Boston Consulting Group develops a matrix that could help the management of the company to assess the position of the strategic business unit and develop the right strategy to maintain and improve business units or products.
In a large business corporation, there are many types of products, division and business units that diversify differently.
Such product, division, and business units are position differently base on their market share and market growth. Basically, the products that have a high market share and have high demand in the market would stand on top of business portfolio management.
It is very important for management to assess how the position of their products or business unit in the market is.
Knowing the strategic position of products is not only helps managers to develop the right strategy for those products but also helping them to design the right measurement systems in order to keep that product move in the right direction.
Boston Consulting Group model classifies the business unit into four different categories based mainly on their market share and market growth.
Star Product in Boston Consulting Group:
Star refers to a product or group of products that gain better market shares than other similar products in the market. These minds of products are currently satisfied with the customer’s requirements. The market growth or demand for these products keeps increasing while the prices are less competitive.
Such products normally earn a high profit margin as customers are willing to pay. The competition in the market seems low for these kinds of products because not many competitors come.
Management should be setting up the right strategy and put the right performance measurement for this kind of product. For example, growing in sales compared to the total market share.
This is to ensure that these types of products still play in rank number one in the market. Management should also measure customers’ satisfaction.
If new competitors come into the market, the company still retains the old and keeps recruiting new customers since their services and product quality are good. Maybe a survey on customer satisfaction should be deployed.
Problem child in Boston Consulting Group:
Problem child refers to new products that just launched in the markets, and the demand for those products is increased highly. However, this group of products doesn’t gain a better share in the market.
For example, your company is selling coffee, and currently, the demand in the market is quite high. Yet, your company does not get a high turnover on it. Base on Boston Consulting Group, Coffee here should be classified as Problem Child.
The product that class in Problem Child simply because of the internal problem rather than external effect. The product is quality, service, and awareness of your coffee in the market. Not the market itself.
The three important things to consider for the product in Problem Child are quality, service, and branding. Maybe, the company should do more market research about these products, learn more about customers’ requirements, and make sure the quality of products meets the requirements.
Cash cow in Boston Consulting Group:
Based on Boston Consulting Group, a cash cow refers to products that currently have a high market share, but the demand seems mature, maybe because there are many competitors or substitutes for products.
These groups of products generate a good amount of cash for the company but they will soon become Dog.
In most cases, management intends to keep cash cow products stay as long as they could be, as they generate a large amount of cash, even low margin.
Management should ensure that the products will meet the customer requirement, and probably add-on services to lock customers are required. More importantly, controlling the production process and costing management would be much better for gaining a better margin.
Dog in Boston Consulting Group:
Products that treat as Dog are the ones that gain low market share and poor market growth. In most cases, these groups of products are decided to be dismantled from the portfolio.
However, the assessment needs to be performed whether these types of products have a connection with others stare, cash cow, or problem child or not. This is the case management needs to make whether dismantling these products could adversely affect those products.
Limitation of Boston Consulting Group Model
Besides helping management assess the strategic position of the Strategic Business Unit, Boston Consulting Group Model also has some limitations that could lead to miss allocation of products and subsequently lead to wrong decision making.
- Assessing the market share and market growth might be difficult and realistic. Such data might not be available for certain markets or countries. If we can’t obtain those data accurately, the decision also seems unlikely correct.
- BCG focuses only on two main factors: Market Share and Market Growth, but other factors could also be important to make a better assessment. For example, the attractiveness of products or services.
The model considers each class of products independent, yet in any case, the company’s products are linked together. The model seems unrealistic in this classification.