The Boston Consulting Group’s (BCG) Growth-Share Matrix Explained

BCG growth share matrix

This is a portfolio model. Generally, this model and others like it are used by a company’s management team to analyze the performance of its products and/or services (referred to as a brand in this post). It is pretty flexible and could also be applied to investment strategies, business units, strategic plans, or even home improvement projects.

The vertical axis indicates the size of the market (actually the market growth rate, usually tied to the industry’s product life cycle (PLC) and also indicates capital investment in the brand) and the horizontal axis indicates market share of the product or service.

If your product or service is a dog, it means that it’s a relative drag on your resources and your investment in that offering has a low return. In this case, dogs usually don’t get much attention from their owners because of the low return, therefore they are usually stagnant and represent relatively small investments. It is very common for large companies to sell or lease out their dogs to other companies. A great example of this is the recent leasing of the brand Above The Rim (ATR) by Collective Licensing International (CLI). ATR footwear was launched by Reebok in 1989 as the original “player’s brand,” but has since flatlined against competitive offerings by Nike, Adidas and most of its other large competitors. Thus, the ATR brand is a dog; a small investment in a relatively obscure market. CLI International is a relatively small and agile firm that specializes in building brands in youth lifestyle markets. The company is poised to take this dog and carefully invest in building the brand for a successful re-launch in October 2010.

CLI’s investment will move the ATR brand from the dog quadrant on BCG’s growth-share matrix to the question mark quadrant. That is because at least initially, the brand will ride on CLI’s injection of capital and repositioning of the brand into a growth market. This quadrant is also called “the problem child” because it represents a high investment, lots of attention from the company, good potential, and current small market share.

From there, the brand could become a star, cash cow or return to being a dog. It all depends on the reaction of the growth market. Brands tend to move quickly out of the question mark quadrant.

My bet is that the brand will become a star. CLI will continue to invest heavily in manufacturing, distribution and promotion of the brand, building on the brand’s own momentum. Like a snowball effect. The more revenue generated from the brand, the larger the reinvestment in the brand; signing bigger NBA stars, larger sponsorships, developing more diverse style collections, wider distribution networks, etc.

Over time, the brand will probably become a cash cow. I believe the brand will gain wide acceptance and cross the chasm from fringe youth lifestyle markets to more mainstream acceptance. At that point, revenue from the brand will outpace and far exceed investment in the brand. The brand will reach a plateau and enjoy a large market share in a large growth market, at least for a while.

The BCG is most helpful when coupled with the Product Lifecycle Stages, which will be discussed on another Tuesday.

A common pitfall of the BCG matrix occurs when a company analyzes their portfolio model and miscalculates the rate of growth or decline of the market. It is important to remember that a rising tide floats all boats and the brand may actually be loosing market share while appearing to grow.

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