My introductory marketing professor was an interesting guy. He originally taught the radiography (X-ray Technology) classes at my college and then he decided to tackle something new and focused on his other major (Business Administration) and began teaching business classes. He told us his history on the first day of class when he passed out the syllabus, and I remember thinking: “is it too late to drop this class?” I’m so thankful I didn’t because this professor was a major reason behind my major in marketing. He made it fun, interesting and most importantly: easy to want to study and succeed.
The point of this backstory is to explain my professor’s quirky sense of humor. One of the topics we learned about stuck with me even today, and that’s because of his humor. He explained that the Boston Consulting Group (BCG) created the BCG Portfolio Matrix in 1966 to determine each Strategic Business Unit’s (SBU) own rate of return on investment, growth potential, and level of risk. After he explained each quadrant, we were convinced he had made up the titles. However, if you ever thought that business people didn’t have a sense of humor, just take a gander at the titles they’ve given the categories: Stars, Question Marks/Problem Children, Dogs, and Cash Cows.
Now, if you’re confused as to what each category means, don’t you fret! The titles actually make complete sense and will help you and your company to determine which products are doing great and which ones are struggling.
- Star: This is a fast-growing market leader who yields large profits but needs a lot of cash to finance their growth. If companies can capture new consumers in the market, these products will be successful; however, if they aren’t able to attract new consumers then they’re very risky to keep. These products are just like a child actor that rises up to fame quickly and gets accustomed to a certain lifestyle, but once the studios stop calling they can’t maintain their happiness levels.
- Question Mark/Problem Child: No, this is not used because of the movie Problem Child starring John Ritter. These products show such promise because of their rapid growth, but because of their poor profit margins they end up leaving more questions than actually answering them. As teachers know, there’s always that one student who’s really intelligent but also a handful. They aren’t being challenged enough and therefore tend to act out and won’t follow directions.
- Dog: “Let a sleeping dog lie” is a fine and dandy expression, but doing so isn’t going to do jack-squat for your company. These products have low-growth potential and own a very small market share. Your only options are to either harvest (increase short-term cash return without concern for the long-run impact, basically grab your money and run) or divest (completely scratch this idea and move on). It seems cruel to use a dog as a way to describe a kid, but for the sake of learning here it goes. These kids are the ones that just sit there during recess instead of running around playing because…well, they’re lazy.
- Cash Cow: Are you picturing a cow standing in a field munching on grass waiting to be milked? If not, you should, because this is exactly what this category does. They generate more cash than they need to maintain the market share. Revenue from cash cows is used to fund Stars and fix Question Marks. I think my description does justice to describe what a cash cow does, plus I can’t think of a kid that can just sit there and make money (if you can, please comment!).
Despite my initial worrying in that introductory marketing class, this knowledge has stuck with me through the years, even into post-graduation. I hope this profile matrix helps your company out with your successful or struggling products!
What are your thoughts on the BCG Matrix? Do you have any questions about the categories?