Benefits and Limitations of the BCG-Matrix

Benefits of the BCG-Matrix:

  • The BCG-Matrix is helpful for managers to evaluate balance in the companies’s current portfolio of Stars, Cash Cows, Question Marks and Dogs.
  • BCG-Matrix is applicable to large companies that seek volume and experience effects.
  • The model is simple and easy to understand.
  • It provides a base for management to decide and prepare for future actions.
  • If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.

Limitations of the BCG-Matrix:

  • It neglects the effects of synergies between business units.
  • High market share is not the only success factor.
  • Market growth is not the only indicator for attractiveness of a market.
  • Sometimes Dogs can earn even more cash as Cash Cows.
  • The problems of getting data on the market share and market growth.
  • There is no clear definition of what constitutes a “market”.
  • A high market share does not necessarily lead to profitability all the time.
  • The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or todivest prematurely.
  • A business with a low market share can be profitable too.
  • The model neglects small competitors that have fast growing market shares.