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What is the Boston Consulting group (BCG) Matrix?

The Boston Consulting group Matrix (BCG Matrix), additionally referred to as the product investment portfolio matrix, is a service planning tool used to evaluate the strategic position of a firm’s brand portfolioBrand EquityIn marketing, brand equity refers to the value of a brand and is figured out by the consumer’s late of the brand. Brand equity have the right to be optimistic or. The BCG Matrix is just one of the most famous portfolio analysis methods. That classifies a firm’s product and/or services right into a two-by-two matrix. Each quadrant is classified together low or high performance, depending on the relative market share and market expansion rateSustainable growth RateThe sustainable development rate is the price of expansion that a company can expect to see in the long term. Often referred to together G, the sustainable development rate can be calculated by multiplying a company"s earnings retention price by that return on equity. The expansion rate can be calculation on a historic basis and also average. Learn an ext about strategy in CFI’s service Strategy Course.

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Understanding the Boston Consulting group (BCG) Matrix

The horizontal axis of the BCG matrix represents the quantity of market share that a product and its strength in the details market. By using relative sector share, that helps measure up a company’s competitiveness.

The vertical axis that the BCG matrix represents the development rate the a product and its potential to thrive in a certain market.

In addition, over there are four quadrants in the BCG Matrix:

Question marks: assets with high market growth yet a low sector share.Stars: commodities with high industry growth and a high industry share.Dogs: assets with low market growth and a low market share.Cash cows: commodities with low sector growth but a high market share.

The assumption in the procession is that an increase in relative sector share will an outcome in enhanced cash flow. A firm services from utilizing economic situations of scaleEconomies of ScaleEconomies the scale describe the cost advantage experienced by a firm when it boosts its level that output.The benefit arises due to the and gains a cost advantage relative to competitors. The market expansion rate varies from market to industry yet usually mirrors a cut-off allude of 10% – development rates greater than 10% are considered high while growth rates lower than 10% are considered low.

Learn an ext about strategy in CFI’s company Strategy Course.

The BCG Matrix: inquiry Marks

Products in the inquiry marks quadrant space in a market that is farming quickly but where the product(s) have actually a low industry share. Question marks are the many managerially extensive products and require substantial investment and resources to rise their industry share. Investments in inquiry marks are typically funded by cash flows from the cash cow quadrant.

In the best-case scenario, a firm would certainly ideally desire to turn concern marks into stars (as suggested by A). If concern marks do not succeed in coming to be a industry leader, they finish up becoming dogs as soon as market development declines.

The BCG Matrix: Dogs

Products in the dog quadrant space in a industry that is cultivation slowly and where the product(s) have a low market share. Products in the dog quadrant are typically able to sustain themselves and provide cash flows, however the products will never ever reach the stars quadrant. Firms typically phase out commodities in the dog quadrant (as shown by B) uneven the assets are complementary come existing commodities or are used for a compete purpose.

The BCG Matrix: Stars

Products in the star quadrant room in a industry that is growing quickly and also one whereby the product(s) have actually a high market share. Commodities in the stars quadrant are market-leading products and require far-reaching investment to retain their industry position, rise growth, and maintain a competitive advantageCompetitive AdvantageA competitive advantage is one attribute that permits a firm to outperform the competitors. It allows a company to achieve superior margins.

Stars consume a far-reaching amount of cash but likewise generate big cash flows. As the sector matures and also the products remain successful, stars will migrate to come to be cash cows. Stars room a company’s prized possession and also are top-of-mind in a firm’s product portfolio.

The BCG Matrix: Cash Cows

Products in the cash cows quadrant room in a industry that is growing slowly and also where the product(s) have a high market share. Commodities in the cash cows quadrant space thought the as commodities that are leaders in the marketplace. The products already have a far-ranging amount of invest in them and do not require far-ranging further investments to keep their position.

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Cash flows produced by cash cows room high and are normally used to finance stars and also question marks. Assets in the cash cows quadrant room “milked” and also firms invest as little cash as possible while reaping the profits produced from the products.

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