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Since a cash cow business unit and product are in low-growing market, then the cash cows doesn’t need a lot of investment since the cash cows are in the low-growth opportunity market as we mentioned above. These products are typically the most challenging for businesses as initially, they’ll require a lot more cash investment than they can generate if you hope to increase their market share. It is also a fact that as companies search for a new equilibrium, they will find that ready credit and debt are a bit less available than before and that the costs and risks of that debt are higher. They may also find—as BCG articulated all those years ago—that generating the investment cash internally, from within the corporation rather than from borrowings, is more attractive and reliable. However, some firms, especially large corporations, realize that businesses/products within their portfolio lie between two categories.
- BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate.
- BCG’s Alan Zakon—who would go on to become the firm’s CEO—first sketched it and then refined it together with his colleagues.
- However, you need to milk cows efficiently and do not neglect the need to exploit existing sources of advantage.
- One limitation of using the BCG matrix is it doesn’t account for any factors beyond market share and growth.
- BCG’s founder, Bruce Henderson, popularized the concept in his essay The Product Portfolio, in 1970.
Sentiment analysis can help you determine how consumers feel about your brand and products. You can also do a PEST analysis to consider political, economic, social and technological factors. To ensure you understand a BCG analysis, it can be worthwhile to look at a real-life BCG matrix example. A famous BCG matrix example is that of The Coca-Cola Company, which owns many more drink lines than just its titular brand. Anytime you’re considering making a pivot in your business, it’s helpful to also perform a SWOT analysis. This can help you understand the potential consequences of a major business decision.
The growth share matrix—put forth by the founder of BCG, Bruce Henderson, in 1970—remains a powerful tool for managing strategic experimentation amid rapid, unpredictable change. Cash cows represent products in their maturity phase when yields are at their highest but market share is starting to level off. Products with the lion’s share of a fast-growing market are known as “stars”.
These cash cows products play a supporting role for generating cash that can be invested in other products in the porfolio. The company able to use cash flow (from a cash cow) to invest in other product or business unit which are required a lot of investment. Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm’s other business units that were at a more mature stage and generating significant cash.
Understanding the BCG Growth Share Matrix and How to Use It
Dogs – Dogs are the low market share and low-growth products that neither generate nor consume large amounts of cash; they are basically going nowhere. They are cash traps because the money already invested in them is being tied up in a business that has low or no potential. In the best-case scenario, a firm would ideally want to turn question marks into stars (as indicated by A). If question marks do not succeed in becoming a market leader, they end up becoming dogs when market growth declines. One limitation of using the BCG matrix is it doesn’t account for any factors beyond market share and growth.
The BCG Growth-Share Matrix considers a company’s growth prospects and available market share via a 2×2 grid. By assigning each business to one of these four categories, executives can then decide where to focus their resources and capital to generate the most value, cash cows in the bcg matrix symbolize as well as where to cut their losses. While the BCG Matrix focuses on understanding how new products can be developed into “stars” and eventually “cash cows”, the Ansoff Matrix looks at whether or not to develop existing/new products or existing/new markets.
How do you use the BCG matrix to strategize?
A growing market is basically a market experiencing increasing demand, which makes it easier for businesses to increase their profits, even if their market share remains unchanged. A low-growth market, however, leads to cutthroat competition between the companies. It may get harder to retain your market share without aggressive discounting.
“The whole intellectual edifice…collapsed…because the data inputted into the risk management models generally covered only the past two decades, a period of euphoria.”
To give you a better idea of how the BCG matrix is applied to a real-life setting, let’s take a look at a couple of examples of modern-day businesses. You’ll find the knowledge gained from the program can be actively applied to your current business and unlock previously unforeseen opportunities for growth. This arm of the business actually accounts for 47% of the company’s total revenue. However, in its annual financial report released at the end of 2020, Disney announced that the impact of COVID will force them to let go around 32,000 employees.
What do Cash Cows symbolize in BCG matrix
This is especially true with product lines at different points in the product life-cycle. Cash cows and stars tend to complement each other, whereas dogs and question marks use resources less efficiently. Be wary, as we mentioned in the BCG matrix article, this is not about a “whole company” analysis. The BCG growth-share matrix is a single product or business unit in a company. It is possible to have (or not have) both cash cow and dogs in the same company. BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate.
The iPad, Apple’s sole representative in the tablet industry, is currently transitioning from star status into a cash cow. It requires relatively low levels of investment to maintain its commanding position largely due to its loyal following of iOS supporters. The Apple Macbook sits at the head of a maturing market and can therefore be considered a cash cow. By placing their business offerings into one of these four categories, companies determine where resources should be allocated to generate the most value or which to cut loose and minimize losses.
Top Frameworks
BCG’s founder, Bruce Henderson, popularized the concept in his essay The Product Portfolio, in 1970. At the height of its success, the growth share matrix was used by about half of all Fortune 500 companies; today, it is still central in business school teachings on business strategy. Some companies find they don’t have products in each quadrant, nor do they have a steady movement of products among the quadrants as their product life cycle progresses. In the Coca-Cola BCG matrix example, Diet Coke and Minute Maid are Question Marks, as these products attract a modest audience, but still have room to grow. Its bottled water brands Kinley and Dasani are Stars since they dominate the market in, respectively, Europe and the U.S., and show no signs of slowing growth. Its titular drink is a Cash Cow since it experiences low growth and a high market share.
Stars are products in their growth phase, with yields steadily increasing as a larger market share is attained. The question marks represent products in the introduction phase, recently introduced to the market. Therefore, businesses typically want to liquidate or divest money from dogs into more promising ventures – gradually phasing https://1investing.in/ out the product. However, they do provide a certain balance and stability to your portfolio, so further investigation should be undertaken before prematurely killing off the unit. Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.
If a company’s product has a low market share and is at a low rate of growth, it is considered a dog and should be sold, liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don’t generate much cash for the company since they have a low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time.
There are other factors with which to measure competition and market attraction such as Porter’s Five Forces. For example, imagine your product line accounted for 20% of the market revenue and your leading competitor 45%. For information or permission to reprint, please contact BCG at To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com.
