{"id":904,"date":"2015-09-21T05:12:37","date_gmt":"2015-09-21T05:12:37","guid":{"rendered":"https:\/\/courses.candelalearning.com\/waymakerintromarketing1xmaster\/?post_type=chapter&#038;p=904"},"modified":"2017-07-21T20:29:51","modified_gmt":"2017-07-21T20:29:51","slug":"reading-the-bcg-matrix","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-marketing-spring2016\/chapter\/reading-the-bcg-matrix\/","title":{"raw":"BCG Matrix","rendered":"BCG Matrix"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li><span data-sheets-value=\"[null,2,&quot;Explain how businesses use the Boston Consulting Group matrix to inform growth strategies&quot;]\" data-sheets-userformat=\"[null,null,15105,[null,0],null,null,null,null,null,null,null,4,0,null,[null,2,0],&quot;Calibri&quot;,13]\">Explain how businesses use the Boston Consulting Group matrix to inform growth strategies<\/span><\/li>\r\n<\/ul>\r\n<\/div>\r\n<h2>Purpose<\/h2>\r\nWhen a company has many different products or even many different lines of business, strategy becomes more complex. The company\u00a0not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment.\u00a0The BCG\u00a0matrix (sometimes called the Growth-Share matrix) was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or\u00a0products determine their investment priorities.\r\n\r\nThe BCG matrix considers two different aspects of a\u00a0business unit\u00a0or product:\r\n<ol>\r\n \t<li>What is the current market share?<\/li>\r\n \t<li>What is the market's growth potential?<\/li>\r\n<\/ol>\r\n<h3>Market Share<\/h3>\r\nMarket share is the percentage of a market (defined in terms of units sold or revenue)\u00a0accounted for by a specific product or entity. For instance, if you run a neighborhood lemonade stand that sells 200 glasses of lemonade each summer, and there are two other competing lemonade stands that sell 50 glasses and 150 glasses, respectively, then you have 50 percent market share. Out of 400 glass sold, you sell 200 glasses, or 50 percent of the total.\r\n\r\nCompanies track market share data closely. For example, what is the market share for different types of cell phones in the U.S.? The International Data Corporation\u00a0reports these numbers quarterly. As the following table shows, Android phones have had the dominant market share over\u00a0the past several years.\r\n<table>\r\n<tbody>\r\n<tr>\r\n<th>Period<\/th>\r\n<th class=\"data-color-1\">Android<\/th>\r\n<th class=\"data-color-2\">iOS<\/th>\r\n<th class=\"data-color-3\">Windows Phone<\/th>\r\n<th class=\"data-color-4\">BlackBerry OS<\/th>\r\n<th class=\"data-color-5\">Others<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>2015Q2<\/td>\r\n<td>82.8%<\/td>\r\n<td>13.9%<\/td>\r\n<td>2.6%<\/td>\r\n<td>0.3%<\/td>\r\n<td>0.4%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>2014Q2<\/td>\r\n<td>84.8%<\/td>\r\n<td>11.6%<\/td>\r\n<td>2.5%<\/td>\r\n<td>0.5%<\/td>\r\n<td>0.7%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>2013Q2<\/td>\r\n<td>79.8%<\/td>\r\n<td>12.9%<\/td>\r\n<td>3.4%<\/td>\r\n<td>2.8%<\/td>\r\n<td>1.2%<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>2012Q2<\/td>\r\n<td>69.3%<\/td>\r\n<td>16.6%<\/td>\r\n<td>3.1%<\/td>\r\n<td>4.9%<\/td>\r\n<td>6.1%[footnote]http:\/\/www.idc.com\/prodserv\/smartphone-os-market-share.jsp[\/footnote]<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h3>Market-Growth Potential<\/h3>\r\nThe market-growth potential is more difficult to quantify, but it's\u00a0the other important factor in the BCG matrix. Let's use\u00a0some of the products in Proctor &amp; Gamble's portfolio to identify markets with different growth potential. How about bathroom tissue\u2014is that a high-growth market? Probably not. Data show that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992.\u00a0How about the market for high-end skin-care products? Generally,\u00a0markets\u00a0for products that serve\u00a0Americans born between 1946 and 1964\u2014the baby boomers\u2014are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation.\r\n\r\nMarket-growth potential generally includes analysis of similar markets, as well as analysis of the underlying drivers for marketing growth. It can be thought of as\u00a0a \"best guess\" at\u00a0what the future value of a market will be.\r\n<h2>Applying the BCG Matrix<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1505\/2015\/12\/04104819\/BCG-Matrix.png\"><img class=\"alignright wp-image-2817\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1505\/2015\/12\/04104819\/BCG-Matrix-986x1024.png\" alt=\"BCG Growth-Share Matrix showing high and low market growth and market share. A star represents high growth potential because of high market growth and high market share. The question mark represents high growth potential because of high market growth and low market share. A dog represents low growth potential because of low market share and low market growth. A cow with a dollar sign on its forehead represents low growth potential because of low market growth and high market share.\" width=\"375\" height=\"389\" \/><\/a>\r\n\r\nThe BCG Matrix is comprised of four quadrants that show high and low market share and high and low growth potential. Each quadrant has a name and specific characteristics.\r\n<h3>Dog<\/h3>\r\nA\u00a0product or business with low market share in a mature industry is a\u00a0dog. There is no room for growth, which suggests that no new funds should be invested in it.\r\n<h3>Cash Cow<\/h3>\r\nA cash cow is a product or business that has high market share and is in a slow-growing industry. It's bringing in more money than is being invested in it, but it doesn't have much growth potential. The profits from a cash cow can be used to fund high-growth investments, but the cash cow itself warrants low investment.\r\n<h3>Question Mark<\/h3>\r\nA question mark is a product or business that has low market share currently, but\u00a0in a growing industry. This case\u00a0is trickier: the product\/business is consuming financing and creating a low rate of return for now, but its direction isn't clear. A question mark has\u00a0the potential to become either a star or a dog, so close monitoring\u00a0is needed to determine its growth potential.\r\n<h3>Star<\/h3>\r\nA star has high market share in a fast-growing industry. This kind of\u00a0product or business is poised to bring\u00a0strong return on the funds invested. It also has the potential to become a cash cow at the end of the product life cycle, which can\u00a0fund future investments.\r\n\r\nAccording to the logic of\u00a0the BCG matrix, as an industry grows, all investments\u00a0become cows or dogs.\u00a0The intent of the matrix is to help companies make good portfolio-management decisions, focusing investment in the areas that are likely to provide returns and fund future growth.","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li><span data-sheets-value=\"[null,2,&quot;Explain how businesses use the Boston Consulting Group matrix to inform growth strategies&quot;]\" data-sheets-userformat=\"[null,null,15105,[null,0],null,null,null,null,null,null,null,4,0,null,[null,2,0],&quot;Calibri&quot;,13]\">Explain how businesses use the Boston Consulting Group matrix to inform growth strategies<\/span><\/li>\n<\/ul>\n<\/div>\n<h2>Purpose<\/h2>\n<p>When a company has many different products or even many different lines of business, strategy becomes more complex. The company\u00a0not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment.\u00a0The BCG\u00a0matrix (sometimes called the Growth-Share matrix) was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or\u00a0products determine their investment priorities.<\/p>\n<p>The BCG matrix considers two different aspects of a\u00a0business unit\u00a0or product:<\/p>\n<ol>\n<li>What is the current market share?<\/li>\n<li>What is the market&#8217;s growth potential?<\/li>\n<\/ol>\n<h3>Market Share<\/h3>\n<p>Market share is the percentage of a market (defined in terms of units sold or revenue)\u00a0accounted for by a specific product or entity. For instance, if you run a neighborhood lemonade stand that sells 200 glasses of lemonade each summer, and there are two other competing lemonade stands that sell 50 glasses and 150 glasses, respectively, then you have 50 percent market share. Out of 400 glass sold, you sell 200 glasses, or 50 percent of the total.<\/p>\n<p>Companies track market share data closely. For example, what is the market share for different types of cell phones in the U.S.? The International Data Corporation\u00a0reports these numbers quarterly. As the following table shows, Android phones have had the dominant market share over\u00a0the past several years.<\/p>\n<table>\n<tbody>\n<tr>\n<th>Period<\/th>\n<th class=\"data-color-1\">Android<\/th>\n<th class=\"data-color-2\">iOS<\/th>\n<th class=\"data-color-3\">Windows Phone<\/th>\n<th class=\"data-color-4\">BlackBerry OS<\/th>\n<th class=\"data-color-5\">Others<\/th>\n<\/tr>\n<tr>\n<td>2015Q2<\/td>\n<td>82.8%<\/td>\n<td>13.9%<\/td>\n<td>2.6%<\/td>\n<td>0.3%<\/td>\n<td>0.4%<\/td>\n<\/tr>\n<tr>\n<td>2014Q2<\/td>\n<td>84.8%<\/td>\n<td>11.6%<\/td>\n<td>2.5%<\/td>\n<td>0.5%<\/td>\n<td>0.7%<\/td>\n<\/tr>\n<tr>\n<td>2013Q2<\/td>\n<td>79.8%<\/td>\n<td>12.9%<\/td>\n<td>3.4%<\/td>\n<td>2.8%<\/td>\n<td>1.2%<\/td>\n<\/tr>\n<tr>\n<td>2012Q2<\/td>\n<td>69.3%<\/td>\n<td>16.6%<\/td>\n<td>3.1%<\/td>\n<td>4.9%<\/td>\n<td>6.1%<a class=\"footnote\" title=\"http:\/\/www.idc.com\/prodserv\/smartphone-os-market-share.jsp\" id=\"return-footnote-904-1\" href=\"#footnote-904-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3>Market-Growth Potential<\/h3>\n<p>The market-growth potential is more difficult to quantify, but it&#8217;s\u00a0the other important factor in the BCG matrix. Let&#8217;s use\u00a0some of the products in Proctor &amp; Gamble&#8217;s portfolio to identify markets with different growth potential. How about bathroom tissue\u2014is that a high-growth market? Probably not. Data show that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992.\u00a0How about the market for high-end skin-care products? Generally,\u00a0markets\u00a0for products that serve\u00a0Americans born between 1946 and 1964\u2014the baby boomers\u2014are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation.<\/p>\n<p>Market-growth potential generally includes analysis of similar markets, as well as analysis of the underlying drivers for marketing growth. It can be thought of as\u00a0a &#8220;best guess&#8221; at\u00a0what the future value of a market will be.<\/p>\n<h2>Applying the BCG Matrix<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1505\/2015\/12\/04104819\/BCG-Matrix.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-2817\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1505\/2015\/12\/04104819\/BCG-Matrix-986x1024.png\" alt=\"BCG Growth-Share Matrix showing high and low market growth and market share. A star represents high growth potential because of high market growth and high market share. The question mark represents high growth potential because of high market growth and low market share. A dog represents low growth potential because of low market share and low market growth. A cow with a dollar sign on its forehead represents low growth potential because of low market growth and high market share.\" width=\"375\" height=\"389\" \/><\/a><\/p>\n<p>The BCG Matrix is comprised of four quadrants that show high and low market share and high and low growth potential. Each quadrant has a name and specific characteristics.<\/p>\n<h3>Dog<\/h3>\n<p>A\u00a0product or business with low market share in a mature industry is a\u00a0dog. There is no room for growth, which suggests that no new funds should be invested in it.<\/p>\n<h3>Cash Cow<\/h3>\n<p>A cash cow is a product or business that has high market share and is in a slow-growing industry. It&#8217;s bringing in more money than is being invested in it, but it doesn&#8217;t have much growth potential. The profits from a cash cow can be used to fund high-growth investments, but the cash cow itself warrants low investment.<\/p>\n<h3>Question Mark<\/h3>\n<p>A question mark is a product or business that has low market share currently, but\u00a0in a growing industry. This case\u00a0is trickier: the product\/business is consuming financing and creating a low rate of return for now, but its direction isn&#8217;t clear. A question mark has\u00a0the potential to become either a star or a dog, so close monitoring\u00a0is needed to determine its growth potential.<\/p>\n<h3>Star<\/h3>\n<p>A star has high market share in a fast-growing industry. This kind of\u00a0product or business is poised to bring\u00a0strong return on the funds invested. It also has the potential to become a cash cow at the end of the product life cycle, which can\u00a0fund future investments.<\/p>\n<p>According to the logic of\u00a0the BCG matrix, as an industry grows, all investments\u00a0become cows or dogs.\u00a0The intent of the matrix is to help companies make good portfolio-management decisions, focusing investment in the areas that are likely to provide returns and fund future growth.<\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-904\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Market Share and Market Growth Potential. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Revision and adaptation. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Applying the BCG Matrix. <strong>Provided by<\/strong>: Boundless. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.boundless.com\/marketing\/textbooks\/boundless-marketing-textbook\/marketing-strategies-and-planning-2\/strategic-views-25\/bcg-matrix-141-711\/\">https:\/\/www.boundless.com\/marketing\/textbooks\/boundless-marketing-textbook\/marketing-strategies-and-planning-2\/strategic-views-25\/bcg-matrix-141-711\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section><hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-904-1\">http:\/\/www.idc.com\/prodserv\/smartphone-os-market-share.jsp <a href=\"#return-footnote-904-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":7,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Market Share and Market Growth Potential\",\"author\":\"\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Applying the BCG Matrix\",\"author\":\"\",\"organization\":\"Boundless\",\"url\":\"https:\/\/www.boundless.com\/marketing\/textbooks\/boundless-marketing-textbook\/marketing-strategies-and-planning-2\/strategic-views-25\/bcg-matrix-141-711\/\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Revision and adaptation\",\"author\":\"\",\"organization\":\"Lumen 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