The well-known management consulting company Boston Consulting Group is known by the initials BCG. The horizontal axis of the BCG Matrix represents the amount of market share of a product and its strength in the particular market. By using relative market share, it helps measure a company’s competitiveness. Before you can categorize your businesses, you need real data to see where they stand in the marketplace.
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However, in its annual financial report released at the end of 2020, Disney announced that the impact of COVID will force them to let go around 32,000 employees. Unfortunately, most of those work in the Parks segment of the business, which could have strategic implications for the company. For example, imagine year one market size what does question mark symbolize in bcg matrix is valued at $100 million, but year two saw an increase to $110m.
It’s important to understand that you’re not going to perfectly predict the path to bombastic success for your company in a single planning workshop and your first BCG Matrix. Either find a firm that specializes in your industry and locations and offers the most accurate data, or establish your own in-house research team. If you’re looking for a similar tool to help you plan the journey of a single product, you could try impact mapping. Trying to make high-level decisions about the future of your company can feel overwhelming.
Just because your product has a high market share doesn’t mean it’s a profitable business. It could be a cut-throat market with high costs, leaving you with bad margins and poor cash generation. For example, as market growth peters off, a previous question mark could quickly become a dog, with no real prospects of becoming a winning product for your company. Kia’s electric vehicle business is a good example of a question mark. Although it currently has a small market share of around 2.1%, the EV market is rapidly growing globally, at an expected average rate of 24.3% in the U.S. until 2028.
The BCG Matrix tends to deal in extremes — a product either has a low market share or high, with no in-between. This framework has a number of limitations and issues that make it an imperfect tool for strategic planning. The BCG Matrix in itself isn’t the end-all-be-all of strategic management. For example, this could be investing in researching competitors to explore where your products stand in the marketplace. Instead of vague guesswork and thinking, you use formalized processes and real data to come up with objectives and strategies. The company may release revenue data by sector or even product in its quarterly reports.
Calculating Relative Market Share
Now it’s time to discuss some practical examples so that you know how to actually apply the BCG matrix in a real-life situation. This arm of the business actually accounts for 47% of the company’s total revenue. Hovering between a question mark and star is Disney’s Media and Entertainment segment.
Companies often set up special committees that take months — or even years — and dozens of meetings before committing to a path. In fact, in-depth knowledge of various consulting frameworks and using the right ones at the right time is what makes consultants successful in their career. You’ll find the knowledge gained from the program can be actively applied to your current business and unlock previously unforeseen opportunities for growth.
For example, your star product has the lion’s share of the market in a marketplace that’s growing at a rapid pace. Focusing on this business unit would be the smart move going forward. Hope you liked the BCG matrix with Apple examples and have understood the concept well. This framework can come in handy when you’re helping a company choose the right products to invest in and improve its profitability.
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Stars are in the high growth rate and, therefore, highly competitive markets. They have the potential to be the cash cows only if they can consolidate their competitive position. In the Figure, you will find that the market growth rate is placed on the left-hand side (Y-axis), and the relative market share is placed at the bottom (X-axis), below the horizontal line. In the best-case scenario, a firm would ideally want to turn question marks into stars (as indicated by A). If question marks do not succeed in becoming a market leader, they end up becoming dogs when market growth declines. The different categories help you simplify complex decision-making about investment and business focus.
Cash Cows: Low-Growth, High-Share Businesses
It wants to invest in the more promising question marks to make them stars and maintain the stars to become cash cows as their markets mature. Products in the dogs quadrant are in a market that is growing slowly and where the product(s) have a low market share. Products in the dogs quadrant are typically able to sustain themselves and provide cash flows, but the products will never reach the stars quadrant. Firms typically phase out products in the dogs quadrant (as indicated by B) unless the products are complementary to existing products or are used for a competitive purpose.
- It wants to invest in the more promising question marks to make them stars and maintain the stars to become cash cows as their markets mature.
- In 2019, Disney accounted for 33.1% of the total U.S. box office market share, and $9.6bn in annual revenue.
- Dogs are in the low attractiveness, low competitiveness (low relative market share) quadrant.
- It’s a portfolio management tool that helps your company prioritize different businesses or products to get the best long-term results.
To calculate your relative market share, you must divide your market share (revenue) from the market share of your leading competitor. Finally, products within this quadrant hold a low market share in a slow-growth market.In other words, these are the products that break-even, neither creating nor consuming large amounts of cash. A holding strategy, on the other hand, is a defensive strategy designed to preserve market positions. This means that the organization has to develop some competencies to make the best use of high growth rates. To sustain these business resources, the organization has to be committed to developing them in the select areas.
Movies being what they are, and the competitive landscape on which Disney competes, significant investment is needed for them to maintain their position. Despite significant investment being made into new movies and shows for their streaming service, Apple TV+ holds just a meager 3% market share. It requires relatively low levels of investment to maintain its commanding position largely due to its loyal following of iOS supporters. However, for the purpose of analyzing the BCG Matrix, we’ll stick to relative market share. By placing their business offerings into one of these four categories, companies determine where resources should be allocated to generate the most value or which to cut loose and minimize losses.
The y-axis represents the market growth rate and the x-axis relative market share. Products in the cash cows quadrant are in a market that is growing slowly and where the product(s) have a high market share. Products in the cash cows quadrant are thought of as products that are leaders in the marketplace. The products already have a significant amount of investments in them and do not require significant further investments to maintain their position. Stars consume a significant amount of cash but also generate large cash flows.
On the horizontal axis, relative market share serves as a measure of company strength in the market. As such, little investment is required to fight off competition making these some of the most profitable assets. Companies should therefore milk their cash cows and divert funds to more experimental projects, i.e. “question marks”. Products with relatively low-growth rates but with large market shares are known as “cash cows”. Dogs are in the low attractiveness, low competitiveness (low relative market share) quadrant. They are not generating revenue, nor does it make sense to develop them as their competitive position would remain weak.
This explains how different organizations can follow widely differing strategies leading to varying profitability in the same industry, other conditions being equal. There is no fixed manner in which an organization decides upon strategies. A, D, E, and I could be winners in large markets or have a very dominant position in smaller markets. Notice that businesses are concentrated in the upper left-hand quadrant of the Figure. Those in a strong position and are growing need cash to be harvested from those in a weak industry position. Strategic choices are concerned with resource allocation among businesses so that the ones with potential are nurtured and the ones without are divested.
