in a nutshell
Stars, dogs, cows, and question marks. These are not characters from a Disney movie, but the areas that make up the diagram of the Boston Matrix, also known as BCG Matrix. In 1968, the Boston Consulting Group designed a strategic planning tool used for portfolio analysis, which looks at market growth rates and Relative Market Share.
HOW TO Use THE BCG MATRIX
• Question marks: The upper left quadrant contains products or brands that have recently entered the market. They are characterized by high market growth, but also by low market share, because they may require large investments. The question mark is due to the fact that, still, nobody can determine their future developments.
• Stars: The upper-right quadrant represents brands and products with high market share, i.e., a large Return on Investment (ROI), and for this very reason – despite the fact that they may absorb large economic resources to maintain their position – it is not a big deal for companies to continue investing in them, as they hope for long-term success.
• Cash Cows: On the lower right quadrant, we find the profitable “cash cows”: products to be milked as much as possible, because, having achieved a solid leadership position, they keep the company afloat by generating a lot of cash without requiring heavy investment. They usually produce the funds that are later invested in the stars or question marks.
• Dogs: The last quadrant is the bottom left. These are products and brands with low market share and low growth rate. These are dogs, businesses with a weak competitive position in a market of low attractiveness. They offer few prospects for development, which is why they are often “abandoned” with a disinvestment strategy.
Do you have a Strategy & Innovation challenge to tackle? Let’s face it. Together.
C-levels from these companies (AND MORE) relied on my expertise to overcome thEIR CHALLENGES IN THIS AREA. And You can, too.Can I help you?
• BCG Matrix in the IT industry
If we wanted to apply the BCG Matrix to the IT sector, we could identify four Apple products and their relative placements. We could point to iPhones as stars, since with each new launch the company sets new sales records. Apple TV, on the other hand, generates some revenue, but probably has not yet reached its potential: it remains a question mark. Apple’s cows will be MacBooks and iMacs. But as the computing industry is slowly becoming more mobile, the need for computers is also diminishing, so we might add Apple’s iMacs and MacBooks among the dogs, where iPods already reside, without a doubt.
• BCG Matrix in the cosmetics industry
Within the large L’Oréal group, there are many different businesses, ranging from luxury to mass-market products. The subdivision within the brand makes it easy to identify the positions in the Boston Matrix: Lancôme falls in the Stars quadrant, as it generates large profits for the group but still remains among a niche market. L’Oréal Men Expert is placed among the Question Marks. Maybelline and Garnier are classified as Cash Cows because they create a lot of cash. Finally we find Kérastase, forgotten in the Dog section.
• BCG Matrix in the clothing industry
Zara can boast branches in more than 90 countries worldwide. We can place among the “dogs” the underwear garments, because there are other competitors that profit more from this niche. Among the “question marks“, however, we find children’s garments. The “star” garments are denim, jersey and the unique collection of bags and accessories. Finally, the most profitable cows include the Trafaluc fabric range, jeans, shoes and skirts, which account for 45 percent of market share.
• BCG Matrix in support of marketing strategy
By fully knowing its offering, a company can carry out an analysis of the markets in which it finds itself in order to direct economic and material resources into promoting products and services that generate the most profit.
• BCG Matrix in support of product life cycle
The BCG Matrix can also be aimed at analyzing the life cycle of products: an initial phase of uncertainty (Question Marks) is often followed by a moment of interest from a niche market (Stars). The path may then lead to a phase of great profitability (Cash Cows), until it reaches – hopefully as late as possible – a state of decay (Dogs).
• BCG Matrix in support of R&D
The analysis that results from using a BCG Matrix provides insight into the target market positioning of a company’s products. At this point, one can consider investing in innovation: Research & Development is the area of a company aimed at developing solutions to improve already existing solutions and foster the creation of new ones.
Stay in wonderland
Let me show you how deep the rabbit hole goes.
Check out more of the Innovation Alphabet:
“3D printing” is a process carried out by an electronic device which, instead of resorting to the canonical ink, it molds almost any kind of material: from concrete to living tissue, most usually plastic, but also metal. And the operating principle is similar to that of a traditional printer. The creation of three-dimensional models can lead to the redesign of a company’s production capabilities.Dive In
5G is the new frontier of cellular telephony. It was designed to improve (or completely replace) previous generations of mobile networks. The 5th generation features lower latency, ensuring flawless performance of business applications and many other digital experiences – thus enabling the new cultural generations to furiously play Fortnite away from home.Dive In
The term “Advanced Analytics” refers to the ability to autonomously or semi-autonomously analyze data and content to identify correlations, develop analyses, predictions, and recommendations. It is not just a matter of collecting information and then organizing it into watertight compartments: the ultimate goal is to identify a dialogue pattern from a data-driven perspective.Dive In
Agile is an approach to software development designed to respond to change. Teams quickly analyze the context in which they operate, identify uncertainties faced, and figure out how to adapt to always move forward. Interaction between individuals comes before processes and tools; collaboration with the customer is more important than negotiating contracts.Dive In
The Ansoff Matrix is a marketing planning model that arises from the intersection of new and existing products and markets. It derives four possible strategies for expanding the company’s market, which are built around four variables with a changeable factor of risks and possibilities: existing product, new product, existing market, new market.Dive In
Artificial Intelligence is not strictly defined. Basically, it is a computer system able to make decisions in an independent and flexible way. A good AI application can perform everyday tasks better than an average person (e.g., identifying other people from their photos on social media or beating the best chess player). Nothing to fear, then. Unless you are a chess champion.Dive In
We often tend to desire what we cannot have. Or what we are in danger of losing: Artificial Scarcity is a strategy that flaunts a limited number of items that do not correspond to actual availability. The goal is to stimulate the perception in consumers that the stock of items is about to run out and thus create a need based on the “fear of being cut off” or the intention to buy the item in order to resell it at a higher price.Dive In
The term attack surface refers to the part of a system that may be subject to attack or breach by hackers. The smaller that surface is, the easier it will be to protect it. Indeed, the Internet is an ocean of deep, dark waters: those who navigate it must be aware that they are exposing themselves to a flood of digital risks. Yet, ironically, we do not need a big boat to shelter us.Dive In
Augmented Reality is an ever-evolving technology that overlays multimedia information on top of our common sensory horizon to gain a deeper understanding of our surroundings. No, it doesn’t allow you to step out of the Matrix dream simulation, nor can it be accessed by swallowing a red pill. But neither is it the disturbing experience of the Playtest episode of Black Mirror.Dive In
In business, as in life, you need balance. The Balanced Scorecard is a holistic tool for strategic management. It offers, in fact, the possibility of assessing corporate performance in its wholeness. An overview that embraces four perspectives: the business/financial side, customers and stakeholders, internal processes, and learning and growth.Dive In