Determining internal organizational capabilities is an integral part of a companys market opportunity analysis. It helps explain whether a company can afford to create a successful product or brand.
In the late 1960s, Bruce Henderson of the Boston Consulting Group (BCG) conceptualized the BCG Growth-Share Matrix to evaluate various business units of a company on the basis of their relative performance in a particular target market. However, the matrix can be equally applied to evaluate the various products or services offered by a company.
This tool is a two-by-two matrix containing four quadrants, with the vertical axis depicting market growth rate and the horizontal axis representing market share. It provides a way to determine the appeal of each business unit, product or service, which in turn can be used to determine the amount of investment, if any, that should be made in each product.
BCG Growth-Share Matrix classifies products into four categories: Cash Cows, Stars, Dogs and Question Marks. The Cash Cows and Stars are the strengths of the company, while the Dogs are generally weaknesses.
These products have high market share but low growth rates. The commanding position of Cash Cows ensures a continuous source of cash flow for the company.
These products have high market share in markets and high growth rates. They are typically market leaders in new and emerging markets. To ensure that products considered as Stars continue to generate profits, a high amount of investment is required.
These products have low market share in stagnant or declining markets. However, they can be profitable for a company by being loss leaders for a particular market or product segment. In case there are no such benefits involved, it is better for a company to discontinue products in the Dogs category.
As the name suggests, this product category poses a question mark for management because, at some point, a decision has to be made on whether to invest in the product or phase it out. Question marks are present in markets with high growth rates but low market share.
For example, a leading electronics company can categorize its products as follows:
Cash Cows: Laptops that have high market share but low growth rate
Stars: Smartphones and tablets with high growth rate and high market share
Dogs: Music players and desktop computers with a low or declining market share
Question Marks: Television sets that have a low market share but have the potential to achieve high market share in the future with some investment