UNIT 6: The BCG (BMT)

BOSTON CONSULTING GROUP MATRIX (BCG)

WHAT IS THE BCG MATRIX?

The Boston Consulting Group Matrix (BCG Matrix) is a strategic visual management tool used to analyze a company’s portfolio of products. It examines their market growth rate and relative market share. 

It was developed by the Boston Consulting Group in the early 1970s. The matrix provides a visual representation that helps organizations make informed decisions about resource allocation, investment, and overall strategic planning.

A BALANCED PORTFOLIO

The concept of a balanced portfolio typically refers to maintaining a mix of products or business units that collectively contribute to a company’s overall strategic objectives.

For most businesses, the idea of a single product isn’t a strategic one as before too long, it will fade and start to lose sales (move into the decline phase).

For that reason, companies seek to create a ‘product portfolio’ where sales and revenue are generated  from a range of products! 

APPLE'S PORTFOLIO

Apple have an impressive portfolio, but even Apple are forced to research and develop their products to make sure their individual products are either in the growth phase or the maturity phase! 

Apple often launch new models with small or major enhancements as ‘product extension strategies’ to offset the decline phase! Most likely, Apple will constantly examine their portfolio to see which products are either ‘Stars’, ‘Cows’, ‘Dogs’ or ‘Question marks’

WHAT'S ALL THIS DOG AND COW STUFF?

The Boston Consulting Group Matrix (BCG) is a strategic management tool that categorizes a company’s product portfolio into four quadrants based on market growth rate and relative market share: Stars, Cash Cows, Question Marks, and Dogs. It guides resource allocation, helping companies invest wisely, manage mature products, and strategize for growth.

The BCG Matrix is visually useful as it presents a clear and concise snapshot of a company’s product portfolio through a simple matrix. The four quadrants visually represent the strategic position of each product or business unit, making it easy for stakeholders to understand and identify areas for resource allocation and strategic focus.

Using the image above, you can see how to Boston Group Matrix (BGC) and the Product Life Cycle (PLC) are linked! In general, a good business would want a mixture of products to create a portfolio, each at different points in the product life cycle! Everybody wants a ‘cow’ (cash cow) in a state of maturity which brings in revenue and profit! Whilst nobody wishes to see their products become ‘dogs’ (in the decline phase)! 

#1 'DOGS'

A dog is a negative term to describe  products with low market share in markets with low or declining growth (reached the decline stage in the product life cycle)

Dogs can still be profitable, (in the short-term) so are not always removed from a portfolio

The big decision around ‘dogs’ is whether to try to extend the product life cycle through investment in extension strategies or marketing or to divest to stem further losses! 

Firms with a number of dogs in their portfolio may experience poor cash flow

#2 'STARS'

Successful products with high market share in industries with high market growth.

Stars are at the growth stage in their product life cycle.

To maintain their position, stars require funding and investment

Firms seek to boost these and turn them into cash cows!

#3 'COWS'

Products with a high share of the market (in a mature market) that has low market growth.  

Cash cows (as the name implies) make enormous profits in a portfolio having reached the maturity stage in their lifecycle

Cash cows are well established and are the main earners from the portfolio. 

Apple’s iPhones have unquestionably been a cash cow for the company. They consistently generate substantial revenue and profit.

#4 'QUESTION MARKS'

Low market share BUT in a HIGH growth market!
This is a potentially very useful position to be in!

 
The product is sitting at the introductory stage in the product life cycle (PLC)

 
Products at this stage drain finances and are not yet profitable


Large amounts of cash are required to support / market these products

 
‘Question marks’ are risky, but can pay off if marketeers can help them make the jump between ‘question mark’ to ‘stars’!

#1 CASE STUDY: JOHN VON SHORT

John Von Short is a well-established manufacturer of designer clothing. A marketing guru described John Von Short’s brand name, VShorts, as one of the business’s key strengths. Because of its market orientation approach, John Von Short spends significantly more on market research than its competitors. John Von Short’s products include:

  1. VShorts, (a range of high-quality fitted fashion jeans), that contributes 70% towards John Von Short’s revenue and profit. The overall market for this range is not growing.
  2. VonJak, (a range of washed denim jackets), that is reaching the end of its product life cycle. Manufacturing of this product will end later in this year.

VShorts and VonJak are sold through expensive independent retailers in Europe. John Von Short uses a price leadership strategy for these two products. Consumers perceive John Von Short to be high fashion and their high price points gives them an edge over other products! John Von Short also consider that John Von Short’s products are worth the premium price.

JOHN VON SHORT is contemplating launching a new product, a portfolio of fashionable shorts (Von Shorter) that is targeted at the 15–19 demographic. With this portfolio, John Von Shorts would reach a different, but highly competitive market. Focus groups indicated that many low-income young consumers want to buy fashionable shorts and be part of the trend. John Von Short would sell the new shorts to mass market discount retail stores. Consumers would also be able to order online for next-day delivery.

#1 JOHN VON SHORT QUESTIONS

  1. Explain (with reference to the case) why John Von Short is said to be market orientated in their approach [4]
  2. Identify the 4 stages of the product life cycle (PLC)  [4]
  3. Explain one advantage and one disadvantage for John Von Short using focus groups for their
    market research [4]
  4. Apply the Boston Consulting Group Matrix (BCG) to John Von Short’s product portfolio  [4]
  5. Interpret (using information from the case study) whether or not John Von Short has a balanced portfolio) [4]
  6. Suggest one way in which John Von Short could offset the decline of one of its products on the product life cycle (PLC) [2]
  7. Recommend whether John Von Short should launch the new product, Von Shorter [10]

#2 CASE STUDY: CHINA DRIVE (CD)

China Drive (CD) is a Chinese company, based in Shanghai. CD has a portfolio of e-scooters that are unlocked by a mobile phone application with brand new anti-theft devices. The three different e-scooter models produced by CD are called A-shock, B-Class and C-Drive

 

CD has good brand loyalty and consumer demand has exploded across China, especially in busy cities which typically have good scooter lanes where other transport is limited! CD was originally a product orientated business. 

An increase in congestion in cities has meant that a number of competitors have entered the market recently, seeing new opportunities for growth. 

Using secondary market research, CD has found that competition has intensified!  In 2024, the total profits of all three scooter designs fell! CD’s newly appointed CEO (Jimmy Achoo) thinks that each scooter design should be separated into a designated profit centre!

Jimmy Achoo floated the idea of launching a new product, that would be named, D-Shock! It would be a cheaper model, targeted at students and a lower income bracket. Production of the scooter could be outsourced to a less economically developed (LEDC) country with lower wages and lower production costs! 

The CEO recognises that move would be without problems! The management of CD understands that problems with communication and culture may be an issue initially wherever they move to!

#2 CHINA DRIVE QUESTIONS

  1. Interpret (using information from the case study) whether or not CD has a balanced portfolio) [4]
  2. Recommend (using data from the tables and information from the case study in addition to the BCG Matrix) which e-scooter China Drive should remove from their portfolio to remain profitable [10]   

BCG INFORMATION

The Boston Consulting Group Matrix (BCG) is a strategic management tool that categorizes a company’s product portfolio into four quadrants based on market growth rate and relative market share: Stars, Cash Cows, Question Marks, and Dogs. It guides resource allocation, helping companies invest wisely, manage mature products, and strategize for growth.

The BCG Matrix is visually useful as it presents a clear and concise snapshot of a company’s product portfolio through a simple matrix. The four quadrants visually represent the strategic position of each product or business unit, making it easy for stakeholders to understand and identify areas for resource allocation and strategic focus.

The concept of a balanced portfolio typically refers to maintaining a mix of products or business units that collectively contribute to a company’s overall strategic objectives. The aim is to create a diverse and well-rounded portfolio that mitigates risks, capitalizes on opportunities, and ensures sustained business growth. Here’s an explanation of the key components:

  1. Diversity in Product or Business Unit Offerings:

    • A balanced portfolio includes a range of products or business units that cater to different market segments or serve diverse customer needs.
    • This diversity helps the company reduce its dependence on a single product or market, minimizing the impact of fluctuations in specific industries or economic conditions.

  2. Strategic Alignment:

    • Each product or business unit within the portfolio should align with the overall strategic goals and mission of the company.
    • This alignment ensures that every element of the portfolio contributes cohesively to the company’s vision and objectives.

  3. Risk Mitigation:

    • By having a mix of products with varying levels of market growth and market share (as depicted in the BCG Matrix), a balanced portfolio helps spread risks.
    • Products or business units at different stages of the life cycle or in different market positions contribute to a more stable and resilient business.

  4. Resource Allocation:

    • Companies need to allocate resources effectively to different elements of their portfolio based on their strategic importance and potential for growth.
    • The balanced portfolio approach guides decisions on investments, marketing efforts, and resource allocation to maximize returns across the entire range of products.

  5. Adaptability to Market Changes:

    • A balanced portfolio allows a company to adapt to changes in the business environment more effectively.
    • If one product or market faces challenges, the strength of other elements in the portfolio can help absorb shocks and provide flexibility for strategic adjustments.

  6. Financial Performance:

    • The overall financial performance of the portfolio is a key consideration. It involves assessing the contribution of each product or business unit to the company’s revenue, profit, and cash flow.
    • A balanced portfolio seeks to optimize financial performance by managing a mix of products with varying profitability and growth prospects.

here are key benefits associated with the use of the BCG Matrix:

  1. Portfolio Analysis:

    • The BCG Matrix facilitates a systematic analysis of a company’s product portfolio by categorizing products or business units into four quadrants: Stars, Cash Cows, Question Marks (Problem Child), and Dogs.
    • This analysis allows businesses to gain insights into the relative market share and market growth rate of each product, aiding in strategic decision-making.

  2. Resource Allocation:

    • The BCG Matrix assists in making informed decisions about resource allocation based on the classification of products. Different products in the portfolio require varying levels of investment, and the matrix provides guidance on where to allocate resources for optimal returns.
    • For example, Stars may require significant investment for growth, while Cash Cows may generate surplus cash that can be used elsewhere.

  3. Strategic Planning:

    • The matrix helps in developing strategic plans for each category of products. It guides businesses on the appropriate strategies for Stars, Cash Cows, Question Marks, and Dogs.
    • Strategic planning based on the BCG Matrix enables companies to focus on growth opportunities, manage mature products, and decide whether to invest, hold, harvest, or divest in different parts of their portfolio.

  4. Risk Management:

    • The BCG Matrix aids in risk management by diversifying the product portfolio. Having a balanced mix of products in different quadrants reduces the overall risk exposure, as the impact of challenges in one category can be offset by strengths in another.

  5. Performance Evaluation:

    • It provides a framework for evaluating the performance of products or business units. Companies can assess how well each product contributes to overall revenue and profitability.
    • This evaluation helps identify underperforming products (Dogs) that may need attention or consideration for divestment.

  6. Market Positioning:

    • The BCG Matrix assists in understanding a company’s market positioning in different segments. This knowledge is crucial for making decisions on market entry, expansion, or withdrawal based on the potential and competitiveness of each segment.

  7. Communication Tool:

    • The matrix serves as a clear and visual communication tool, making it easier for stakeholders, including executives and investors, to understand the dynamics of the product portfolio.
    • It facilitates discussions and aligns teams around strategic priorities for different products.

While the Boston Consulting Group Matrix (BCG Matrix) is a widely used strategic management tool, it has some drawbacks: 

  1. Simplistic View of Markets:

    • The BCG Matrix simplifies markets into only four categories (Stars, Cash Cows, Question Marks, and Dogs), which may not capture the complexity and nuances of real-world business environments. Market dynamics can be more intricate than what the matrix implies. What is good today, may not persist! 

  2. Limited Strategic Guidance:

    • The BCG Matrix primarily provides guidance on resource allocation but may not offer detailed strategic guidance. It doesn’t address specific strategies for market penetration, product development, diversification, or market exit. It is VAGUE!

  3. Static Analysis:

    • The BCG Matrix is based on a snapshot analysis at a specific point in time. It doesn’t account for changes in market conditions, consumer preferences, or competitive landscapes over time.
    • Markets and products are dynamic, and the matrix may not capture the evolving nature of the business environment.

  4. Reliance on Market Share and Growth:

    • The matrix heavily relies on the metrics of market share and market growth rate, which may not always accurately reflect a product’s or business unit’s success or potential.
    • Other important factors such as product quality, customer satisfaction, and technological advancements are not considered in the matrix.

  5. Neglects External Factors:

    • The BCG Matrix does not explicitly consider external factors such as economic conditions, regulatory changes, or technological disruptions, which can significantly impact the performance of products or business units.

  6. Unclear Definitions:

    • The definitions of categories (Stars, Cash Cows, Question Marks, and Dogs) can be subjective and may vary between industries or businesses. What constitutes high or low market share or growth rate may not be clearly defined! Use with caution! 

  7. Overemphasis on Market Share:

    • The BCG Matrix places a significant emphasis on market share as a measure of success. However, high market share does not always guarantee profitability or sustained success, especially if it comes at the expense of profitability. Moreover, certain businesses may be happy with a more niche appeal where higher prices can be charged! 

  8. Assumes Linear Growth:

    • The matrix assumes a linear relationship between market share and profitability. In reality, the relationship can be more complex, with diminishing returns on investment and potential economies of scale.

  9. Not Suitable for All Industries:

    • The BCG Matrix may not be suitable for industries or businesses with rapidly changing technologies or where innovation is a key driver. In such cases, the matrix may not effectively capture the dynamics of the market. For example, a ‘good’ product portfolio can be ripped apart by destructive innovation of a new or existing business! 

  10. Ignores Market Synergies:

    • The matrix does not consider potential synergies between different products or business units within a portfolio, missing opportunities for cross-selling or integrated marketing strategies.

SUGGESTED ANSWERS

1 Explain (with reference to the case) why John Von Short is said to be market orientatedin their approach [4]

John Von Short is considered market-oriented in their approach due to their significant investment in market research (focus groups)

  1. This approach signifies a commitment to understanding and meeting the needs of the market.
  2. The brand’s commitment to market orientation is further emphasized by its consideration of consumer perceptions and preferences.
  3. Their product portfolio changes according to the desires of customers (and not the other way around which would be a product orientated approach)

 

2 Identify the 4 stages of the product life cycle(PLC)  [4]

The four stages of the product life cycle (PLC) are:

  1. Introduction
  2. Growth
  3. Maturity
  4. Decline
  5. Withdrawal (not often identified on the PLC, but accepted)

 

3 Explain one advantage and one disadvantage for John Von Short using focus groups for their
market research[4]

One advantage of using focus groups for market research is:

  1. Focus groups provide qualitative insights into consumer opinions and preferences. John Von Short can gather in-depth information about the target market’s perceptions, attitudes, and preferences regarding their products. This qualitative data can offer a nuanced understanding that quantitative methods may not capture.

 

  1. A disadvantage of focus groups is that they may not represent the entire market, as opinions can be influenced by group dynamics, and the sample size is limited. Additionally, participants may not always express their true opinions due to social desirability bias, impacting the reliability of the gathered data.

 

4 Apply the Boston Consulting Group Matrix (BCG) to John Von Short’s product portfolio  [4]

Applying the Boston Consulting Group Matrix (BCG) to John Von Short’s product portfolio:

  1. VShorts (high-quality fitted fashion jeans): This product contributes 70% towards revenue and profit, indicating it is a “cash cow” with a high market share and steady growth.
  2. VonJak (washed denim jackets): Positioned as reaching the end of its product life cycle, it might be classified as a “dog” with declining market share and profitability.
  3. Von Shorter (portfolio of fashionable shorts): This is a new product, and its position in the BCG Matrix would depend on its market performance.

5) Interpret (using information from the case study) whether or not John Von Short has a balanced portfolio) [4]

John Von Short’s portfolio may not be entirely balanced.

VShorts is a strong cash cow,

VonJak is reaching the end of its life cycle.

The introduction of Von Shorter, targeting a different market segment, can potentially bring balance if it performs well.

However, the portfolio’s overall balance would depend on the market success of the new product.

John Von Shorts does not have a star!

6 Suggest one way in which John Von Short could offset the decline of one of its products on the product life cycle(PLC) [2]

Generally, product extension strategies are considered to offset decline, which comes after maturity phase in the PLC.

To achieve this, John Von Shorter could consider the following options.

            Price reduction, Advertising, Redesigning, Repackaging, New markets, brand extension, product differentiation, change of brand name, reposition the product

7 Recommend whether John Von Short should launch the new product, Von Shorter [10]

 

John Von Shorts has two products in its portfolio and will end production of one of them, VonJak, later this year!

This cannot be considered balanced as the profit and revenue then falls upon one remaining product, VShort (which could be described as a cash cow). Whilst some brands such as Levi’s and Coke have relied upon a cash cow (Levi Jeans and Classic coke) for decades, both companies have been able to use ‘product extension strategies’ to constantly remix, re-launch or tweak their offerings to the public! This has been a successful strategy for them, but John Van Shorts is a less well known brand! To achieve this may require more marketing than they have the money for!

With that said, a high degree of risk could be said to exist having a single product brand!

Therefore, it seems sensible for John Van Shorter to consider launching a new product to try to improve their overall product portfolio!

A business with just one product puts itself in a dangerous position, as if demand for that product falls the business could faces losses and possibly failure.

The launch of the new product could take John Van Shorts into a new market targeting low-income young consumers who want to purchase fashion shorts.

This move could also broaden John Van Shorts distribution channels as it would now use mass market retail discount stores and online delivery (at present John Van Short only sells through high end independent retailers).

Low-income consumers may enjoy the chance to buy shorts that have a recognized brand name that is associated with high quality and designer fashion at affordable prices (this may give John Van Short) a competitive edge in a highly competitive market.

However (the potential disadvantages)

However, the move is not without risk.

The market is very competitive

John Van Shorts products may not be able to establish a toethold in the market.

There is also the danger that this new product may impact of the sales of their cash cow, VShort (which is termed product cannibalism).

This ‘down-market’ (lower quality and lower priced) product may damage the brand image of John Van Short, which, according to a marketing guru, is one of the business’s major strengths.

John Van Short run the risk of ending up with two products aimed at very different markets using premium prices for one product and competitive pricing for the other!

This clash of images may not work.

Maybe John Van Short could consider launching a range of shorts at their current target market and work to its strengths.

Finally, the COST of launching must be considered, that include marketing, research, and development! The ongoing costs of brand management should also be considered!

Conclusion

It seems that on balance, John Van Short are in a position where they must ‘do something’! The cost of introducing a new product and associated risks is significant, but this does not change the conclusion! They must launch a new product given their current unbalanced portfolio