What is a BCG Model?

What is a BCG Model?

The Boston Consulting Group (BCG) put forward a model of corporate posters of companies at different stages of their business position. It is the BCG model that charts market shares against market growth.

The BCG model, also known as the Growth-Share Matrix, is a market model which assumes that a product’s market share shows its cash generating power.

Both Market share and Market growth have high and low phases. Therefore, there are four options in terms of cash of the corporate structure in the BCG model. They are as follows −

Block 1 - Stars

The first block represents both high market shares and high growth opportunities. This block is known as ‘Stars’. Stars are self-sustaining in nature and since there is super profit and super growth, the businesses in this cell of the two cell-matrix BCG model do not need extra investment to grow.

Block 2 - Cash Cows

Cash Cows is the next block that has a high market share but low growth. The money obtained from Cash Cows should be transferred to some other projects as the growth opportunities in such a position is bleak.

Block 3 - Dogs

Dogs is the block that has both low market share and low market growth. It is the weakest cell in the BCG model and it cannot sustain competition in the market. The funds in Dogs block cannot be retrieved and the company that has a dog’s project is destined to go through a loss. Corporate firms usually want to liquidate or disinvest the ‘dogs’ products to extract the investment.

Block 4 - Wild Cats

Wild Cats is a cell that had a low market share but high market growth. The Wild Cats can go to the stars’ level if they can imbibe rapid growth by diversifying their portfolio or by other marketing policies.

BCG Model Analysis

In strategic finance, there is a policy to transfer the extra finance from Cash Cows to Wild Cats (also called question marks and problem children). It is easy to see why such a policy is popular. In the cash cow position, a company has extra cash from a high market share but its market growth is at a low rate. The transfer from Cash Cow to Wild Cats is necessary to keep the momentum of growth and profitability intact.

Cash Generation at Stars Level

Stars in the BCG model generate enough cash from the market and the companies would want to elongate the tenure in which they are at the ‘stars’ position. However, in most the cases, they end up falling into the cash cows segment due to the extra cash generated by the firm.

Changing of positions

Although most companies would like to stay in the ‘stars’ segment, it is often seen that companies keep changing their position with due course of time. A company cannot stay in the ‘stars’ block forever. It has to go to Cash Cow or Dogs block in the future.

Divest Money from Dog's Segment

It is also a fact that no company prefers to be in the ‘Dogs’ block and so they divest money from the dog's segment in order to regain as many funds as is possible.

Wild Cats' Block Represents High Market Growth

The wild cats' block represents high market growth and low market share. In this block, the growth of the company is very high and companies in the ‘Wild Cats’ segment tend to go to the ‘Stars’ segment as soon as possible.

Conclusion

Knowing the position in the BCG matrix helps companies realize what they should do with their firm. If there is a chance of more profitability, the firms should try to access it by making the required arrangements.

Moreover, if the company finds that there is no scope for growth or market share of a product, it must abandon the product and divest the operations.

Therefore, the BCG model is one of the most useful tools for making corporate decisions that may impact the whole organization.