Created by the Boston Consulting Group, the BCG Matrix (or growth-share matrix) is a strategic planning tool that categorizes business units or products into four groups based on market share and growth potential. This insight helps businesses identify which products can drive market share growth and optimize their strategies accordingly.
What are the two measurements used in the BCG matrix?
The BCG matrix relies on two key measurements:
- Market Growth Rate:
This measurement assesses the revenue growth within the marketplace, typically comparing it to the previous year to predict future growth trends.
- Relative Market Share:
This measurement evaluates your current market position relative to your largest competitor.
By analyzing these two factors, businesses can identify growth opportunities and pinpoint areas for improvement in their existing products.
4 Elements of a BCG Matrix Template
The BCG growth-share matrix helps provide an overview of product performance and serves as a foundation for further analysis. Products or business units are categorized into four quadrants based on relative market share and growth rates:
- Cash Cows:
Products with high market share in a slow-growing industry. They generate more cash than needed to maintain the business, making them stable profit generators.
- Dogs:
Units with low market share in a low-growth industry. These often "break even" and may be sold off by investors due to their limited growth potential.
- Question Marks (Problem Children):
Operating in high-growth markets but with low market share, question marks have potential for growth but require careful analysis to determine if they’re worth investing in to grow market share.
- Stars:
Products with high market share in a fast-growing industry. They have successfully transitioned from question marks and are poised to become cash cows as the market matures.
How to Use a BCG Matrix Template
BCG Matrix Template is an excellent tool for real-time portfolio analysis. Follow these steps to create your own BCG matrix:
Step 1: Choose the Product
Identify the products or services you want to analyze using the BCG matrix.
Step 2: Define the Market
Accurately define the market to ensure the matrix results are reliable. Perform a market analysis to assess the market size, target audience, competition, and economic environment.
Step 3: Calculate Relative Market Share
Use the formula:
Relative market share = your market share / your largest competitor's market share.
Step 4: Find the Market Growth Rate
Determine market growth over the last year with the formula:
Market growth rate = total sales in current year / total sales from previous year.
Step 5: Populate the Matrix
Input all the gathered information into the matrix template. Once complete, share the matrix with your team and stakeholders using FigJam’s collaboration features to foster insights and decision-making.
Examples of When to Use a BCG Matrix
The BCG matrix can be applied in various areas, including marketing, project management, and strategic management, particularly during the strategic planning phase or business portfolio analysis. Here are some examples:
- To increase investment in a product:
If a product falls in the question mark category, investing in it could help capture additional market share.
- To pause investment in a product:
Products in the dog category show limited growth potential, making them prime candidates for paused or reduced investment.
- To maximize cash flow from a product:
Star products are top performers with high market share. The matrix helps identify these revenue-generating products for further focus.
- To allocate resources efficiently:
The matrix highlights which products are worth investing time, money, and resources in, helping businesses maximize profitability in a competitive environment.
While the BCG matrix works well for larger businesses, smaller businesses may find it less practical due to smaller market shares and limited budgets. For small businesses, a SWOT analysis might be a more suitable alternative.
