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The BCG Matrix is a tool used by organizations to assess the value of the products that they offer in terms of their growth (i.e., how desirable the product on the market will be) and market share (i.e., competitive advantage). Using the model, an organization can determine which products are a worthwhile investment of company money and employee time and effort.
Description of BCG Matrix
The BCG Matrix provides insight into which products or services will best help the organization take advantage of growth opportunities in the market. The tool can be used to address some of the shortcomings of other marketing strategies that invest an equal amount on all products by ensuring a portfolio view of investments.
The creation of a BCG Matrix requires three steps:
Step 1: Accumulate information about the percentage of the market that the organizations’ products account for as well as their growth rates.
Step 2: Create the BCG Matrix by plotting the market share along the horizontal axis (from high to low) and the growth rate along the vertical axis (from low to high). The result should be a four-quadrant chart. The four quadrants are named the “stars” (high growth rate and market share), “question marks” (high growth rate, low market share), “cash cows” (low growth rate, high market share) and “dogs” (low growth rate and market share). Each of these quadrants is described below with particular focus given to what strategic action regarding investment is best to take with each product.
- Stars: Products in this category are those that are most profitable and encompass a large share of the market. Therefore, it is advisable to invest in these products. Notably, however, even though these products generate a lot of profit, because they are so in demand, they also cost the company a large sum of money to produce. Ultimately, for these products, equal amounts of money go in and out of the organization. To prevent star products from becoming cash cows, continue to invest in these products until their growth rate begins to decline.
- Question Marks: These products have the potential to increase their occupancy of the market but currently hold a small portion. This means that they do not bring in much profit for the organization. However, because they have the potential to become star products, they require investment from the organization.
- Cash Cows: Products that dominate the market but cost more to produce than the profits they accrue are considered cash cows. However, the money generated from these products is used to transform question mark products into market leaders. Therefore, organizations are advised to continue to invest in these products just enough to maintain their current level of production in order to “milk” the benefits provided.
- Dogs: Finally, dogs are products that neither dominate the market nor have potential to do so. These products don’t cost much to produce but are not very profitable. It is in the organization’s best interest to disinvest in these products because putting money into these products without any significant return is a misuse of company funds.
Step 3: Place products into their appropriate category.
Tools & Templates
The BCG Matrix is typically created and shared using traditional spreadsheets or presentations.
Praxie's Online BCG Matrix Tools & Templates
Unlike most traditional BCG Matrix techniques, Praxie’s online BCG Matrix collaboration tools allow any team or organization to instantly begin working with our web templates and input forms. Our digital platform goes far beyond other software tools by including progress dashboards, data integration from existing documents or other SaaS software, elegant intuitive designs, and full access on any desktop or mobile device.