Expanding the BCG Matrix

The Boston Consulting Group Matrix has been taught to both marketing and business undergraduates for decades and like all long-established theories it has been regularly criticised.  As a result of this criticism, several attempts have been made to amend or add to the Boston box concept.

The Boston Consulting Group Growth Share Matrix measures relative market share against market growth rate.  Your products market share is compared to the market leader.  It creates four categories of product:

  1. Stars – these have a high market growth rate (e.g. above 7%) and your product has a high relative market share.  In effect, the product is a market leader.
  2. Problem Children (Question Marks) – These have a high market growth rate but a low relative market share.  Often these are new products to the market which can either become stars or fail.
  3. Cash Cows – these products are usually in the mature stage of their life cycle they have a high relative market share but a low growth rate.  These are the products which supply significant cash flow to your business.
  4. Dogs – These are products with a low growth rate and a low share of the market.  Often these are products in the decline stage of their life-cycle.

The BCG matrix measures cash flow rather than profits.  It assumes that market growth has an adverse effect on cash flow because of the investment required to finance that growth.  It also assumes that market share has a positive effect on cash flow as increases in profits are linked to rising market share.

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The matrix sees products moving through the four segments as they move through their life cycle.  Most will begin life as Problem Children/Question Marks.  If a problem child is successful it becomes a star.  Otherwise it can become a dog.  As star products mature, they become cash cows. When a cash cow declines in becomes a Dog.

The following strategies are suggested if you are using the matrix to manage your product portfolio:

  1. Stars – Build sales and/or grow market share. Invest in the product to maintain your market leadership position. Repel the challenge of competitors.  Obviously, it can cost to defend a market leading product.  Star products could be loss-making as the cost of maintaining the market leader position.
  2. Cash Cows – Hold sales levels and market share.  Defend your market position.  Use the cash generated by a cash cow to support star products and to select problem children for development.
  3. Problem Children/Question Marks Select problem children for investment.  Divest the rest, Harvest them for cash or focus on a defendable market niche.
  4. Dogs – Harvest them for cash; divest, or focus on a defendable niche.

The aim of the matrix is to ensure that your company has a balanced portfolio of products.  If all your products are Dogs, your business will likely fail.

There have been several criticisms of the matrix.  It ignores the goal of achieving competitive advantage.  It assumes that stars will have a weak cash flow, when this is not necessarily the case; some stars have significant positive cash flow. it also assumes that all products have a standard life cycle. It ignores fads and products which will be treated as staples.  The strategies suggested are highly dependent on the actions of competitors not the actions of the company using the matrix to determine strategy.

As a business focused on smaller businesses, the BCG matrix has one significant drawback, by comparing a small businesses products with a market leader, the smaller business will almost never be in a position to have a star product or even a problem child.  The best a small firm can hope for is a cash cow but most of its products will automatically be classed as dogs.  If a small firm was to use the BCG matrix, it would automatically be shown to have an unbalanced product mix.

There are other problems with the matrix, for example, it ignores products with falling market share or a negative growth rate.  One of the first adaptations to the matrix was the concept of the ‘cash dog’.  These products sit on the boundary between a cash cow and a dog.  In effect they are dog products that have an ability to generate cash flow.

Leeds Metropolitan University published a conference paper which extended the BCG matrix.  Called the Family Portfolio matrix, it suggested several new product categories:

  1. Infants – These are new products to the market which generate cash for a low spend,  they have a low market growth rate and a medium to high market share.
  2. Ideas and Concepts – These are products that are in development.  They are new to the market.  The producer of these goods however are spending on their introduction to the market.
  3. Research and Development – These are products have a high potential market growth rate but are yet to be placed on the market.  They have no market share and make no income.  There is significant spend on these products as they are prepared for the market.
  4. Hibernating Squirrels – These are products which have been withdrawn from sale but which may be returned to the market at a later date.  There is a small cost to these products e.g. the maintenance of intellectual property rights, storage of equipment etc.
  5. Warhorses – These are products with a high relative market share but a negative growth rate.  A product in decline but which still makes money.
  6. Dodos – These are products which have a low relative market share and a negative market growth rate.  These are products on the road to divestment.  A good example are ‘Findus Crispy Pancakes’.  The Findus brand was bought by Northern Foods several years ago. The sales of crispy pancakes have fallen dramatically since they were introduced in the 1970s.  Northern foods first dropped the Findus name from the pancake range, selling the product as a generic discount brand.  This was a staged removal from the market.
  7. Lingering Memories – these are products which have long-been removed from the market but still resonate in the minds of consumers. An example would be the Texan chew bar.  Competitors may make a version of this product so there may be some residual benefit which can be drawn upon.

No portfolio model is without criticism.  If you are using strategic models to plan your product portfolio, it may be sensible to compare different strategic models, for example the GE matrix, the Shell directional policy framework or the McDonald model.