Model Answer
0 min readIntroduction
The Boston Consulting Group (BCG) Matrix, developed in the 1970s, is a portfolio planning tool based on the concept of the product life cycle. It helps companies analyze their product portfolio and allocate resources effectively. The matrix categorizes products into four quadrants based on two key dimensions: relative market share (the company’s market share relative to its largest competitor) and market growth rate (the rate at which the overall market is growing). This analysis assists in making strategic decisions regarding investment, divestment, or holding of different products. Applying this framework to a company’s product range allows for a focused approach to resource allocation and long-term growth.
Understanding the BCG Matrix
The BCG Matrix consists of four quadrants:
- Stars: High market share in a high-growth market. These products require significant investment to maintain their position and fuel further growth.
- Cash Cows: High market share in a low-growth market. These products generate substantial cash flow with relatively low investment, providing funds for other areas of the business.
- Question Marks (or Problem Children): Low market share in a high-growth market. These products require significant investment to increase market share, but their future is uncertain.
- Dogs: Low market share in a low-growth market. These products typically generate low profits or even losses and may be candidates for divestment.
Applying the BCG Matrix to Sample Products
To apply the BCG Matrix, we need a table of products with their respective market share and market growth rate. Since the question refers to a table but doesn't provide it, I will create a sample table for demonstration purposes. The classification will be based on this sample data. A real answer would use the data provided in the question.
| Product | Market Share (%) | Market Growth Rate (%) |
|---|---|---|
| Smartphone A | 40 | 15 |
| Laptop B | 25 | 8 |
| Tablet C | 10 | 20 |
| Basic Feature Phone D | 5 | 2 |
| Smartwatch E | 30 | 10 |
Classification of Sample Products
Based on the sample data above, the products can be classified as follows:
- Smartphone A: Star – With a 40% market share and a 15% market growth rate, Smartphone A is a leader in a growing market. It requires continued investment to maintain its position and capitalize on growth opportunities.
- Laptop B: Cash Cow – A 25% market share in an 8% growth market positions Laptop B as a Cash Cow. It generates significant cash flow with relatively low investment needs.
- Tablet C: Question Mark – Tablet C has a low market share (10%) but operates in a high-growth market (20%). It requires careful analysis and potentially significant investment to determine if it can gain market share and become a Star.
- Basic Feature Phone D: Dog – With a low market share (5%) and a low growth rate (2%), Basic Feature Phone D is a Dog. It likely generates low profits and may be considered for divestment.
- Smartwatch E: Star – A 30% market share in a 10% growth market makes Smartwatch E a Star. It needs investment to maintain its competitive edge and expand its market presence.
The following table summarizes the classification:
| Product | BCG Matrix Category |
|---|---|
| Smartphone A | Star |
| Laptop B | Cash Cow |
| Tablet C | Question Mark |
| Basic Feature Phone D | Dog |
| Smartwatch E | Star |
It’s important to note that the classification is relative and depends on the definition of the market. Different market definitions could lead to different classifications. Furthermore, the BCG matrix is a simplified model and should be used in conjunction with other analytical tools.
Conclusion
The BCG Matrix provides a valuable framework for analyzing a company’s product portfolio and making strategic decisions about resource allocation. By categorizing products based on market share and growth rate, businesses can prioritize investments in Stars and Cash Cows, carefully evaluate Question Marks, and consider divesting Dogs. However, it’s crucial to remember that the matrix is a simplification and should be used alongside other analytical tools for a comprehensive strategic assessment. Regularly revisiting the classification as market conditions change is also essential for maintaining its relevance.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.