The BCG Matrix is an investment tool, which guides the firm in respect to its direction of investments, the X axis indicates the relative market share while the Y axis indicates the market growth. The firm can then clarify its product into the 4 quadrants . these 4 quadrants are
- Cash Cow : these are product that generate considerable cash , More than can be profitable in them . Typically , they have a dominant share of slow growing markets. these product provide the cash to pay interest in corporate debt , cover corporate overheads, pay dividends, finance R&D, and provide fund for other product to grow.
- Star: These product are high hare items . they mayor may not be self – sufficient in cash flow , depending on whether their cash floe from operations is enough to finance rapid Growth .
- Problem Child or Question Marks : These are product with low share of fast growing market. low market share often means low profit and weak cash flow from operations because the market is growing rapidly beyond the product . The company must invest large amounts of cash simply to maintain its market share and even greater amount to increase that share . While the market growth is attractive, considerable cash outlays will be required if the products are even to gain enough share to become strong members of the portfolio .
- Losers: These products have low share of slowly growing markets , they neither generate nor require significant amount of cash . Maintaining market share usually requires reinvestment of their modest cash flow from operations plus some additional capital , Because of their low market share , their profitability is poor. they are unlikely ever to be significant source of cash
The BCG matrix also helps in ” product positioning ” of the product – in future .
The Problem child / Question Marks ultimately becomes Dog product if the company does not invest during the growth stage , If the firm invest in its problem child/ question mark product, then there is a good probability that the product can be shifted to the star category, Star product ensures the company future because they ultimately becomes cash cows as the market Grows