A cash cow in BCG matrix is a product that generates the most capital inflow for a business. Revenues from a cash cow product support other reinvestment activities.
Cash Cow in BCG Matrix
A cash cow in BCG matrix can bring in the most capital inflow for two reasons:
- Highest market share.
- Low growth rate of the industry.
1. Highest market share
A cash cow product claims the biggest customer share in an industry. Being in the dominance of the biggest customer share, there is no competitor’s product with a higher customer share than the product in question. Some cash cow products in the BCG matrix have more than 50% market share.
To bring this into perspective, let us review the smartphone market in the United States of America from January 2022 to January 2023. According to Statcounter, Apple was at the top of the pyramid of all smartphones sold by mobile vendors in the US alone. It accounted for 57.78% of the smartphone units sold. It was followed by Samsung, whose smartphones accounted for 28.56%.
Between January 2022 and January 2023, smartphones from Apple were the cash cow in this particular market. These statistics could differ in other markets depending on people’s smartphone preferences.
For instance, your local smartphone market could be strong in using phones from another manufacturer other than Apple.
At times, a cash cow product could command the highest market share even when it’s below 50%. For instance, a cash cow product could be that with an overall 40% market share.
It implies being a cash cow product does not necessarily need a product to control over 50% of the market. It only needs to be the leader of the pack.
Take, for instance, manufacturers of printers. If you list some of the popular brands of printers, you could highlight Epson, HP, Canon, and Brother, among others. These printers enjoy high brand choice by customers and have been at the top of the pyramid for quite some time.
According to IDC, HP sold the most printers in the 3rd quarter of 2022. Compared to the total number of printers sold by all printers, it accounted for 36.4% of all total units shipped. Canon followed it at 20.2% and Epson at 19.2%.
In 2022’s 3rd quarter, HP printer claimed the highest market share. This was despite the fact that its market share was below 50%. In this industry, HP printers were cash cows during this period.
2. Low growth rate of the industry
A cash cow in the BCG matrix will only fall into the quadrant of a low-growth industry. If an industry is experiencing high growth, such products are rather stars. Your question could be, why a low-growth industry?
A low-growth industry has probably reached its maturity. Consumers know dominant competitors in such an industry. A new player in a mature industry has a lower chance of winning a higher market share and superseding existing firms.
Thus, products in dominance retain their position for quite a long time. The ability of a product to hold the top dog position, in the long run, makes it a cash cow. It is less likely for such a product to be toppled from the top of the pyramid.
Existing players could try and supersede the dominant product, but it often takes time. Being in a low-growth industry gives some assurance that the dominant product will enjoy the highest brand choice and loyalty.
Let us use the desktop Operating System industry as our example. Which Operating System does your desktop computer or laptop has? Does it run on Windows, macOS, Linux, Chrome OS, or which one in particular?
If your desktop computer/laptop has Windows, you are the majority. More than 70% of laptops/desktop computers use Windows. If you are using a macOS, you follow Microsoft Windows’s lead.
Laptops/desktop computer Operating System is a mature industry. The growth is minimal, if there’s any. You can expect Microsoft Windows to continue being a cash cow in this particular industry for a couple of years, if not decades.
A product with the highest market share in a low-growth industry is evolved strategically by the company in question. The goal is to keep this product at the top and retain its huge customer share. Revenues generated from sales of such products could be used to refine a question mark product and make it a star in BCG Matrix.