What is the Growth share matrix and how to apply it?
Introduction
The growth-share matrix is a framework used to classify business units according to their market growth and relative market share position. It was developed by Boston consulting group in 1968 to classify business units according to the relative business unit strength. It’s specifically useful to companies that have portfolios of products that they aren’t sure how to manage. It is a four-cell matrix that provides a framework to understand the position of different business units within an organization. Furthermore, it’s used to determine a business’s potential in a given market or industry. The matrix breaks the industry or market into four sections and helps determine which of those sections a particular business belongs in, and how they should invest their efforts to succeed in their market.
Business portfolio categories according to the growth-share matrix
The model divides the business’s portfolio (or, in other words, all its different products) into four separate categories:
Cash Cows
Question Mark
Stars
Dogs
Keep reading here we are going to discuss in detail all categories of growth-share matrix one by one.
Question marks
Question marks are new products that haven’t yet proven themselves. These products may have high growth potential but are currently unprofitable and require investment before they can become successful. Question Marks are also known as “problem child” or “wild card”. Question marks in the growth-share matrix have low market share but high market growth. Also, Question marks products have the least profit and less control over their business. These products require a lot of cash to hold their market share that’s why they are also known as the problem child.
Now, the question is how to manage these products? Take the example of Apple’s iPod, it was a question mark in its early life. But now with the changes in technology, it comes under Star in a growth-share matrix. So, they should be monitored regularly, if they show good performance then they can be offered more cash to increase their market share otherwise they may be converted into dogs if they don’t improve.
Stars
Stars are products that are in a high growth market and have a high market share. All of this means that they are the most profitable products, but they also come with some risk. A higher h-growth market is one where the overall sales volume is rapidly increasing, so these products can be expected to bring in a lot of revenue. A high market share means that the product has an elevated percentage of the overall sales volume of its market compared to competing products.
This is important because it makes it likely that the product will continue to make money through economies of scale and other benefits of increased sales volume, such as being able to spread costs out over more units sold. However, because stars are bringing in so much money, competitors will see them as attractive targets for their own business and try to enter their market. If competitors successfully enter the market and start making money from their lines of products, this will lower our profits from the star product.
Dogs
Dogs are products that aren’t making any money and aren’t expected to make any money in the future; they don’t have growth potential and aren’t worth investing in further. In a growth-share matrix, dogs are products that have low market share and are in low-growth markets. These products are typically unprofitable. Dogs are represented by a circle near the bottom left corner of the chart and have low market share and low market growth. Because they fall into both categories, dogs typically have low-profit margins or are even unprofitable. Because they don’t command high profits, firms need to invest little marketing money in dog products.
Cash Cows
Cash cows refer to products with high relative market share and low market growth rates. These products are considered to be mature in the industry, and any money invested into them will generate a firm need to keep a high relative market share, they generate the most revenue and profits for the firm during its lifecycle. The challenge with cash cows is that since they have a low market growth rate, they may gradually reach the end of their life cycle. Therefore, firms need to keep reinvesting in these products so that it does not become obsolete and maintain their determent position in the industry. Firms must also invest in relevant research and development activities to ensure that their product has a competitive edge over their competitors’ products.
How to create a Growth h share matrix for your own business
The growth-share matrix categorizes products into four quadrants: dogs, cash cows, question marks, and stars. A company’s product portfolio should include at least one product in each quadrant so that it can balance its focus on long-term investments and short-term gains. A Growth-Share Matrix is a great tool for tracking your business’ performance and making decisions about where to invest. You can use it whether you’re just starting or you’re an established brand looking to expand. Here’s how to create one:
Step 1: Determine Your Categories
The first step is to decide what categories you’ll use to label your products. You might want to think about how much time, money, and energy each product requires, as well as what kind of growth it has seen in the past year. For example, you might label a product in its infancy with “infant” (or if you have more than one infant product on the matrix), and label a product that’s not growing at all “dog.”
Step 2: Decide How Many Categories You Need Next
Determine how many categories you need. If you’re just starting, start with four—Infant, Star, Cash Cow and Dog. But if you have more than 10 products that don’t fall into these basic categories (or if you need more detailed breakdowns), then increase the number of categories on the matrix by increments of two or four.
Step 3: Plot Your Products
Take your list of categories and plot your products onto them accordingly.
Benefits of using growth share matrix in business
Using growth share matrix can help you to create a framework for your business, which can help you to see how each part of the business relates to the others. This, in turn, can make it easier to see how each part of your business is performing, and what changes you may want to make. Growth share matrix analysis can:
1. You to understand how much money each part of your business is making 2. You to see how much money each part of your business is costing you
3. You to see the impact that different parts of your business have on one another
4. You to determine what decisions will be best for your business
Conclusion
Growth share matrix allows firm to prioritize a prospective product for development, manufacture and distribution based on its relative market growth potential and the resources needed by the firm. Its helps in allocating resources and deciding strategic orientation of your firm. In conclusion, Growth share matrix is used to analyze the cash generation capacity of different businesses. In this matrix one should clearly know the operations of each business and also understand its cycle of operation. The growth-share matrix has been an efficient tool to analyze the investment in a company or business. If you want to make your business more profitable and secure always create a business case before launching a new product. We wish you great success in your business.
