BCG Matrix: what it is, examples and how to use it

The BCG Matrix is a strategic management tool widely used in the business world to analyze an organization's portfolio of products or services.

Developed by the Boston Consulting Group in the 1970s.

This matrix aims to help companies make informed decisions about where to invest, discontinue or consolidate products.

In this article, we will explore in depth what the BCG Matrix is, present practical examples and teach you how to use it to maximize results.

What is the BCG Matrix?

The BCG Matrix is a model that classifies products or business units into four categories, based on two main axes: market growth and relative market share.

In this sense, this classification helps to identify which products require more investment, which are profitable and which should be reconsidered.

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The two main axes are:

1. Market growth rate: inindicates how fast the market for a product is growing. Rapidly expanding markets offer more opportunities, but also require more resources.
2. Relative market share: methe position of the product in relation to its competitors. Products with high share tend to generate more profit due to economies of scale.

From these axes, the matrix is divided into four quadrants:

How the BCG Matrix works in practice

To understand how the BCG Matrix works, let’s explore examples that illustrate each quadrant. These examples can be adapted to different industries.

1. Stars

Products classified as “stars” have a prominent position in fast-growing markets.

In short, they are the main focus of investments, as they represent leadership opportunities.

Example: Imagine a technology company that has launched a new AI-based software.

The AI market is growing rapidly, and software already has a significant share.

Therefore, to maintain the position, it is essential to invest in marketing, innovations and expansion.

While “stars” may consume a lot of resources initially, they have the potential to become “cash cows” in the future once the market matures and growth slows.

2. Dairy cows

Products in this quadrant are the most profitable.

Because they are in stable, low-growth markets, they require little additional investment.

Put Example: a car model that has been the best-selling model for years in a specific region.

So, although the car market is not growing rapidly, consistent sales and relatively low costs ensure high profit margins.

These products provide the resources needed to invest in “stars” and explore “question marks.”

The strategy here is to maximize profitability and avoid unnecessary expenses.

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3. Question marks

“Question marks” are products in promising markets, but which have not yet achieved a leading position.

Therefore, these opportunities require careful analysis.

Example: A healthy food startup launching a new protein snack into a growing market.

So, despite the high demand, the brand is still gaining recognition and needs to compete with big companies.

Deciding whether to invest heavily to turn these products into “stars” or discontinue them is the main challenge.

Here, it is essential to evaluate the potential return and the costs involved.

4. Pineapples

“Pineapples” are products with low performance in markets that are not very dynamic.

They consume resources without generating significant returns.

Example: A line of DVDs in a market dominated by streaming services.

Low demand makes these products obsolete, requiring discontinuation or reinvention.

While it may be tempting to hold onto these products for emotional or historical reasons, the rational decision is often to discontinue them to free up resources for other areas.

Benefits and limitations of the BCG Matrix

The BCG Matrix offers several advantages, but it also has limitations that must be considered to avoid making wrong decisions.

Benefits

1. Clarity in resource allocation: The matrix helps prioritize where to invest and where to reduce costs.
2. Ease of implementation: Because it is simple, it can be quickly applied to different sectors.
3. Data-driven strategy: The model encourages the use of clear indicators such as growth and market share.

Limitations

1. Excessive simplicity: The analysis ignores important factors such as innovation, internal competence and consumer behavior.
2. Narrow focus on growth and participation: These are not always the only indicators of success.
3. Risk of product devaluation: Products classified as “pineapples” may have value in specific niches.

How to use the BCG Matrix step by step

1. Data collection

Gather information about all the products or services you want to review.

Data such as market share, industry growth and profit margins are crucial.

2. Classification

Position each product in one of the quadrants based on the matrix axes.

In this sense, use clear benchmarks to ensure consistency.

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3. Strategy definition

After classifying the products, determine the actions needed for each quadrant:

• Stars: Invest to maintain or expand market leadership.
• Dairy cows: optimize operations to ensure consistent profit margins.
• Question marks: assess the market potential and decide whether it is worth investing or discontinuing.
• Pineapples: Consider discontinuing or reformulating the product for niche markets.

4. Continuous monitoring

The market is dynamic, and a product's position can change over time.

In short, periodically review the matrix to adjust strategies according to new realities.

Conclusion

The BCG Matrix remains an essential tool for strategic portfolio management.

Thus, allowing companies to analyze and make informed decisions about their products and services.

Its simplicity and efficiency help identify where to allocate resources to maximize returns and ensure business sustainability.

However, like any strategic tool, the BCG Matrix must be used in conjunction with other analyses and insights for a more complete view.

Incorporating factors such as innovation, consumer behavior and market trends can make the application even more effective.

By adopting the BCG Matrix, organizations can balance efforts between mature products, such as “cash cows,” and promising initiatives, such as “stars,” while mitigating risks associated with “question marks” and “pineapples.”

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With a continuous approach and updated data, this tool becomes a powerful ally in the search for consistent results and sustainable growth.

Andre Neri December 5, 2024