Making a BCG Matrix is not complicated. You often need an example to get started. The BCG matrix is a product portfolio for the organization. With the right variables, the BCG Matrix can be a good tool for investing in products or services. You can also consider which will yield nothing and then divest them from your portfolio.
Do I need the BCG matrix?
You need the matrix if you want to know whether your products are profitable compared to the competitive products of the same segment . You also want to know in which products in your portfolio you can invest or divest. The BCG Matrix is also suitable for analyzing services. After all, you only need the numbers.
Which variables do I need?
The variables you need are product sales figures, relative market share and segment market growth. As well as total market growth in the segment and average relative market share.
Relative market share, market share and market growth calculation
For the relative market share you need your own turnover, the total turnover and the turnover of your largest competitor: (own turnover / total turnover) / (turnover largest competitor / total turnover).
For the market share you need the total turnover and your own turnover: (turnover total market / 100%) x own turnover.
For market growth you need the new turnover and old turnover: (new turnover – old turnover) / old turnover: (€ 4,326 – € 20,543) / € 20,543 = -79%.
Ultimately, you collected the data below for your BCG Matrix. The variables are shown in the table. You need this table to make a BCG Matrix.
The total market growth in this segment: -7% Average relative market share : 0.46
How can I apply the BCG matrix? (+ example)
The 4 quadrants that your product runs through in the BCG Matrix
- Question mark – top right
- Star of Dog – top left – bottom right
- Cash Cow – bottom left
- Dog – bottom right
Your product starts at the top right . It has a small market share in the growth market in the initial phase. It is uncertain whether this will be a Star or a Dog. The probability of a Star is determined by the growth potential. When it has no growth potential, your product drops to the Dog Quadrant. An example product is Google Glass . It is an expensive product and it remains to be seen whether it will catch on in the market.
In the 2nd phase, your product is at the top left . Your product has growth potential and ends up in the Star. It has a large market share in the growth market. With targeted investments you maintain the high market share until the market matures. You should think of a smartwatch , because more and more people are considering buying this product.
In the 3rd phase, your product is at the bottom left . Your product still has a high market share in a stable market, but can no longer grow. It is located in the Cash Cow quadrant. The product has become profitable for your organization. This quadrant includes a product that is still profitable, despite the many sales.
In the last phase, your product is at the bottom right . Your product now only costs money. You have a small market share in a mature market. If there are no strategic interests, it is recommended to divest the product in the Dog Quadrant. These products are therefore sold less and less by your target group.
What can I get out of the BCG Matrix?
You can see from the figures in the table that the market growth in this segment is negative. You can conclude that the relative market share is low and that means that the competing products have a higher market share than your products.
When you analyze the BCG-Matrix in the example, it can be concluded that there are many products in a Dog quadrant. These products are loss-making. You are required to repel these products. With the BCG Matrix you know in which products or services you should invest or divest. This gives you a clear overview of your product portfolio .
If you want to predict how the bubbles will move or how they have moved in the past, you need a second BCG Matrix. However, in this example you are missing last year’s figures. As a result, you do not know how your products were and you do not know which quadrant they can go to. This is an important tip to be able to predict whether your products will become profitable or loss-making for your organization in the future, because that is what it is all about.
This theory can be converted into a visual model. View the marketing models environment for more information about this module. See an example below.