and lagging market positions compared to its leaders, which limits the size of their profits. Therefore, they should be disposed of. In the strategic period, the relevant lines of business are either liquidated or reduced.

The company's portfolio, taking into account the parameters of the BCG matrix

To ensure a long-term value creation process, a company must have a range of products - both high growth potential products that require cash investment, and low growth potential products that supply cash.

Disadvantages and advantages of BCG

Like every business tool, the Boston Matrix has its advantages and disadvantages that must be considered when planning a business.

So, its unconditional virtues we can consider the visibility and simplicity of construction, as well as the objectivity of the analyzed parameters (relative market share and market growth rate.

To shortcomings can be attributed to the fact that it simplifies the complex decision-making process. In practice, there are many situations where the recommendations made on its basis are unacceptable. For example, it is often important for consumers to see some products from the "Dogs" category in the assortment, and their removal can lead to an outflow of customers.

It is also unattractive to assume that market share corresponds to profit, since this rule may be violated when a new product is introduced to the market with large investment costs. It is not always true and the assumption that the market decline is caused by the end of the product life cycle.

Boston Consulting Group Matrix Limitations

The practice of using the BCG model has its pros, cons, and clear boundaries of its application.
Significant limitations of the BCG model include the following:
1) The strategic outlook for all of the organization's portfolios must be commensurate with growth rates. This requires that the relevant products in the considered strategic perspective remain in stable phases of their life cycle.
2) The high market share that has been achieved is not the only success factor, and not necessarily a high level of profitability.
3) To develop competition and determine the future market position of the organization, it is enough to know the value of the relative market share according to the methodology of the BCG model.
4) Sometimes "Dogs" can bring even more profit than "Cash Cows". This means that the quadrant of the matrix is information with relative truthfulness.
5) Under difficult competitive conditions, other strategic analysis tools are needed, i.e. another model for building an organization's strategy.

Links

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Boston Matrix? This witty and original way of classifying products was invented by a group of Boston marketers led by Bruce Henderson in the late 60s of the last century. Visually, they presented this method in the form of a table of four quadrants. According to Henderson, each product or service can be assigned to one of the quadrants. The vertical axis of the table is the market under study, the horizontal axis is the market share of the product (service). Growth dynamics may change depending on economic conditions and the needs of the company.

Four types of product (service)

1. Stars are products that have a high market share in fast growing markets. Since they bring the greatest profit, they should be protected, stored, and, of course, new stars should be created.

2. Difficult children - low at high rates of market development. They consume a lot of resources and give little. If you want to increase the percentage of market share, significant financial injections are required.

3. Cash cows - these products are characterized by a high market share and low rates of market development. With a small investment, they bring maximum profit. Dairy cows should be left in the briefcase until the situation changes.

4. Dogs - low proportion and low rates. These are bad investments that only eat up the firm's resources. It is better to get rid of them completely or at least minimize their presence in the portfolio.

Advantages

From the point of view of the analysis of the internal processes of the company, the Boston matrix has a number of advantages:

Gives a generalized picture of competitiveness and demand for the company's products;

Helps in substantiating various options for marketing strategies;

Focuses on the end consumer, product, production volumes and profit received as a result of sales;

Shows priority areas when considering different options for marketing decisions;

Represents the most accessible approach for a company's shopping cart.

disadvantages

In addition to the advantages, the Boston matrix also has disadvantages:

It is aimed at companies that are leaders in their niche or aspire to leadership;

The Boston Matrix focuses on and enterprises, although strategies in other work areas are equally important for it: personnel, technologies, management, etc.;

Loses its visibility in multi-product production or requires a more detailed consideration of each individual product category;

From the analysis of this matrix there is a practical benefit, but only in terms of stating the results achieved by the company. Without additional research, it does not paint a similar picture for the future.

Of course, the Boston Matrix is considered a rather “smart” tool, but in practice it is better to make the final decision based on the results of not one, but several ways of strategic analysis of the enterprise at once.

The Boston Consulting Group (BCG) matrix is considered the first successful attempt to apply a strategic approach to the analysis and formation of an enterprise's product and competitive strategy. It was first introduced in the late 1960s by BCG founder Bruce Henderson as a tool for analyzing the market position of a company's products. From the whole variety of factors characterizing it, only two main ones were chosen to build the matrix: sales growth (profitability) of the product and its market share relative to the main competitors.

The BCG matrix (eng. Boston Consulting Group, BCG) is a tool for strategic analysis and planning in marketing.

The appearance of the BCG model (matrix) was the logical conclusion of one research work, created by the founder of the Boston Consulting Group (Boston Consulting Group) Bruce D. Hendersen.

The BCG matrix is based on two hypotheses:

The first hypothesis is based on the experience effect and assumes that a significant market share means the presence of a competitive advantage associated with the level of production costs. From this hypothesis it follows that the largest competitor has the highest profitability when selling at market prices and for him the financial flows are maximum.

The second hypothesis is based on a product life cycle model and assumes that presence in a growing market means an increased need for financial resources for updating and expanding production, conducting intensive advertising, etc. If the market growth rate is low (mature market), then the product does not need significant financing.

The Boston Matrix, or growth/market share matrix, is based on a product life cycle model, according to which a product goes through four stages in its development:

1. entering the market (product - "problem"),

2. growth (product - "star"),

3. maturity (product - "cash cow")

4. recession (goods - "dog").

At the same time, the cash flows and profits of the enterprise also change: negative profit is replaced by its growth and then a gradual decrease.

Rice. one BCG matrix

To build the BCG matrix, we fix the values of the relative market share along the horizontal axis, and the market growth rates along the vertical axis.

Further, dividing this plane into four parts, we obtain the desired matrix. The value of the variable ODR (relative market share), equal to one, separates products - market leaders - from followers. As for the second variable, industry growth rates of 10% or more are generally regarded as high. Petrov A.N. Strategic Management: Textbook for High Schools (GRIF). - St. Petersburg: Peter, 2007. - 496 p.

It can be recommended to use as a baseline separating markets with high and low growth rates, the growth rate of the gross national product in natural terms or the weighted average of the growth rates of various segments of the industry market in which the company operates.

It is believed that each of the squares of the matrix describes significantly different situations that require a different approach in terms of financing and marketing.

1. "Stars" are market leaders who are, as a rule, at the peak of their product cycle. They bring significant profits, but at the same time require significant amounts of resources to finance continued growth, as well as tight management control over these resources. The star strategy aims to increase or maintain market share. The main task of the company is to maintain the distinctive features of its products in the face of growing competition. Markova V.D., Kuznetsova S.A. Strategic management: a course of lectures (neck). - M.: INFRA-M, 2006. - 288 p.

You can maintain (increase) your market share by:

through price reduction;

through a slight change in product parameters;

through a wider distribution.

Companies (business units) with high relative market share in high-growth industries are named stars in the BCG table because they promise the greatest profits and growth prospects. The general condition of the economic portfolio of the corporation depends on such companies. Having taken a dominant position in a fast-growing market, star companies usually need significant investments to expand production capabilities and increase working capital. But they also generate significant cash inflows themselves due to low cost levels due to economies of scale and accumulated production experience. Zinoviev V.N. Management [Text]: Textbook. - M.: Dashkov i K, 2007. - 376 p.

Star companies differ in their investment needs. Some of them may cover their investment needs from the income from their own activities; others need financial support from the parent company in order to keep up with the industry's high growth rate.

Business units that are at the forefront of industries where growth is starting to slow down cannot survive on their own inflows of funds, and therefore begin to feed from the resources of the parent company.

Young star companies, however, usually require substantial investments beyond what they earn themselves, and thus are resource grabbers. Ivanov L.N., Ivanov A.L. Decision-making methods [Text] - M.: Prior-izdat, 2004. - 193 p.

As the pace of development slows down, the "star" turns into a "cash cow"

2. "Cash cows" - occupy a leading position in the market with a low growth rate. They are attractive because they do not require large investments and provide significant positive cash flows based on the experience curve.

Such business units not only pay for themselves, but also provide funds for investing in new projects on which the future growth of the enterprise depends. Markova V.D., Kuznetsova S.A. Strategic management: (neck). - M.: INFRA-M, 2006. - 288 p.

In order for the phenomenon of goods - "cash cows" to be fully used in the investment policy of the enterprise, it is necessary to competently manage products, especially in the field of marketing. Competition in stagnant industries is very tough.

Therefore, constant efforts are needed to maintain market share and search for new market niches.

Cash cow companies earn more than their reinvestment needs. There are two reasons why a business in this quadrant becomes a cash cow.

Due to the fact that the relative market share of this business unit is large and it occupies a leading position in the industry, its sales volumes and good reputation allow it to generate significant income. Meskon, M.Kh. Fundamentals of Management / M.Kh. Mescon. - M. Albert, F. Hedouri. - M., 2001, p. 332

Since the industry is not growing at a high rate, the company receives more funds from current activities than is necessary to maintain its leading position in the market and capital reinvestment. Fatkhutdinov R.A. Strategic Management: Textbook. - 7th ed., Rev. and additional M: Delo, 2005. - 448 p.

Many of the cash cows are yesterday's stars, descending into the lower right quadrant of the matrix as industry demand matures. Although less attractive in terms of growth prospects, cash cows are very valuable business units.

The additional cash flow from them can be used to pay dividends, fund acquisitions, and secure investments in emerging stars and problem children who can grow into future stars. Yurlov F.F., K.B. Galkin T.A., Malova D.A., Kornilov Features and possibilities of using portfolio analysis in strategic planning and management at an enterprise M. 2010 p. 11

All efforts of the corporation should be aimed at maintaining dairy cows in a prosperous state in order to use their capabilities in generating an influx of financial resources for as long as possible. The goal should be to strengthen and protect the market position of dairy cows during the entire period when they are able to earn funds that will be directed to the development of other units.

However, weakening dairy cows that move to the lower left corner of the dairy cow quadrant may become candidates for harvesting and a gradual “downsizing” if fierce competition or increased capital investment (caused by new technology) causes the additional cash flow to dry up. or, in the worst case, become negative. Markova V.D., Kuznetsova S.A. Strategic management: a course of lectures (neck). - M.: INFRA-M, 2006. - 288 p.

The strategy is to protect your position at no significant cost.

3. "Dogs" are products that have low market share and no growth opportunities because they are in unattractive industries (in particular, an industry may be attractive due to high levels of competition).

The net cash of such business units is zero or negative. Unless there are special circumstances (for example, a given product is complementary to a cash cow or star product), then these business units should be disposed of.

However, sometimes corporations retain such products in their nomenclature if they belong to "mature" industries. Large markets in "mature" industries are to some extent protected from sudden fluctuations in demand and major innovations that fundamentally change consumer preferences, which allows products to remain competitive even in a small market share (for example, the market for razor blades).

Companies (business units) with low relative market share in slow-growth industries are called dogs because of their weak growth prospects, underperforming market positions, and the fact that being behind the leaders on the experience curve limits their profit margins.

Weaker dogs (located in the lower left corner of the dog quadrant) are often unable to earn significant amounts of money in the long run. Shifrin M.B. Strategic management. Short course: Textbook (neck). - St. Petersburg: Peter, 2007. - 240 p.

Sometimes these funds are not enough even to support a rearguard strategy of strengthening and protecting, especially if the market is fiercely competitive and profit margins are chronically low.

Therefore, except in special cases, for weakening dogs, the BCG recommends that a strategy of harvesting, reduction or elimination be applied, depending on which option can bring the greatest benefits.

Since there is often a situation where "dogs" have a fairly high profitability, the reduction strategy is applied to strategic business units (SBUs) that fall into the lower left triangle of the "dogs" quadrant. For the upper triangle, the "milking" strategy is applied - as for "cash cows".

5. "Problem" ("Problem children", "wild cat") - new products appear more often in growing industries and have the status of a product - "problems". Such products may prove to be very promising. But they need significant financial support from the center. As long as these products are associated with large negative financial flows, the danger remains that they will fail to become "star" commodities.

The main strategic question, which presents a certain difficulty, is when to stop financing these products and exclude them from the corporate portfolio? If this is done too early, then you can lose a potential product - the "star".

Thus, the desired sequence of product development is as follows:

"Problem" - "Star" - "Cash Cow" (and if inevitable) - "Dog".

The implementation of such a sequence depends on efforts aimed at achieving a balanced portfolio, which implies, among other things, a decisive rejection of unpromising products. Ideally, a balanced nomenclature portfolio of an enterprise should include 2 - 3 goods - "cows", 1 - 2 "stars", a few "problems" as a reserve for the future and, possibly, a small number of goods - "dogs".

The BCG scheme includes two cases with a tragic outcome for companies:

1) when the position of the star weakens, she becomes a difficult child and, as the growth of the industry slows down, she turns into a dog.

2) when a cash cow loses its position as a leader in the market to the point where it becomes a weakening dog.

Other strategic mistakes include:

overinvestment in stable dairy cows;

not investing in question marks, which causes them to fall into the category of dogs instead of becoming stars;

A typical unbalanced portfolio has, as a rule, one product - "cow", many "dogs", several "problems", but no "star" products that can take the place of "dogs".

An excess of aging goods ("dogs") indicates the danger of a recession, even if the current performance of the enterprise is relatively good. An excess of new products can lead to financial hardship. http: //well. omsk4u.ru/

An example of the application of the BCG matrix

As an example, consider the BCG representation of the strategic positions of Randy's hypothetical organization in a number of business areas in the tea market.

A study of the organization's business showed that it actually competes in 10 areas of the tea market (see Appendix 1).

The BCG model for the considered business areas of Randy's organization is as follows:

The resulting model suggests that Randy's organization places undeserved importance on the US private label tea business area.

This area is classified as "dogs" and although the growth rate of this market segment is quite high (12%), Randy has a very strong competitor in the form of Cheapco, whose market share in this market is 1.4 times larger. Therefore, the rate of profit in this area will not be high. http://www.pandia.ru

If with regard to the future of such a business area as "US private label tea", one can still think about whether to continue to invest here to maintain its market share or not, then with regard to "varietal tea from Europe", "varietal tea from Canada" and "varietal tea from the USA" everything turns out to be very clear.

We need to get rid of this kind of business and as soon as possible. The investments that Randy's organization makes in maintaining this business do not lead to an increase in market share or an increase in profits. In addition, the market for these types of tea itself shows a clear trend towards fading.

It is clear that Randy's organization is clearly oblivious to the prospects associated with the development of the US fruit tea and US herbal tea market. These areas of business are clear "stars". Investments in the development of a share in this market in the near future may result in significant income. http: //maxi-karta.ru

It is perhaps difficult to give an example of a more famous, visual and simple portfolio analysis tool than BCG matrix. The chart, divided into four sectors, with original memorable names (“Stars”, “Dead Dogs”, “Difficult Children” and “Cash Cows”) is known today to any marketer, manager, teacher or student.

The matrix developed by the Boston Consulting Group (USA) quickly gained popularity due to the simplicity and clarity of the analysis of products, divisions or companies based on two objective factors: their market share and market growth rate. And today, the BCG matrix is among the minimum amount of knowledge that any economist should learn.

BCG matrix: concept, essence, developers

Matrix BCG (BCG Matrix) is a tool for strategic portfolio analysis of the position in the market of goods, companies and divisions based on their market growth and market share.

Such a tool as the BCG matrix is currently widely used in management, marketing, and other areas of the economy (and not only). The BCG matrix was developed by experts Boston Consulting Group ("Boston Consulting Group"), engaged in management consulting, in the late 1960s, under the leadership of Bruce Henderson. It is to this company that the matrix owes its name. In addition, the matrix of the Boston Consulting Group became one of the first portfolio analysis tools.

BCG matrix. Here, the horizontal axis (relative market share) is inverted: higher values are on the left, lower values are on the right. In my opinion, this is illogical and confusing. Therefore, the direct order of the axis values will be used below: from smallest to largest, and not vice versa, as here.

Why do you need a BCG matrix for a company? Being a simple but effective tool, it allows you to identify the most promising and, on the contrary, the "weakest" products or divisions of the enterprise. Having built a BCG matrix, a manager or marketer gets a clear picture, on the basis of which he can decide which products (divisions, assortment groups) should be developed and protected, and which should be eliminated.

Graphically, the BCG matrix represents two axes and four square sectors enclosed between them. Consider the phased construction of the BCG matrix:

1. Collection of initial data.

The first step is to make a list of those products, divisions or companies that will be analyzed using the BCG matrix.
Then for them you need to collect data on sales and / or profits for a certain period (say, for the past year). In addition, you will need similar sales data for a key competitor (or a set of major competitors).

For convenience, it is desirable to present the data in the form of a table. This will make them easier to handle.

The first step is to collect all the initial data and group them in the form of a table.

2. Calculation of the market growth rate for the year.

Then, for each analyzed product (division), the market growth rate is calculated.

3. Calculation of the relative market share.

Having calculated the market growth rate for the analyzed products (divisions), it is necessary to calculate the relative market share for them. There are several ways to do this. The classic option is to take the sales volume of the analyzed product of the company and divide it by the sales volume of a similar product of the main (key, strongest) competitor.

For example, the sales volume of our product is 5 million rubles, and the strongest competitor selling a similar product is 20 million rubles. Then the relative market share of our product will be - 0.25 (5 million rubles divided by 20 million rubles).

The next step is to calculate the relative market share (relative to the main competitor).

At the fourth last stage, the actual construction of the matrix of the Boston Consulting Group is carried out. From the origin we draw two axes: vertical (market growth rate) and horizontal (relative market share).

Each axis is divided in half, into two parts. One part corresponds to low values of indicators (low market growth rate, low relative market share), the other corresponds to high values (high market growth rate, high relative market share).

An important question to be solved here is what values of the market growth rate and relative market share should be taken as central values dividing the axes of the BCG matrix in half? The standard values are as follows: for market growth rate – 110% , for relative market share – 100% . But in your case, these values \u200b\u200bmay be different, you need to look at the conditions of a particular situation.

And the final action is the construction of the BCG matrix itself, followed by its analysis.

Thus, each axis is divided in half. As a result, four square sectors are formed, each of which has its own name and meaning. We will talk about their analysis later, but for now it is necessary to put the analyzed goods (divisions) on the field of the BCG matrix. To do this, sequentially mark on the axes the market growth rate and the relative market share of each product, and draw a circle at the intersection of these values. Ideally, the diameter of each such circle should be proportional to the profit or revenue corresponding to this product. So you can make the BCG matrix even more informative.

Analysis of the BCG matrix

Having built the BCG matrix, you will see that your products (divisions, brands) ended up in different squares. Each of these squares has its own meaning and a special name. Let's consider them.

The field of the BCG matrix is divided into 4 zones, each of which corresponds to its own type of product / division, development features, market strategy, etc.

STARS. They have the highest market growth rates and hold the largest market share. They are popular, attractive, promising, rapidly developing, but at the same time require significant investment in themselves. That's why they are "Stars". Sooner or later, the growth of the "Stars" begins to slow down and then they turn into "Cash Cows".

CAIRY COWS(aka "Money Bags"). They are characterized by a large market share, with a low rate of its growth. Cash cows do not require expensive investments, while bringing a stable and high income. The company uses this income to fund other products. Hence the name, these products literally "milk".

WILD CATS(also known as "Dark Horses", "Problem Children", "Problems" or "Question Marks"). They have it the other way around. The relative market share is small, but the sales growth rate is high. It takes a lot of effort and expense to increase their market share. Therefore, the company must conduct a thorough analysis of the BCG matrix and assess whether the "Dark Horses" are capable of becoming "Stars", whether it is worth investing in them. In general, the picture in their case is very unclear, and the stakes are high, which is why they are "Dark Horses".

DEAD DOGS(or "Lame Ducks", "Dead Weight"). They are all bad. Low relative market share, low market growth. Their income and profitability are low. They usually pay for themselves, but nothing more. There are no prospects. Dead Dogs should be disposed of, or at least their funding stopped if they can be dispensed with (there may be a situation where they are needed for the Stars, for example).

BCG matrix scenarios (strategies)

Based on the analysis of goods according to the matrix of the Boston Consulting Group, the following main strategies of the BCG matrix can be proposed:

INCREASE MARKET SHARE. Applied to "Dark Horses" in order to turn them into "Stars" - a popular and well-selling item.

KEEP MARKET SHARE. Suitable for "Cash Cows", as they bring a good stable income and it is desirable to maintain this state of affairs as much as possible.

REDUCING MARKET SHARE. Perhaps in relation to "Dogs", unpromising "Difficult Children" and weak "Cash Cows".

LIQUIDATION. Sometimes the liquidation of this line of business is the only reasonable option for "Dogs" and "Difficult Children", which, most likely, are not destined to become "Stars".

Conclusions on the BCG matrix

Having built and analyzed the matrix of the Boston Consulting Group, a number of conclusions can be drawn from it: 1. Management and commercial decisions should be made in relation to the following groups of the BCG matrix:
a) Stars - maintaining leading positions;
b) Cash cows - getting the maximum possible profit, over the longest possible period of time;
c) Wild cats - for promising products investment and development;
d) Dead dogs - termination of their support and / or withdrawal from the market (removal from production).

BCG matrix. The orange arrow shows the life cycle of a product that passes through all stages, from being in the status of "Wild Cats" to becoming "Dead Dogs". Purple arrows depict typical investment flows.

2. Measures should be taken to form balanced portfolio according to the BCG matrix. Ideally, such a portfolio consists of 2 types of goods:

a) Goods that bring income to the company in present time. These are "Cash Cows" and "Stars". They are making a profit today, right now. The money received from them (primarily from Dairy Cows) can be invested in the development of the company.

b) Goods that the companies will provide income in the future. These are promising "Wild Cats". Currently, they can generate very little income, not at all, or even be unprofitable (due to investment in their development). But in the future, under favorable conditions, these "Wild Cats" will become "Cash Cows" or "Stars" and begin to bring in a good income.

This is what a balanced portfolio should look like according to the BCG matrix!

Advantages and disadvantages of the BCG matrix

The BCG matrix, as a portfolio analysis tool, has its pros and cons. Let's list some of them.

Benefits of the BCG Matrix:

thoughtful theoretical basis ( the vertical axis corresponds to the life cycle of the product, the horizontal axis corresponds to the economies of scale of production);
objectivity of the estimated parameters ( market growth rate, relative market share);
ease of construction;
clarity and clarity;
great attention is paid to cash flows;

Disadvantages of the BCG matrix:

it is difficult to clearly define the market share;
only two factors are evaluated, while other equally important ones are overlooked;
not all situations can be described within the 4 studied groups;
does not work when analyzing industries with a low level of competition;
the dynamics of indicators, trends are almost not taken into account;
the BCG matrix allows you to develop strategic decisions, but says nothing about tactical moments in the implementation of these strategies.

Download a ready-made template for the BCG matrix in Excel format

Galyautdinov R.R.