BCG Matrix: understanding, quadrant, and strategy to develop it

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BCG Matrix understanding quadrant and strategy to develop it

BCG Matrix: understanding, quadrant, and strategy to develop it

BCG Matrix understanding quadrant and strategy to develop it

BCG Matrix is ​​a framework used by companies to analyze the performance of their various products and for decision making. The company with a very large product portfolio has one main problem – which product will be used to make money and which products will spend money? This question can be answered by BCG Matrix.

What is the BCG Matrix?

BCG Matrix is ​​a matrix designed by the Boston Group Consulting in the 1970s. This is a matrix that helps in decision making and investment. It divides the market based on relative growth rates and market share and produces 4 quadrant components -Cash Cow, Stars, Question Marks and Dogs. Products can be categorized in one of the quadrants and strategies for this product it is decided properly.

This analysis actually helps you in deciding which entity in your business portfolio is truly profitable, which is useless, which you should concentrate and which gives you a competitive advantage over another.

After you know which business stands where in your business portfolio, you will also know which business requires investment, which needs to harvest (make money), which one needs to divest (reduce investment) and which one needs to be released completely from the business portfolio .

For large organizations such as Unilever, Nestle, etc. which have many categories and in that category, they have many product lines, BCG analysis becomes very important.

At a holistic level, they must make decisions about which products to continue and which products will be divested. Which products can provide new benefits with good investment, and which products reach the peak of market share.

Build BCG Matrix

The BCG growth share matrix was developed by Henderson from the BCG group in the 1970s. There are two axes in the BCG matrix. The X axis which is a relative market share and Y axis which is the level of market growth.

  • X-AXIS – Relative Market Share or Relative Market Share – Business Market / SBU / Products on the market compared to its competitors and overall products / categories.
  • Y-Axis – Market Growth Level or Market Growth Rate – The overall industrial growth rate is considered from which the product growth rate is extralatable. This growth rate is then displayed on the graph.

So by having 2 basic factors but at the same time it is very important on the x axis and y axis, the BCG matrix ensures that the classification is concretely.

Calculating the market growth rate consists of industrial growth and product growth rates so as to provide fair knowledge about the position of the product / SBU compared to the industry.

Market share, on the contrary, consists of competition and potential products on the market. So, when we consider the growth rate and market share together, it automatically provides a general description of competition and industry standards and an overview of what might occur in the future for products.

BCG Boston Matrix Kuadran

After the business is classified, the business is placed into four different quadrants that are divided into:

  • Cash Cows – high market share but low growth rates (most profitable).
  • Stars – high market share and high growth rates (high competition).
  • Question marks – low market share and high growth rates (uncertainty).
  • Dogs low market share and low growth rates (less profitable or even negative profitability)

Based on this classification, the strategy was decided for each SBU / product. Let’s discuss the characteristics and strategies of each quadrant in detail for BCG Matrix.

1. Cash Cows

The business foundation of multiproduk, cash cows is a product that has a high market share in the market that grows low. Because the market does not grow, the dairy cows benefit maximum by generating maximum income due to high market share for BCG Matrix.

So for any company, cash cows are those who need the least investment but at the same time provide a higher return. This higher return increases the company’s overall profitability because the excess of this income can be used in other businesses such as Stars, Question Marks or Dogs.

Strategy for Cash Cows

Cash cows are the most stable for any business and therefore the strategy generally includes market share retention. Because the market does not develop, the acquisition is reduced and customer retention is high. Thus, customer satisfaction programs, loyalty programs, and other promotional methods form the core of the cash cows / SBU product marketing plan (Strategic Business Unit).

2. Stars.

Stars are products with high market growth rates but low market share. So, there is a lot of competition in this segment.

If you see 4 top telecommunications companies in Indonesia, the market share is good, but the growth rate is also good. So, because these two factors are high, telecommunications companies are always in competitive mode and they have to invest money and spend money from time to time.

Unlike Cash Cow, Stars cannot be complacent as they are above because they can be immediately taken over by other companies that use the market growth rate. However, if the strategy is successful, STARS can be a cash cow in the long run.

Strategy for Stars.

All types of marketing strategies, sales promotions, and advertising are used for STARS. This is because in cash Cash, the strategy has been used and produces the formation of cash cow.

Likewise in Stars, because high competition and increased market share, concentration and investment need to be high in marketing activities so that they can improve and maintain market share.

3. Question Marks.

Question marks are products that may have high market share and high market growth, but the market market is questionable – whether it will grow further or decrease.

An example of a question mark is a desktop computer in the middle of the many smartphones and laptops produced. Desktop is still a product with a good market share and the possibility of developing. However, we do not know until when the growth will continue. Other innovations in the future can fully turn off the desktop computer.

Often, a company might produce innovative products that soon get a good growth rate. However, the market share of such products is unknown.

Products may lose customer interest and may not be bought again in this case will not get a market share, the growth rate will drop and will ultimately become a dog.

On the other hand, the product can increase customer interest and more and more people may buy the product so that the product is a product with a high market share. From here the product can develop into cash Cash because it has lower competition and high market share. So

This uncertainty gave a quadrant name “Question Marks”. The main problem associated with having a question mark is the amount of investment that might be needed and whether the investment will give a return in the end or whether it will be in vain.

Strategy for Question Marks

Because it is a new product with a high growth rate, the growth rate needs to be capitalized in such a way that the question mark turns into a product with a high market share.

The new customer acquisition strategy is the best strategy to change the Question Marks to Stars or Cash Cow. Furthermore, market research time to time also helps in determining consumer psychology for products and the possibility of the future of products and difficult decisions may be taken if the product experiences negative profitability.

4. Dogs.

Products are classified as Dogs if they have a low market share and a low growth rate. So, these products do not make large amounts of cash or need a higher investment.

However, the product is considered a product of negative profitability especially because the money that has been invested in these products can be used elsewhere.

So here businesses must make a decision whether they have to develop this product or they can fix it and thus make it can be resold which will then increase the market share of the product.

Strategy for Dogs.

Depending on the amount of cash that has been invested in this quadrant, the company can develop products at all or change products through rebranding / innovation / adding features, etc.

However, moving the Dogs to Stars or Cash Cash is very difficult. It can only be transferred to the Question Marks area where the future of the product is unknown. So in the case of Dog products, the divestment strategy is used.

4 strategies in BCG Matrix

There are four possible strategies for each product / SBU and this is a strategy used after BCG analysis. This strategy is

1. Develop

By increasing investment, the product is given a push in such a way that the product increases its market share. Example – Encouraging Question Marks to Stars and finally becomes Cash Cow (Sequence Sequence)

2. Maintain

Companies cannot invest or have other investment commitments because they hold products in the same quadrant. Example – holding Stars as the best investment in business until you can win the competition and move Stars to Cash Cow.

3. Harvest

The best is observed in the cash cow scenario, where companies reduce the amount of investment and try to take the maximum cash flow of the product that increases overall profitability.

4. Divestment

It is best observed in the case of Dog Quadrant products which are generally divaised to release some money that has been trapped in the business.

Advantages of BCG Matrix

The advantages of Boston Matrix include:

  • This provides a high level of way to see opportunities for each product in your portfolio.
  • This allows you to think about how to allocate your limited resources to portfolios so that profits are maximized in the long run.
  • This shows if your portfolio is balanced. For example, if you have too few products in your portfolio, then you can be in a dangerous position because it stores all your eggs in one basket.
  • This tool is very easy to use and understandable.

Lack of BCG Matrix

Disadvantages of the Boston matrix include:

  • Market growth rates are not accurate measures of market attractiveness on business.
  • The market share actually does not predict how much money is produced by a product. For example, Dogs can get profits, and STARS can have high market share and high growth but operate in the industry with very low margins and therefore never benefit specifically.
  • It does not take into account external factors, known as environmental factors. These factors include things like the emergence of new technologies or potential changes in taxation laws. To analyze external factors you can use pest analysis.
  • This is just a picture of the current situation. It is not visible to see what might happen to the market in the future. McKinsey matrix is ​​a better tool for use to analyze your portfolio if you want to understand what might happen in the future.

Conclusion

Thus the BCG or Boston matrix matrix is ​​the best way to analyze the business portfolio. The recommended strategy after analysis of BCG helps the company decide the right actions and help them apply the same thing.

Information in the matrix can then be used to make the right portfolio mixture (or a balanced portfolio). In order for your business to grow and increase the number of customers you don’t forget to advertise through the Froggy Ads service, you can start by advertising your product, so that later you can improve visitors in your online business portal. FROGGY ADS is an online advertising service that can help you control all your product campaigns. Helps you target the targeting target you want and give you many choices to market your product.