The BCG matrix is a portfolio management tool used in product life cycle. BCGmatrix is often used to highlight the products which get more funding and attention within thecompany. During a product’s life cycle, it is categorised into one of four types for the purpose of funding decisions. Figure 3.5 below depicts the BCG matrix.
Figure BCG Growth Share Matrix
(high growth, low market share)
are new products with potential success, butthey need a lot of cash for development. If such a product gains enough market shares to becomea market leader, which is categorised under Stars, the organisation takes money from moremature products and spends it on Question Marks.
Stars (high growth, high market share)
are products at the peak of their product life cycle andthey are in a growing market. When their market rate grows, they become Cash Cows.
Cash Cows (low growth, high market share)
are typically products that bring in far more moneythan is needed to maintain their market share. In this declining stage of their life cycle, these products are milked for cash that can be invested in new Question Marks.
Dogs (low growth, low market share)
are products that have low market share and do not havethe potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or bemanaged carefully for the small amount of cash they guarantee.The key to success is assumed to be the market share. Firms with the highest market share tend tohave a cost leadership position based on economies of scale among other things. If a company isable to apply the experience curve to its advantage, it should able to produce and sell new products at low price, enough to garner early market share leadership.
Limitations of BCG matrix:
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