One of the most famous tools to manage the portfolio is the Boston Matrix. The BCG Matrix can be used by companies to categorize their projects, brands, or products inside their portfolio. The tool can be adapted to every company as far as they have more than one product on their portfolio. The basic principle of the tool is to assess the current position and create a strategy on where you want to go.
They say that the most successful tools are the simplest and this is the reason for the popularity of BCG Matrix. The matrix composes of 4 duadrants:
- Question marks (or problem children)
- Cash cows
In the quadrants, there are 2 dimensions
- The market growth rate
- Relative market share
Pretty simple, right? Imagine that you drag and drop each of your products to each one of the quadrants. Your two axes are market share where you can estimate it by thinking of your position compared to the second and third competitors, and market growth rate which is comparing wth your own sales growth.
In the stars quadrant, we can see products with high market growth and high market share. This means that your projects can fly because there you are the strongest in the market. An extra opportunity is that the product that belongs in this category operates in a good market with big potential to grow even more. So it is one extra reason to invest in this product. They have high market strength and the market is growing and you are the head of this market.
On the other side, though, you need to spend a lot of budget in marketing and you can see the impact on your costs to keep that leadership position. You need to create some barriers to entry. How you can connect these with other components in your portfolio? You will need to sustain this brand position so maybe you will need to invest in some marketing programs. Knowing that your product is a leader gives you the ability to balance the other items in your portfolio.
Question marks have low market share and high market growth, which means that they have the potential to become stars. They have the potential but usually are riskier as at the same time they can become dogs so high risky. Again, are good to balance the portfolio and prioritize. This is why they are called problem children as you don’t know what to do with them. How you act with them is to be very selective about which products you put there, use careful segmentation and positioning to understand their potential. Even the ones that are more prone to star maybe they will have negative cash flow, which is another thing that might impact your portfolio.
Cash cows are those that are having a high market share but they operate in low market growth. Although they are not alluring to many as they operate in a low growth market, they have a big share in this market and they have positive cash flows. In this category are usually mature products in the lifecycle that have little potential to grow further. Your goal here is to the extent the mature phase of these products. These products don’t need marketing investments as the customers know the products and they trust it. This is why there are the best items in the portfolio – they are the most secure and help managers prioritize more easily the items around them.
Dogs have both low market share and low growth. We can see the restrictions on both sides. These items’ futures look gloomy. Are either products that have reached the end of their lives, in PLF terms products that are declining. Low share in a low growth market doesn’t sound that positive. No possibility to turn them into stars. Maybe you can turn them in question marks, but does it worth the effort?. A successful manager knows that his products have a decline phase and will end someday, this is the decision that you should take with dog products. Maybe you should sell them or work on invigorating them with additional features etc.
Please see below an example:
Samsung A20 is the most popular mobile right now as it is a new model and is going very well. It is a product with high growth and a big market share. This is definitely a star.
On the other side is not the most profitable in contrary to popular belief as for 2020 the A51, a medium range price mobile was the most profitable for Samsung. Samsung a51 best selling mobile phone in Q1 2020. This mobile maybe was the most profitable because it is already mature and it didn’t need an extra marketing campaign to raise awareness. So the Samsung A51 is the cow.
The Samsung watch is a question mark as the launch of it didn’t have the expected sales. Samsung watch is a premium watch with a high price for its category, however, is not very popular in contrary to the competitors like apple watch. However, maybe it will turn out to a star soon, we don’t know yet.
Finally in the dog category are Samsung’s printers. Did you know that Samsung manufactures printers? Most of us are used to see HP or Xerox printers but the share of this market is small for Samsung.
Most marketers are using the BCG matrix alongside the product lifecycle. Of course, the product lifecycle is concerned with specific products or brands inside the BCG matrix and is focused on sales, but the combination of both of them can give a rough idea to management and finance for example which are the dog products and they should not invest. At the same time, which products are potential stars or question marks and we should prioritize the investments on them.