The BCG matrix was designed as an analysis tool to help you determine the role of products on your future profit margin so you can decide where to invest. The BCG matrix has been used since to help companies gain insights on what products best help them capitalize on market-share growth opportunities. Reeves Martin, senior partner and managing director of the Boston Consulting Group, said that nearly 50 years after its inception, the BCG matrix remains a valuable tool for helping companies understand their potential.
The primary guiding principle of the BCG group's strategy is that experience in a market share leads to reduced costs and higher profits. This model uses the BCG marketing matrix, a system to classify business enterprises based on their potential for profits and growth.
The model also applies mathematical formulas to business enterprises or products to calculate potential growth and earnings. Cows, Children, Stars and Dogs The BCG growth matrix part of the model classes each product as a "cash cow," "problem child," "star" or "dog.
These are products with the potential to become future "cash Bcg model if the company invests in them wisely. These are the products Bcg model watch, as they can eventually become either "stars" and then "cash cows" or "dogs.
The "Experience Curve" Another portion of the BCG model proposes an "experience curve" that graphs the increased profit as a company gains experience and market share with a particular product. The BCG model theorizes that each time a company's output increases so that it produces twice as much of a specific product as it used to, the cost to create each unit declines by 20 to 30 percent.
This decrease is due to workers increasing production speed as they become familiar with the process. This theory relies on maintaining a low turnover in the work force and no increase in materials costs.
Analysis Once a company divides its products into these four categories, it can develop a marketing strategy to support the "cash cows," increase market share for "stars," phase out "dogs" and keep an eye on "problem children. Marketing and production dollars may also flow toward the "problem children" to turn these products into "stars.
Considerations As with any marketing model, the BCG works in some situations but not in others. It offers a valuable way to assess a company's offerings as far as which products to promote and which ones to cut, but the "experience curve" profit increase does not apply to all situations.
It does not take into account outside factors such as supply shortages that can affect the company's production costs and overall profits. Combining the BCG model with other marketing models can give a broader view of how marketing efforts for a particular product will affect a company's overall cash flow.
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The BCG Strategic Portfolio Model is a method of approaching and analyzing business marketing and growth developed by the Boston Consulting Group. The primary guiding principle of the BCG group's strategy is that experience in a market share leads to reduced costs and higher profits.
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. . Marketing Theories – Boston Consulting Group Matrix. Visit our Marketing Theories Page to see more of our marketing buzzword busting blogs..
If you are working with a product portfolio you have a range of tools at your disposal to determine how each one or a group of the products are doing. The BCG Strategic Portfolio Model is a method of approaching and analyzing business marketing and growth developed by the Boston Consulting Group.
Understanding cash flow is key to making the most of the BCG matrix. In , BCG founder Bruce Henderson noted that four rules are responsible for product cash flow: .