Marketing requires a lot of decisions, but how are they made?
Have you ever wondered how a company or brand decides if it’s going to keep a product on the shelves, sell it off to another company or put a lot of marketing dollars into making sure it’s a success? Wonder no more!
The logic is all explained by the Growth-Share Matrix, aka the Boston Consulting Group Matrix or BCG Matrix. And it’s a really useful tool that you can use for just about any context (as Sean explains with three examples)!
Sean Jordan (00:00.537)
So I like to watch shows on streaming services like Netflix and Hulu, but there’s this problem I keep running into. A lot of the content on those platforms just isn’t that good. I feel like I’ve watched most of the good stuff already, and honestly, if I can’t find anything else, I don’t mind watching my favorite stuff again. But when there’s something new and exciting, you can bet I’m gonna binge watch it like crazy because I’m so ready for something different. And when there’s a show that I can’t get into after a few episodes,
I’m gonna pause the video, check the reviews, and see if it’s worth sticking with before I banish it from my queue. And when I come across one of those shows I’d never watch under any circumstance, like a bad reality show or a Hallmark Channel rom-com, big thumbs down! Don’t recommend it to me again, and please feel free to banish it from the platform so I can actually watch more of the stuff that I like. Now, I’ve been like this for years, but it only recently occurred to me that this pattern I’ve developed
follows one of the frameworks that I teach in my marketing classes and that I myself learned as a marketing student. It’s yet another two by two matrix that offers a simple but elegant set of strategies depending upon some specific conditions. But you know what? This matrix is actually kind of brilliant because it works on just about everything. I’m Sean in St. Louis and this is the Marketing Gateway.
Sean Jordan (01:29.433)
So, quick history lesson here. The Boston Consulting Group, or BCG, was formed in 1963 as a management consulting firm for the Boston Safe Deposit and Trust Company, primarily offering consultation services to bank clients. It eventually spun off to become one of the three largest management consulting firms in the world, alongside McKinsey & Company and Bain & Company. Now, in the modern era, all three of these groups are controversial, and I’m not going to get into why in this episode, but once upon a time…
In the BCG’s founder, Bruce Henderson, wrote an essay called The Product Portfolio in the BCG’s Perspectives newsletter and articulated something his colleague, Alan Zakhan, had sketched out and developed with some of their coworkers. This two-page article suggested that there exists a growth matrix businesses can use to figure out what to do with their holdings and that there are four categories within this matrix that suggest a strategy. The name of the matrix varies depending on who you ask. It’s often called the growth share matrix,
portfolio matrix, the BCG matrix, or the Boston Consulting Group matrix, among other things, but the idea is always the same. You have two dimensions, growth and market share, each broken into high and low halves. This creates four quadrants on the matrix. A low growth holding with a high market share is called a cash cow. A low growth holding with a low market share is called a pet, or in some frameworks, a dog.
A high growth holding with high market share is called a star, and a high growth holding with low market share is called a question mark, primarily because it shouldn’t exist and has a very uncertain future. This matrix is absolutely brilliant, and it turns out that it’s useful not just for investors and bankers, but for product managers and marketers as well. The basic strategy of the matrix is that a company should try to diversify its holdings between cash cows and stars in order to grow.
Ideally, the cash cows help fund the rise of the stars and then the stars eventually become cash cows. Meanwhile, a company should divest itself from any costly pets that aren’t generating sufficient market share and make a quick decision about any question marks to either fund them to move them into the star quadrant or divest from them before they lose money and drop into the pet category. Again, this framework is brilliant because it’s so simple and yet so applicable by translating so many strategic decisions into easy to understand directions.
Sean Jordan (03:50.926)
Let’s think about this in terms of marketing and branding. And I’m to use three examples. You’ll see just how well this approach scales to just about any business. So for our first example, let’s look at a roadside fruit stand where a local produce grower is selling his homegrown fruits and vegetables from a plot on his family farm. For simplicity, let’s say he’s got four different products available. He’s got fresh zucchini, lots of it. In fact, it’s a reliable seller, but he always has more than enough. He’s got purple broccoli, which just happens to be this fall’s trendy vegetable.
but which hasn’t caught on with his customers quite yet. He’s got heirloom tomatoes, which are always in demand and almost always sell through. And he’s got poblano peppers, which were trendy a few years ago, but aren’t quite so desirable anymore. He’s been giving some of them away with purchases lately, in fact, and his wife keeps telling him he needs to get rid of one of those products and focus on the other three. And since each of these corresponds to a quadrant in the matrix, can you figure out what he should do with each of them?
Well, if you’re like his wife and saying ditch the poblanos, that’s the correct answer because they are the low growth, low market share pet products that are taking him time and energy to grow without delivering much return. The zucchini is his cash cow because it’s selling and he’s probably going to be stuck with a lot of it because zucchini grows like crazy once you get a plant growing. The heirloom tomatoes are his star. He’s selling out of them reliably and the purple broccoli is his question mark.
He either needs to educate his customers more about it so he can make it a star or he needs to stop carrying it in the next growing season because its trendiness is likely to turn it into a pet if he doesn’t get people hooked on it. Now, if a produce stand can use the Matrix, what about a company that sells, how about shoes? Okay, so let’s say that there’s a shoe store that carries multiple brands. They’re trying to evaluate four of them. One shoe brand is popular with elderly customers, but not anybody else.
One shoe brand is catching on recently due to social media influencers talking about it, but it’s not selling in big numbers yet. One shoe brand is tried and true and popular with everyone. And that’s the brand the shoe carries, the shoe store carries the most of. And one shoe brand is constantly facing stock outs because sneaker heads keep coming in and buying up the inventory for their personal collections.
Sean Jordan (06:07.342)
So what would be our strategy here? Well, one thing to consider is that shoe stores often get stuck with inventory they can’t sell and shoes go in and out of fashion constantly. Which means that shoe stores tend to be risk averse for carrying too much of a trendy but unproven item. So, if you said they should phase out the elderly shoe brand because it’s a pet, you’re absolutely right. This is a brand that’s likely to go into decline as elderly customers buy fewer and fewer of them. The sneaker head brand is the clear star.
And the social media influencer brand is the question mark that either needs some extra investment to boost its potential or to get dropped from the store’s shoe lines before it winds up being a costly flop. And the popular brand is the cash cow. It’s generating steady income, but it’s not selling out because the store has so much of it on hand. Well, let’s finish with a cosmetics company that sells consumer packaged good products in the health and beauty care industry.
The brand offers a line of mascaras that have been long viewed as the easiest to apply. That’s no surprise, this was the first product the company developed and it’s still under patent. The brand has also seen huge success with concealing products recently due to a focus on offering options for varied skin tones. The brand has a particular shade of lipstick that was featured on a Netflix show themed around Halloween and it’s expected to be the gotta-have-it item for trick-or-treat costumes this year.
The brand also offers an eyeliner pencil that has been the same basic product since the 1980s and which is viewed as reliable but less desirable than similar and more expensive products from some of the trendier brands. So, which one’s the star? Clearly it’s the concealer. And the mascara sounds like a cash cow that’s not going anywhere. If the cosmetics company wants to reap a windfall from that lipstick, it better hurry up. Halloween’s almost here, but what happens after Halloween?
Well, I’d view this question mark as an opportunity to divest if sales don’t continue to grow after the holiday. And the eyeliner pencil sounds like a pet to me. It could be remarketed and perhaps converted to a cash cow, but it might be time to retire the product and introduce something newer and more competitive instead. So you see, this matrix is very applicable to a lot of business situations. And while it doesn’t prescribe a lot of tactics, it does make the decision of whether or not to continue pursuing a questionably profitable brand or product that much easier.
Sean Jordan (08:25.932)
And like I said, I could even use it to figure out which streaming shows to stick with and which to divest from before they waste my time. But there is one drawback and I want to be sure to mention this. Sometimes you’re serving a market not out of desire to maximize profits, but to fulfill your mission. And in that case, it’s important to override the matrix’s implications and to say, we’re doing this to serve our customers and we think it’s important to continue. You know, money’s not everything. And that’s this matrix’s biggest blind spot.
Well, I’m Sean in St. Louis and thanks for listening to the Marketing Gateway. See you next time.
Sean Jordan (09:03.99)
All right, so fall’s finally here and it’s going to get colder outside soon, so today’s plug is for coats, hats, gloves, and scarves. And I don’t mean going out and getting yourself a new set. I want you to look around your community and see if there are any drives going on for hats, gloves, and scarves and donate whatever you can. If you have old stuff you’re not using and it’s clean and usable, donate it. If you have the ability to go out and bulk buy some stuff that other people can use, donate that.
You might not realize that there are people in your community who don’t have these things and can’t afford to buy them, but I promise you they exist and they love to be able to stay warm this winter. Here’s the thing. There are people in our communities who pretend like everything’s all right when it’s really not. You might even have neighbors who are in this situation and you don’t even realize it. These folks might be struggling to heat their homes and they might have cars with heaters that don’t work that they can’t afford to fix.
And that means they’ve got to stay warm however they can. Even worse, they might have kids who are suffering as well. Those coat, hat, gloves, and scarf drives make it so easy for folks who are struggling to get access to these simple necessities, and it helps to make their lives easier and better. So if you see one of those drives happening in your community, be sure to donate. You might be making someone’s cold days a little bit warmer.
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