The Boston Consulting Group developed a great matrix to help businesses with making those investment decisions. It’s normally called the BCG matrix and, although it was developed many years ago, it is still a very useful tool to analyse your product portfolio.
What you do is look at the annual growth rate of the available market and your market share for each of your products or services. For the rest of the article I will use the term product to refer to both.
It can often be difficult to determine both of these figures, but industry associations and the Office of National Statistics should be able to provide you with some of the information you need to make an educated estimate of the size of each market. Your own sales figures will then enable you to calculate your share of that market.
You then place each product into one of the four boxes:
Star – high market growth and you have a high market share
This is where the greatest opportunity will lie, so should receive the lion’s share of your marketing investment.
Cash cow – low market growth but you have high market share
The cash cow used to be your star, but the market is no longer growing. It’s still a great money-earner for you, so your marketing needs to make sure you are still the provider of choice, but you might want to reduce the amount of budget you allocate to this product, as it will eventually become a dog.
Dog – low market growth and low market share
This product has either had its day or never took off. Don’t waste time or money marketing your dogs. Consider being humane and putting them out of their misery!
Question mark – there’s high market growth but your share is low
These are the potential stars of tomorrow and you need to be developing and bringing new products to market to enable your business to continue to grow and thrive.
You will need to carefully consider your plans for investing in this area. Take into consideration competitor products and activity. How much will it take for you to succeed in this market? Can you afford that? Do the rewards justify the outlay?
The ideal portfolio
The ideal portfolio will have products in each of the categories, ideally with the exception of “dogs”. Cash cows fund the development of your question marks and the promotion of your stars, with the aim to make today’s stars and question marks the cash cows and stars of tomorrow.