A BCG Matrix Example: Analyzing a Company's Portfolio

The Boston Consulting Group (BCG) matrix is a widely used strategic planning tool that helps organizations analyze their product or business unit portfolios. By categorizing business units into four quadrants based on market share and market growth, the BCG Matrix provides a valuable framework for strategic decision-making. This topic can only be discussed by providing a BCG Matrix example. In this post, we will explore the four quadrants of the BCG Matrix, provide real-world examples, and discuss the benefits and limitations of this strategic tool.

What is the BCG Matrix?

The Boston Consulting Group Matrix is a business planning tool used to evaluate the strategic position of a company's brand portfolio. It is one of the most popular portfolio analysis methods. The matrix is also known as the product portfolio matrix, Growth-Share Matrix, Boston Box, BCG Growth Matrix, Boston Matrix, or portfolio diagram.

How Does the Growth-Share Matrix Work?

The BCG Matrix is a tool that helps companies understand their products or services. It puts them into four groups: Stars, Cash Cows, Question Marks, and Pets (Dogs). This helps companies decide where to spend their money and time to make the most profit.

Stars are the best products. They make a lot of money and are growing fast. Cash Cows make a lot of money but aren't growing much. Question Marks are growing fast, but don't make much money yet. Dogs don't make much money and aren't growing much.

The BCG Matrix is based on the idea that being the best in a market can help a company make more money. This is because it's often harder for competitors to copy a successful product or service. Growth rates show which markets have the most potential for future growth.

To make good investment decisions, companies should consider two things: the strength of their products or services and the attractiveness of their market. Relative market share and growth rate are important factors to consider.

Four Quadrants of the BCG Matrix

The four quadrants of the BCG Matrix represent different combinations of market share and growth:

• Stars: This quadrant includes products and services with a high market growth rate and relative market share. These are your products that bring in a significant amount of money. For example, Spotify is a prime example of a Star in the BCG Matrix. As a leading music streaming platform, Spotify has a dominant market share and continues to experience substantial growth.

• Cash Cows: Products in this quadrant have a low market growth rate but a high relative market share. These are products or services with a significant cash flow over a long time and show a steady source of revenue. For example, classic soda products are Cash Cows in the BCG Matrix of Coca-Cola. The Coca-Cola company has a dominant market share in the soft drink industry and generates substantial cash flow despite the relatively low market growth rate.

• Question Marks: This quadrant is for products with a high market growth rate and a low relative market share. These products are available in fast-growing markets but haven’t established a strong market position. For example, Tesla's early electric vehicles were Question Marks, as they were entering a new market with low market share but high growth potential.

• Pets (Dogs): Products in this quadrant have low market growth rates and relative market share. They don’t sell well and generate minimal profits. You’ll want to evaluate their value and determine whether they should be divested, restructured, or discontinued. For example, Kodak's film cameras were considered Dogs as the market for digital photography grew. The company eventually divested its film business to focus on other areas.

Benefits of the BCG Matrix

This strategic planning tool offers numerous advantages for businesses of all sizes. The BCG Matrix has the following advantages:

• Great for large companies due to its ability to organize and analyze complexity, allocate resources effectively, optimize the product portfolio, support strategic planning, and facilitate collaboration.

• Helps companies prioritize investments and allocate resources to the most promising products or business units.

• Easy to understand and use due to its simple framework (it uses a two-by-two grid), clear categories (the four quadrants are easily identifiable), relatable concepts (market share and market growth concepts are familiar to most business professionals), and widespread use (it is used by countless organizations, making it a familiar and accepted framework).

• Helps companies identify their competitive strengths and weaknesses, allowing them to take steps to improve their market position.

• Companies can improve their efficiency and profitability by focusing on high-performing products and divesting from low-performing ones.

Limitations of the BCG Matrix

The Boston Consulting Group Matrix has specific limitations that should be considered:

• Inaccuracy. This model relies on relative market share, which can be challenging to measure accurately.

• Poor predictions. The BCG Matrix provides a snapshot of a company's portfolio at a given time. It may not capture the dynamic nature of markets and the potential for rapid market share and growth rate changes.

• Only two dimensions—market share and growth rate can be an issue. Other factors, such as competitive intensity, technological advancements, and economic conditions, may also significantly impact a business unit's performance.

• Neglecting small competitors that have fast-growing market shares.

• An overemphasis on Stars. High-profit businesses do not consider other factors, such as the long-term sustainability of Stars and the potential for Cash Cows to generate significant cash flow. Sometimes, Dogs can earn even more cash than Cash Cows.

• No specific guidance on addressing the challenges or opportunities associated with each quadrant.

BCG Matrix Examples

The BCG growth-share matrix is dynamic, and product categories can change over time. As markets develop and consumer preferences change, products may move from one quadrant to another.

Let's consider the three popular companies, Apple, IKEA, and Amazon, and see in what quadrants of the BCG Matrix their products appear.

Apple BCG Matrix

Apple's BCG Matrix provides a valuable perspective on the company's product portfolio. Let's have a look at key Apple products and their categorization within the matrix:  

• Apple's iPhone product is a clear Star in the BCG Matrix. It has a dominant market share in the smartphone industry and continues to generate significant revenue and growth.  

• While the laptop market may not grow as rapidly as smartphones, Apple's MacBooks still hold a strong market share and generate substantial revenue. They are considered Cash Cows in the BCG Matrix.  

• Although the Apple Watch has gained significant market share, it's still considered a Question Mark due to the relatively new and competitive wearable technology market.

• While the iPod once dominated the MP3 player market, its popularity has declined due to the rise of smartphones. Thus, it could be considered a Dog in the BCG Matrix.  

IKEA BCG Matrix

Here's a potential categorization of IKEA's products within the BCG Matrix:

• The MALM bed series is a high-performing product with a significant market share, a Star.

• This classic POÄNG armchair is a long-standing product with a loyal customer base, which falls into the Cash Cows quadrant.

• IKEA's recent expansion into food products, such as meatballs and plant-based alternatives, could be considered a Question Mark as it enters a new market.

• Smaller home decor items fall into the Dog category if they have low market share and limited growth potential.

Amazon BCG Matrix

Key products and their BCG Matrix classification:

• As a dominant player in the cloud computing market, Amazon Web Services (AWS) is a clear Star in Amazon's portfolio. It has a high market share and continues to experience significant growth.

• Subscription service Amazon Prime, which offers fast shipping, streaming services, and other benefits, is a Cash Cow. It generates substantial revenue and has a strong customer base.

• Grocery delivery service Amazon Fresh is a Question Mark as it operates in a competitive market and is still expanding its reach.

• Amazon Alexa could be considered a Dog in the BCG Matrix. While it has a significant market share in the smart speaker market, the overall growth rate of this market has slowed down.

Conclusion

The BCG Matrix is a valuable strategic tool for businesses of all sizes. It represents a company's portfolio by categorizing products or business units into four quadrants based on market share and market growth. This allows organizations to prioritize investments, optimize resource allocation, evaluate product life cycles, identify opportunities and threats, and enhance decision-making.

FAQ

1. What is the difference between the BCG Matrix and the Ansoff Matrix?

• BCG Matrix analyzes the relative market share and market growth of existing products or business units. It helps companies prioritize investments, allocate resources, and identify opportunities for growth or divestment.

• Ansoff Matrix focuses on product and market expansion strategies. It helps companies decide whether to sell existing products to existing markets, sell existing products to new markets, develop new products for existing markets, or develop new products for new markets.

2. How can I identify high-growth markets?

To identify high-growth markets, consider factors such as:

• Economic indicators: GDP growth, population growth, and consumer spending.

• Industry trends: Emerging technologies, changing consumer preferences, and regulatory changes.

• Competitive landscape: The number and strength of competitors in the market.

3. How can businesses navigate low-growth markets?

Businesses operating in low-growth markets can consider strategies such as:

• Cost reduction: Implementing cost-saving measures to improve profitability.

• Market segmentation: Targeting specific niches within the market to find growth opportunities.

• Innovation: Developing new products or services to differentiate from competitors.

4. What is the meaning of relative market share?

Relative market share measures a company's competitive position within a specific market. It is calculated by dividing a company's market share by the market share of the largest competitor in that market. For example, if a company has a market share of 20% and the largest competitor has a market share of 40%, the company's relative market share would be 0.5 (20% / 40%).

A relative market share of 1 indicates that the company has the same market share as the largest competitor. A relative market share greater than 1 indicates that the company has a larger market share than the largest competitor, while a relative market share less than 1 indicates that the company has a smaller market share than the largest competitor.