Page 263 - DMGT510_SERVICES_MARKETING

Services Marketing

Notes 14.1.1 Boston Consulting Group Matrix

This matrix was developed by the management consulting firm Boston Consulting Group (BCG)
almost thirty five years back. A service firm uses this grid to categorize its SBUs or its products
as Stars, Cash Cows, Problem Children (or Question Marks) and Cash Crunch (or Dogs). The
parameters of classification are market share relative to its competitors and the growth rate of
the industry of the respective SBUs.

Figure 14.1: The Boston Consulting Group Growth/Share Matrix

H IG H R elative M arket S hare LO W

H IG H

S T A R S P R O B L E M
A d d itio n a l g ro w th C H IL D
p o te n tia l:
R isky – a few go on to
In ve st fu rth e r
b e co m e S T A R S :
M arket In ve st in so m e ,
G row th d ive st in o th e rs
R ate
C A S H C A S H
C O W S C R U N C H
L im ite d g ro w th N o profits o r ca sh flo w
p rospe cts: e ith e r n o w o r in th e
M in im u m in ve stm e n t, ca n fu tu re :
b e d ive ste d w ith D ive st o r liq u id a te
p ro fita b ility u n le ss tu rn a ro u n d is
p ossib le
LO W
Stars are those SBUs (or service products) which are in a high growth rate industry (like for

example, BPOs) and whose relative market share is also high (like Delhi based IBM-
Daksh). They would require a lot of support from the service firm in terms of resources to
remain competitive and gain market share.
Cash Cows are SBUs (or service products) that are in low growth or mature industries but

have relatively high market shares. This could be due to their early presence in the market.
Whenever any industry has a decline, stars transform into cash cows, are able to retain
their customers and their loyalty, and effectively have very low marketing costs. Thus
cash cows rarely invite additional investment and are only “milked”.
Problem Child (also called question marks) is those SBUs which have doubtful future. The

manager can neither predict a rosy future for them nor a definite death. The SBUs have low
relative market share but the industry in which they are is doing very well and has high
growth rate. It seems that while their competitors are doing well, they themselves are not
doing so well overall. It speaks of their non-competitiveness presently. The management
has a choice in its decision: it can give more support by way of resources and hope for a
revival of its fortunes or withdraw support and kill the SBU, cutting losses while it can.
The danger lies in the fact that at a future date, both the decisions could be proved wrong:
the first could make the firm suffer opportunity costs, while the second, opportunity lost.

Cash Crunch (also called Dogs) is the category applicable to those SBUs who are neither

doing well themselves vis-à-vis their competitors (reflected in very low market shares),
nor is their industry growing (reflected in very low growth rate).

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