BCG Matrix: A Framework for Portfolio Valuation and Justification
A BCG Matrix is a framework for the valuation and justification of the product with the highest and the lowest market share. BCG Model has four quadrants; Star, Question Mark, Cash Cow and Dog.
The investments diversification needs of a company make this framework quite useful to pay attention to. In portfolio valuation, using BCG (Boston Consulting Group) Matrix, analytics are done to assess the most and the least profitable product.
As ongoing business concerns, companies diversify to establish a portfolio from which profits can be maximized. The valuation of products/services under a portfolio depends on the market share attributed to each. This explains why some products/services under the same brand name have a larger market share than others.
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Those in marketing use the BCG matrix to allocate money strategically across the portfolio of products.
Star is that product/brand with a significantly high market share in an emerging industry. Even though star products are not super profitable, they have a high potential to generate decent revenue. For several reasons, products in this quadrant are less popular in this emerging or growing industry.
This relatively new market has yet to get many people’s attention. Stars are thus known to people actively participating in this growing industry. Secondly, the emerging industry is yet to reach its peak in media coverage. Such products are yet to receive much recognition for media coverage and publicity.
In a real sense, a product in the star quadrant demands more marketing than cash cows. Intense marketing creates brand awareness and builds strong brand knowledge about the product/service. At times it is not a product but a brand name that is also emerging in this relatively new market.
Most companies intend to make their star brand cash cow in future. This explains why too much effort is directed toward growing such brands for future success.
The product in question mark quadrant claims a small market share but is in an industry with growth potential. Products in this quadrant are opposite those in the star quadrant. The industry in both quadrants is experiencing high growth, but products in the question mark quadrant hold a low market share. Competitors in this growing industry have a high market, thus overwhelming the product/brand in question.
It is hard to predict the future of question mark products. The industry is yet to take shape, and sustainability is thus in question. A company must decide whether to invest in these products and move them into stars or discard them completely from their portfolio.
Cash cow product/service is that with the highest market share of a mature industry. A mature industry has low growth, and no external force within the market triggers a significant notable change.
To a company, cash cows will often bring in the most revenue. By dominating the largest market share, cash cow products or services competes stiffly with other existing players in the industry.
A cash cow product benefits from brand knowledge. Customers in the given industry have a perceived high brand equity of the cash cow, which is what a company leverages. Brand equity contributes to a high brand choice and sales volume compared to competitors.
A dog product has a low market share in a mature industry/low-growth industry. It happens to almost any other company because, realistically, a company will flourish in some areas and struggle in others. A dog product barely earns substantial income for the company in question.
If a company does not want to let the product in the dog quadrant just to be, there are two possible case scenarios.
The company might try to push the dog product and make it a cash cow. However, this is hard because of the dominant brands in such an industry. Trying to earn brand equity in an industry where a certain brand has been championed for the longest is too much hard work.
Two, the management, led by a brand manager, can make it a question mark product. This is not easy because of uncertainty around the question mark’s future.
The best thing is thus to leave the dog product just be. Let this product perform and compete organically in the industry.
Iacobucci, D. (2021). Marketing management. 5th Edition.