About the BCG Matrix Template
Explanation of BCG Matrix
The BCG matrix is also commonly called the product portfolio matrix. It is a popular business tool used for brand portfolio evaluation, particularly its market standing. The matrix consists of a 2x2 structure for classifying the products. Its primary defining factors are market growth rate and market share.
Significance in Business Strategy
With proper implementation, the BCG matrix reveals plenty of useful information that businesses can use to make decisions regarding their products and services. Through the matrix, a business can easily see which products need to be kept in the portfolio because they are generating considerable revenue. On the opposite corner, the matrix reveals products that are not meeting target market growth or market share, and thus would be more viable for the company to sell to avoid taking more losses.
Brief History of BCG Matrix Development
The BGC matrix template has had many versions over the years, but it was first used during the 1970s. It was created by the founder of BGC or Boston Consulting Group, by the name of Bruce Henderson. The company developed the first BCG matrix template in order to evaluate the potential and strategic position of its own brand portfolio.
Understanding BCG matrix
Explanation of Matrix Structure
You can make your own BCG matrix template or you can choose from the many existing ones that you can download for free. Either way, the matrix structure follows a 2x2 matrix setup. The horizontal axis represents a product’s performance based on market share. Basically, it displays the size of the market share, and the strength of the product’s performance within a particular market.
On the other hand, the vertical axis represents the product’s growth rate in a specific market. It reflects both its historical growth rate and its growth potential in the same market.
Explanation of Four Quadrants
The 2x2 matrix structure creates four quadrants in the BCG matrix template. These quadrants contain the products that are being analyzed. The first quadrant contains products with high market growth but low market share. The second quadrant represents high market growth and high market share. Quadrants 3 and 4 both represent a low growth rate in the market, with the third showing a high market share and the fourth performing poorly in market share.
Characteristics of Each Quadrant
In business, Quadrant 1 is heuristically known as the Question Marks. These products currently show a low market share but are in a market with a high growth rate. There is high potential for these products but to increase their market share, a lot of work must be done, and large investments usually must be made. If the market share increases, the product will become a star, which is the ideal scenario. Otherwise, they will remain question marks or turn into dogs.
This brings us to the Stars, which are the products in Quadrant 2. These are the best-performing products in a company's brand portfolio. They have a high market share in a fast-growing market, and thus earn the company considerable revenue. To maintain this competitive advantage, huge investment in the products would also be necessary.
The next quadrant is the Cash Cows. These products hold a high market share and are in a market that is relatively stable and does not see much growth. This means that the product has already been established as a leader and is already generating much revenue without the need for additional investment. The earnings from the Cash Cow quadrant are used to fund the products in the Question Marks and Stars quadrant.
Finally, we have the Dogs. These are products that have a low market share in a slow-moving market. They might generate a small and steady income but there is not much growth potential. Generally, products in this product are either sold to other companies or discontinued unless they are vital to other products in the brand portfolio.
Importance of Market Growth Rate and Market Share in Positioning Products
In product positioning, there are a few factors to consider but the two critical ones are market growth rate and market share. Prior to making any decisions on product positioning, you need to study its market share and the growth rate of the markets to which the product belongs.
For example, products that have low market share must be positioned such that their share would increase significantly. As a result, this would also boost their profitability. As for products with a large share in a market that is not growing quickly, you can let them stay where there are. With their current position, they are earning considerably for your company and you are not spending much on them, which are two very good things.
Advantagestand Limitations of BCG Matrix
There are quite a few advantages from using a BCG matrix template but the biggest is that you can see the performance of your entire product portfolio at a glance. The quadrants allow you to make comparisons across the different products that you are selling. You can easily see which ones are making money and which ones are not, so you can make your decisions accordingly.
As for limitations, any BCG matrix template only takes into consideration the product’s growth rate and market share. Both of these factors are very important but there are other factors that also come into play. If you have to rely on only these two, the resulting evaluation of your brand’s performance might not be as accurate or as thorough as you would want.
Examples of BCG Matrix in Business
Case Study of Apple Inc.’s BCG Matrix
Explanation of Product Portfolio
Apple Inc. is one of the world’s biggest consumer electronics manufacturers. It has a vast product portfolio but is best known for the iPhone and the iPad. It also offers a range of software applications and online services.
Positioning of Products in the Matrix
With the diverse product portfolio of Apple Inc., each of the quadrants in the matrix has been easily filled. The biggest question mark right now is the Apple TV, while the stars are the iPhones, without a doubt. The MacBook, iMacs and Apple iTunes all comfortably sit in the Cash Cow area, while the iPods are decidedly in the Dog quadrant.
Analysis of Each Quadrant
Apple TV is a Question Mark because it is in a fast-growing market but is currently lagging behind many other stronger players in the market. With some adjustments, this product can eventually be a Star, joining the iPhone that has been dominating the Star quadrant for years. Every time the company launches a new iPhone, consumers clamor to get their hands on one, indicating a very strong hold of the market.
In the Cash Cow quadrant, the MacBook and Apple iTunes have been generating a steady stream of revenue for the company for years. These products are considered top brands in their respective markets, and there is no sign that the trend is going to change anytime soon.
Finally, the sole occupant of the Dog quadrant is the iPods. It failed to meet expectations in terms of market growth as competitors took a firm hold of the market.
Case Study of Unilever’s BCG Matrix
Explanation of Product Portfolio
When it comes to consumer goods, Unilever is the third biggest player in the world, closely trailing Procter & Gamble and Nestle. Unilever has over 400 active brands, which are sold to more than 190 countries. Unilever’s best-selling products are soaps and other items in the personal care industry.
Positioning of Products in the Matrix
Unilever's laundry soap Wheel and bath soap Lifebuoy are the company's Question Marks. The market for these products has a high growth rate but has a low market share. The stars of the company are Lux body soap, skin cream Fair & Lovely, powder drink Energile, and the Heartbrand ice creams. Sitting in the cash cow quadrant are its long-time brands Surf Excel, Blue Band, Knorr and Lipton. Finally, the shampoo brand Clear and the fabric conditioner Comfort are the dogs in the Unilever BCG matrix.
Analysis of Each Quadrant
To maintain its #3 rank in the consumer goods industry, Unilever must position its question marks so that they will eventually turn into stars. The market share of the products in the stars category is growing continuously each year, and they also generate increasingly high revenue. Unilever's trademark personal care products are the main revenue generators, supplying funds to the other quadrants. As for the products in the dog quadrant, there has been no significant growth in market share so there is no certainty that production will continue.
Advantages of Using BCG Matrix in Business
A BCG matrix template is an invaluable tool in long-term strategic planning. It aids in the identification of new opportunities for growth and investment by pinpointing which products deliver the best market performance.
With the results displayed by the BCG matrix model, you can allocate more resources to the products that deliver high return on investment, and avoid wasting resources on those that fail to show any growth in the market.
There are times when a company spends too much effort and resources on products that turn out to be unprofitable in the long run. You can avoid this risk by analyzing the BCG matrix template and directing your focus on the products that do well for your business.
Identification of Growth Opportunities
Ever since it was created, the BCG matrix has been a crucial tool that companies use to identify growth opportunities. The matrix gives you a bird’s eye view of your product portfolio, making it easy to identify the areas with the biggest growth potential.
Limitations of BCG Matrix in Business
The BCG matrix only takes into account a product’s market share and its growth rate. These are vital factors but they are not the only ones that determine whether a product should be continued or not.
Although it has been used for years, the BCG matrix template is considered by many as too simplistic for accurate categorization of products, especially when it comes to very small market shares. For such cases, alternate methods would be more effective.
Dependence on Market Growth and Market Share
The basic structure of the BCG matrix template is entirely dependent on market share and market growth. If there is not much movement in both these aspects, yet other factors are continually affecting overall product performance, this model might not result in accurate results.
Poor Market Forecast
The BCG matrix relies on present market trends. To some point, you can use this to predict future market scenarios. But since this model disregards other potentially critical factors, there could be times that it could result in a poor market forecast.