Scary Jargon For Project Managers, Part 2 Of An Occasional Series: the BCG Matrix

Market share large, market growth large

When both market share and market growth are good, the product is a STAR. It’s likely to generate large quantities of cash as well, so it’s likely to be self-financing and have good economies of scale. This is where all products and services want to be.

A good example of a star is the iPod - the market for MP3 players is expanding rapidly, and Apple have a huge market share.

Market share large, market growth small

Over time, the growth of the market will tend to decline as everyone who’s likely to buy the product does so. If you’ve still got a large market share, but that market isn’t growing as well, then the product will tend to be a CASH COW. These products tend to generate more cash than you can reinvest profitably, normally because your unit costs are still falling as a result of economies of scale.

Ideally, this is where you’d like your star products to end up once the market growth starts to slow down. You could argue that an example of a cash cow product is Microsoft Windows - it’s got 90-odd percent of the desktop market, but the overall market isn’t growing as fast as it used to.

Market share low, market growth large

In this situation, you’ve got a potential PROBLEM CHILD. Although the market is growing, you’ve only got a small share of it. Why? Is it because your product is inferior to the competition, or is it because there are lots of products out there? Either way, your product is likely to take more cash to sustain it than it can generate, which is not a long-term success strategy.

Ideally, you’d like to capture more market share so that your product can either become a star if the market continues to grow, or a cash cow if the growth rate slows down. iPod competitors find themselves here - the market for MP3 players is growing rapidly, but Apple have most of the market.

What you don’t want is a situation where market growth slows with a small market share…

Market share low, market growth low

This is a recipe for problems - you’ve got a DOG on your hands. There’s slow market growth and you don’t have a very big share - so you can’t rely on a growing market to increase sales. Instead you’re going to have to grab market share from competitors, which is likely to be expensive if you’ve got to persuade their customers to buy your product.

Mobile operators in established markets are often in this position - everyone who’s going to buy a mobile phone has, so market growth is small - but at the same time, there are lots of competitors.

Where products go

Stars tend to become cash cows, unless you let their market share fall - in which case they’ll become question marks if the market is still robust; or dogs if the market growth slows.

Question marks can become stars if you can boost your share of a rising market; or dogs if the market slows.

Cash cows can become dogs if market share slips.

If market growth is likely to remain low, dogs often tend to be discontinued or divested - but if market growth picks up, they could become stars or question marks.

Filed under Jargon |