BCG Matrix or Growth - Share matrix.

bcg matrixBCG Matrix is a strategic tool that allows us to classify the portfolio of products / services of a company as well as the different business units that compose it, with the objective of proposing and selecting the appropriate investment strategy for each product / service or line of business analyzed.

BCG Matrix was first presented in 1970 by the prestigious strategic consultancy Boston Consulting Group (hence its acronym BCG) with the aim of helping companies allocate the necessary resources to each of their products or lines of business, identifying which have business potential and which reduce the resources of the company.

The BCG Matrix is composed of 4 quadrants where the products / services or business lines analyzed are located, each quadrant represents an investment strategy to be followed with the objective of maximizing the benefits the company.

Creation of the BCG matrix

BCG matrix is composed of 2 axes:

The market growth rate is calculated as the quotient between the global sales of the sector that has generated our product within a given period and the global sales that were generated in the sector for the same product but in a previous period of time.

The relative market share is calculated as the sales generated by our product against the total sales volume generated by the leading company in the sector. In the case that we are the leader of the sector we will compare ourselves with the immediate competitor.

Once the growth rate and the market share for each product or line of business have been calculated, we place it in one of the 4 possible quadrants of the matrix, each of these quadrants receives a name that will give rise to the investment strategy to follow:

Stars

Star products are located in the matrix with high growth rate positions and high market share positions.

The high positions of growth rate indicate that they are products that are in a market that increases year after year being products with a future and with high expectations that the demand will increase.

The high market share indicates that we are the leading company or that we have an advantageous position compared to the rest of the companies in the sector.

With all this, star products are advised to follow an investment strategy, with the aim of continuing to promote them and achieve greater market share in the future, expecting them to be transformed into products that generate high future returns (cow products).

Cows

Cow products are located in the matrix with low growth rate positions and high market share positions.

The low growth rate positions indicate that they are products that are in a stagnant and stable market.

The high market share indicates that we are the leading company or that we have an advantageous position compared to the rest of the companies in the sector.

Cow products are the generators of profits of companies, we need to "milk" the benefits of the product to obtain enough money to continue investing in the development of new products that allow us to gain market share (questions) or in products with high future expectations (stars), for this reason we recommend a moderate investment in this type of products, focusing our efforts to improve profit margins as well as continuing to maintain our leading positions in the market.

Questions

Question products are located in the matrix with high growth rate positions and with low market share positions.

The high growth rate positions indicate that they are products that are in a market that increases year after year, being products with a future and with high expectations that demand will increase.

The low market share indicates that we are not the leading company and that we are far from reaching dominant positions in the sector.

In question products it is advisable to carry out investment strategies with the objective of gaining market share and transforming them into star products, but it is possible that we will not achieve our objectives by becoming dog products

Dogs

Dog products are located in the matrix with low growth rate positions and with low market share positions.

Low positions of growth rate indicate that they are products that are in a stagnant and stable market.

The low market share indicates that we are not the leading company and that we are far from reaching dominant positions in the sector.

In dog products it is advisable to carry out an investment strategy in a very moderate way or even stop investing and proceed with its liquidation.

 

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