How do I Construct a BCG Matrix?
The BCG Matrix was developed by The Boston Consulting Group, a strategic management consulting firm, to analyze the performance of products. The matrix measures product performance by growth and market share. It is a two-by-two graph, with market growth shown on the vertical axis and market share charted on the horizontal axis. The quadrants are then labeled as four business categories: cash cows, dogs, question marks and stars. Although this might sound complicated, the matrix is relatively easy to construct by following a simple set of steps.
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Instructions
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Draw a horizontal axis on the paper. Label this line "relative market share." This dimension will measure the market share of the company or companies you are analyzing.
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Draw the vertical axis so that it intersects perpendicular at the midpoint of the horizontal axis. The vertical axis will measure the market growth of firms, so label it "market growth."
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Label the top left quadrant "stars." This quadrant represents all the products with high growth and high market share. This is the most desirable place to have a product in the matrix. Write down all of the company's products that have both high growth and high market share in this quadrant.
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Label the top right quadrant "question marks." This quadrant contains products with high growth but low market share; place all of the products that fit that criteria into this quadrant. These products tend to cost a lot to maintain but yield small returns. They should be considered carefully, and they perhaps should be dropped from the product line.
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Label the bottom left quadrant "cash cows." This is the category for products with high market share but low growth. These products normally deliver regular income but will have no significant increase in income. These products typically represent mature markets where there is little or no innovation. Place all of the products with low growth and high market share into this quadrant.
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Label the bottom right quadrant "dogs." This is the category for products that have both low growth and low market share. It is the least desirable spot for a product to occupy in the matrix, because it typically means the product will have small profits and no room for growth. Place all of the company's low-growth and low-market-share products in this category.
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Tips & Warnings
To make a professional-looking BCG matrix, consider using a software program that will make clean and crisp diagrams.
When assigning the products to their respective categories, be sure to use accurate market data. The quality of your data is directly related to the quality of your BCG matrix.
References
Resources
- Photo Credit the cash cow image by Aussiebloke from Fotolia.com
