The management takes decisions based on its portfolio of products and services, on priorities and the related investments, profit potential and market approach. This form of portfolio analysis was developed in the early seventies by the Boston Consulting Group (BCG) and is also known as the BCG matrix. This is regarded as a standard method to effectively allocate resources and budgets.
Portfolio Analysis / BCG matrix
The BCG matrix links market development measured in terms of market growth and competition in terms of market share. The matrix defines four groups: the cash cows, the stars, the dogs and the question marks.
These are the products that have a large market share in a rapidly growing market. They are profitable and at the same time ask a lot of investment to maintain their position. It is obvious to allocate an important part of the communications budget to this product.
These are products that have a relatively high market share in a mature market segment, that sometimes tends to saturate. Investing in these products is often not necessary and not always wisely. The money earned from cash cows can be used to invest in new markets and new products.
These are products in a growing market but with small market shares. The management has a choice to make: to increase market share, large efforts are needed; the relatively weak position requires it to thoroughly investigate opportunities and risks. A successful operation shifts the question marks to the stars.
This is the worst category of products. Dogs are in a mature market but because of their small market share the revenue is low. Communication efforts to improve the position of the dogs are practically useless. It is best to liquidate this product, thereby freeing up resources for the stars.