The BCG Matrix and the Product Life Cycle are two important tools that relate to different aspects of a product’s performance: •
The BCG looks at market share and market growth and how they impact on cash usage and generation. •
The PLC looks at sales/revenues over time and levels of profitability.
Boston Consulting Group (BCG) Matrix
Businesses must keep their product offerings relevant and profitable to stay in operation. The Boston Consulting Group developed a tool, called the BCG matrix, for categorizing a firm’s products in relation to the overall product life cycle. Product life cycle is based on the observation that products develop, similar to animals, through distinct phases of maturity that differ in amount of resources required and produced. The BCG matrix places each product a company offers according to the growth rate of the business and the relative market share the product controls. Identifying which quadrant of the BCG matrix a product offering falls into provides valuable guidance to management about the future of that product Stars
Products that enjoy a high relative position in terms of market share in a growing market are referred to as stars. They require large investments to maintain the market share, but often produce enough revenue to cover their expenses. Firms should make it a top priority to maintain the market share of products in the star quadrant of the BCG matrix to increase sales. As the product enters maturity, and growth rates decline below 10 percent, maintaining market share will require less investment, yet produce similar revenue, and become cash cows. Cash Cows
Cash cows produce substantial profits for their companies because they require little investment to maintain their high share of the market. Managers should divert profits from cash cows to help defend market share of star products, develop new products for emerging markets, or turn struggling products around. While cash cows often provide the...
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