The Cash Cow Corporate Portfolio Framework

If question marks do not succeed in becoming a market leader, they end up becoming dogs when market growth declines. Questionable opportunities are those in high growth rate markets but in which the company does not maintain a large market share. They typically grow fast but consume large amounts of company resources. Products in this quadrant should be analyzed frequently and closely to see if they are worth maintaining. Be wary, as we mentioned in the BCG matrix article, this is not about a “whole company” analysis.

A cash cow is one of the four categories (quadrants) in the growth-share, BCG matrix that represents a product, product line, or company with a large market share within a mature industry. If a company’s product has a low market share and is at a low rate of growth, it is considered a dog and should be sold, liquidated, or repositioned. Dogs, found in the lower right quadrant of the grid, don’t generate much cash for the company since they have a low market share and little to no growth. Because of this, dogs can turn out to be cash traps, tying up company funds for long periods of time.

  1. Eventually, their growth will slow down, and they will turn into cash cows.
  2. A building approach can also be used to convert small stars into bigger stars.
  3. The assumption in the matrix is that an increase in relative market share will result in increased cash flow.

Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm’s other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage. Most companies start as question marks when entering an industry with significant growth and existing market share.

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Businesses must carefully plan for contingencies because product development might take years. Companies are increasingly moving responsibility for strategic planning out of company headquarters and placing it in the hands of cross-functional teams of line and staff managers who are close to their markets. Some teams even include customers and suppliers in their strategic-planning processes. The process of strategic choice also entails the commitment of financial and other resources through portfolio analysis and access to the corporate parent’s cumulative knowledge and learning through corporate parenting.

Management has to think hard about which question marks it should try to build into stars and which should be phased out. When an SBU’s relative market share is greater than you can assume that it has a significant cost advantage over its competitors. A business portfolio approach is commonly followed in a diversified company for corporate strategic analysis.

Cash Cow

Since consumer preferences are constantly changing, it’s impossible to predict the long-term growth of any product. That’s why you should regularly revise and update your BCG matrix as market conditions change. For instance, a product that was a Question Mark could quickly turn into a Dog, so you should be ready to walk away if the stakes get too high.

This generally results in the same amount of money coming in that is going out. Stars can eventually become Cash Cows if they sustain their success until a time when a high-growth market slows down. The Cash Cow quadrant represents products or services that have a dominant market share in a mature or slow-growing market. Cash cows are characterized by their ability to generate substantial cash flow and profits consistently, often without requiring significant additional investment. These products or services typically have a strong customer base and established brand recognition.

The question marks represent products in the introduction phase, recently introduced to the market. Therefore, businesses typically want to liquidate or divest money from dogs into more promising ventures – gradually phasing out the product. However, they do provide a certain balance and stability to your portfolio, so further investigation should be undertaken before prematurely killing off the unit.

Cash Cows: Low-Growth, High-Share Businesses

To use the BCG matrix, you need to collect data on the market growth rate, relative market share, and revenue or profit of each product or service in your portfolio. You can use historical data, industry reports, market research, or estimates to obtain these figures. Then, you can plot each product or service on a grid with the market growth rate on the vertical axis and the relative market share on the horizontal axis.

What do Cash Cows symbolize in BCG matrix?

The areas of the circles are proportional to the SBU’s dollar sales. It wants to invest in the more promising question marks to make them stars and maintain the stars to become cash cows as their markets mature. Now that you understand what a BCG matrix is and some of its pros and cons, let’s look at how you can set up your own matrix.

However, for the purpose of analyzing the BCG Matrix, we’ll stick to relative market share. Relative market share indicates how your business or product line fares against the leading competitor. Once you know where each product stands, you can evaluate them objectively and strategize the future of your business. The BCG matrix helps you identify which products you should prioritize and which need to be cut altogether.

BCG Classics Revisited: The Growth Share Matrix

This framework assumes that an increase in relative market share will result in an increase in the generation of cash. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption. Products in the cash cows quadrant are in a market that is growing slowly and where the product(s) have a high market share. Products in the cash cows quadrant are thought of as products that are leaders in the marketplace. The products already have a significant amount of investments in them and do not require significant further investments to maintain their position.

Once it has classified its SBUs, the company must determine what role each will play in the future. To use this matrix, the SBUs of the company are plotted on a two- dimensional chart. Ever since Snow White and the Seven Dwarfs cash cows in the bcg matrix symbolize was released back in 1937, Walt Disney Studios has been one of the most iconic movie production companies to date. Falling market demand for the mp3 player has forced Apple iPods into the dog quadrant of the BCG Matrix.

The use of the BCG Matrix lies in estimating which businesses are the net cash generators and which are the net cash consumers. This means that the organization has to develop some competencies to make the best use of high growth rates. To sustain these business resources, the organization has to be committed to developing them in the select areas. Question marks lie in the high business growth rate segment with a weak competitive position. An SBU is responsible for its products, services ‘and markets and, therefore, it is also responsible for developing its strategy. Generally, an SBU rs independent in business operations has its managerial resources and has all its assets under its control.