BCG matrix: How to increase profits without much effort?
The BCG matrix is a popular and effective tool that allows you to manage the assortment and increase chain sales. The usefulness of the matrix has been proven by the Boston Consulting Group and many years of experience using the world's leading companies.
Purpose of the BCG matrix
The matrix can be used in different directions, namely for:
- optimizing the products' assortment in the chain;
- developing strategies and determining future directions of activity and making management decisions on them;
- holding a constructive negotiation company with partners, suppliers, and investors;
- budgeting and distributing funds between different activity areas, purchasing various products, etc.
What is the essence of the BCG matrix?
Its meaning is to divide goods into four groups according to two criteria: the growth rate of the market (demand) and market share (in sales).
- Stars are products that are in high demand and share in sales. They are the bestsellers for the chain and bring the most profit. They should be followed as they can quickly lose their positions and move to another group. It is advisable to invest in these products until they are transferred to the Cash Cows group.
- Cash cows are products that in the past occupied a significant share in the chain's sales, but over time have partially lost their popularity. Now such products bring a sufficient amount of profit and keep a competitive position in the sales of the store/chain. It is not necessary to invest significant money in such products, it is enough just to maintain positions and "reap the benefits" of previous efforts and the popularity gained.
- Question marks (Difficult children) - products that are in demand, but occupy a small share in sales. They could become "Stars" with proper investment and incentives in the future. You just need to determine whether it is worth investing time and money in these products.
- Dogs are products with low demand and an insignificant share in sales. The main strategy for working with them is minimizing their stocks and selling them if necessary.
Understanding the group in which the product is located helps to develop the most effective marketing strategy and determine important points: what and how much to buy, what products to advertise and maintain the interest of customers, and what should be removed from the assortment. This will increase sales, minimize costs and inappropriate investments in certain SKUs, and as a result, increase the profit of the chain.
Marketing Strategies for the BCG Matrix
Constant monitoring of the place of the product on the market and in the chain assortment allows you to choose one of the most appropriate marketing strategy options:
- The increase in the share of sales is inherent in the products from the "Question Marks / Difficult Children" group and is aimed at transferring them to the "Stars" group.
- Maintaining a share of sales is a strategy that is suitable for products from the "Cash Cows" group. With its help, chain owners can maintain a high level of income from popular products for a long time to invest these funds in new "growing" products.
- "Harvesting" is a strategy for obtaining the "quick" maximum possible profit. This type of marketing activity is suitable for products that have no future and are planned to be withdrawn from the assortment: "Question Marks / Difficult Children", and "Dogs".
- Business liquidation is used to improve one's position by withdrawing products ("Dogs" and "Question Marks/Difficult Children") from the assortment. In this case, the company saves money on investing in these commodity items and can redirect them to other activities or SKUs.
How to analyze the BCG matrix?
To get the most out of using the BCG Matrix, follow these simple steps:
✅ Step 1 - Distribution of all products into four quadrants of the matrix based on their sales and share in the total chain sales.
✅ Step 2 - Assessing the occupancy of each quadrant to understand the overall state of the chain's assortment.
✅ Step 3 - Withdrawal of the "Dogs" group from the product assortment.
✅ Step 4 - Determine how to fill in the "gaps" in the quadrants: "Stars", "Question Marks/Difficult Children", and "Cash Cows".
✅ Step 5 - Keeping the assortment matrix in balance, choosing the most appropriate action strategy for each product group.
BCG Matrix Analysis with the BES Analytical Platform
To quickly and conveniently apply the BCG matrix with maximum adaptation to retail features, a separate report has been developed on the BES.Datawiz platform that allows you to:
- Group products by matrix quadrants quickly.
- Change the criteria for the distribution of products into matrix quadrants: Sales value, Sales Qty, Profit, Margin, Mark-up, etc.
- Study in detail the sales metrics and their changes for each group of products.
- Always keep a "hand on the pulse" and make timely and highly effective decisions.
Make your analytics as convenient and informative as possible. We look forward to helping you succeed and scale your business.