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Understanding Cash Cows in BCG Matrix

The BCG matrix is a tool that compares the market growth and market share of a company's products or services. It categorizes products as stars, cash cows, question marks, or dogs based on their placement along the axes of market growth and market share. Stars have high growth and market share and require investment to maintain their potential. Cash cows have high market share and low growth, generating cash flow. Question marks have high growth but low market share, requiring investment to potentially become stars. Dogs have low growth and market share and require reduction of investment. The document provides examples of Philips products that could fit within each category.

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Priya Ashok
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687 views3 pages

Understanding Cash Cows in BCG Matrix

The BCG matrix is a tool that compares the market growth and market share of a company's products or services. It categorizes products as stars, cash cows, question marks, or dogs based on their placement along the axes of market growth and market share. Stars have high growth and market share and require investment to maintain their potential. Cash cows have high market share and low growth, generating cash flow. Question marks have high growth but low market share, requiring investment to potentially become stars. Dogs have low growth and market share and require reduction of investment. The document provides examples of Philips products that could fit within each category.

Uploaded by

Priya Ashok
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

BCG Matrix

In the BCG matrix, market growth and market share of the products (or service) of
a company are compared to each other. This allows a company to determine
whether they should invest in a product or whether they should de-invest, or even
stop the product altogether. View a BCG matrix example below.

Cash cows - BCG Matrix example


The cash cows in the BCG Matrix are the products that have been on the market
for some time. They have ended up in the so-called maturity stage of the product
lifecycle. A product that can be classified as a cash cow in the BCG Matrix
generally has a high market share, a reasonable margin, and limited growth or a
slight decrease. The costs are low. The production line is largely recouped, and
there is a limited investment in marketing. With cash cows it is important that you
as a company optimize the profit. So go see how you can, for example, optimize
processes and thus reduce costs. An example of a product that can be classified as
a ‘Cash Cow’ is the Philips energy-saving lamp.

Stars - BCG Matrix example


The stars in the BCG Matrix are products at the start of the product lifecycle. The
growth and market share are high. Because the product is at the start of the product
lifecycle, the margins are usually also high. A lot is being invested in marketing. It
is important for a company to have stars. Here you can earn big money. To get
stars, for example, a company must invest in product development. If you have a
star as a company, the strategy for this product must be aimed at gaining as much
market share as possible. An example of a product that can be classified as 'Star' in
the BCG Matrix is the LED lamp from Philips.

Dogs - BCG Matrix example


The dogs in the BCG Matrix are products at the end of the product lifecycle, or
products that have had to compete against the competition. The margins are low,
the market share is low and the market barely grows or even shrinks. The company
will no longer invest in marketing. Many companies will choose not to produce the
product at all. An example that can be considered as a ‘Dog’ in the BCG Matrix is
the plasma TV from Philips.

Question marks - BCG Matrix example


The question marks in the BCG Matrix are the products of which the future is not
entirely certain. The market growth is high, but the market share low. The
company must make the choice: invest in marketing, and try to make the product a
'Star', or let the product flow down to become a ‘Dog’, or in other words stop
investing and even stop the product in the future. The strategy for products that
have been designated as a question mark must either be focused on growth (to turn
the product into a star) or on cost savings (to turn the product into a cash cow). An
example that can be considered as a ‘Question mark’ in the BCG Matrix is the
tablet from Philips. The market is growing very fast, but it takes a fortune in
marketing to gain a large market share in this. The question mark is sometimes
referred to as 'problem child' in other explanations about the BCG matrix.

Create BCG matrix


Below we show a diagram in which questions are explained again about how to
make a BCG matrix.
STARS Which products or services grow the QUESTION MARKS Which products or services have
fastest and have the highest margins? You need the potential to become very large, for example because
to focus on this and invest in it. the market is very large, but you only have a small
market share? You have to choose: will it be a dog or a
star?
CASH COWS Which products or services DOGS Which products or services do not grow or show
generate a good turnover in a stable way? How a shrinkage and the market is also no longer interesting,
can you optimize the profit from this? e.g. by competition? You must stop this!

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