IB Business Management SLTopic 6 — The Business Management ToolkitPaper 1 & 2Decision-making tool~11 min read
Using the BCG Matrix
A business with six products does not have six equal products. Some pay for themselves and everything else. Some swallow money and might pay it back one day. The BCG matrix sorts a product portfolio into four types so managers can decide where the cash should go — and where it should stop going.
📚 What you need to know
The BCG matrix (also called the Boston matrix) analyses a firm’s product portfolio.
It sorts products on two things: market share and market growth rate.
The four types are star, cash cow, question mark (or problem child) and dog.
Cash cows bring in steady money and fund everything else.
Stars earn well but also need heavy spending to stay ahead.
Question marks need investment and might become stars — or might not.
Dogs tie up money and shelf space, and are usually dropped.
A healthy portfolio has products in more than one box, because today’s cash cow was yesterday’s star.
The four types
Two questions again. Does this product hold a big share of its market? And is that market growing fast? The answers put every product in exactly one box.
Note that a product can move between boxes over time. Nothing stays a star forever.
Where the money actually flows
The matrix is not just four labels. It describes a cycle. Cash cows generate the money that pays for question marks; the successful ones grow into stars; stars eventually settle into cash cows as their market matures. Dogs sit outside the cycle.
This is why examiners like a balanced portfolio: money has to come from somewhere before it can be invested anywhere.
Balance is the whole argument. If a 10-mark question asks which products deserve promotional spending, the strongest answers do not pick four from one box. They explain why the firm needs something earning now and something earning later.
What to do with each type
Product type
Cash flow
What managers usually do
Star
Strong money in, strong money out
Keep spending on marketing to defend the share while the market grows
Cash cow
Steady positive cash, low spending
Spend just enough to hold the share, and use the profit elsewhere
Question mark
Often negative
Decide: invest heavily to build share, or stop before more money goes in
Dog
Little in, and it still costs something
Usually withdraw, unless it supports another product or a key customer
Do not treat “dog” as an automatic death sentence. A dog that brings customers into the shop for other things, or that a big client insists on, can be worth keeping. Saying so is exactly the kind of judgement a 10-marker rewards.
Worked examples
WE 1
Define the term “product portfolio”
Define the term “product portfolio”. [2]
Answer
A product portfolio is the complete range of goods and services a business sells ✓
and currently makes available to its customers. ✓short, precise, two clear parts. No case study needed for a define question.
WE 2
Classify a portfolio using the BCG matrix
Case study: Nordvik Audio makes four products. The table shows each product’s share of its own market and how fast that market is growing.
Product
Its market share
Market growth
Wireless earbuds
28%
+18% a year
Studio headphones
31%
+2% a year
Portable speaker
4%
+22% a year
Wired earphones
3%
−6% a year
Using the BCG matrix, classify each of Nordvik Audio’s four products. [4]
Wireless earbuds
High share (28%) in a fast-growing market (+18%) → starStudio headphones
High share (31%) but the market barely grows (+2%) → cash cowPortable speaker
Low share (4%) in a fast-growing market (+22%) → question markWired earphones
Low share (3%) in a shrinking market (−6%) → dogquote both figures for each product. That is what proves you used the data.
WE 3
Recommend where the promotion budget should go
Recommend which of Nordvik Audio’s products should receive extra promotional spending. [10] — outline of a full-mark answer
Paragraph 1 — define and place the products
The BCG matrix sorts products by market share and market growth. Nordvik has one star, one cash cow, one question mark and one dog.
Paragraph 2 — first recommendation, with balance
The wireless earbuds deserve the most spending: a 28% share in a market growing 18% a year means every extra sale compounds. However, fast growth attracts rivals, so this spending defends the position rather than adding to it.
Paragraph 3 — second recommendation, with balance
Some money should go to the portable speaker, since a 22% growth rate is the fastest of the four and a 4% share leaves room to climb. But question marks fail often, and Nordvik may be buying into a market it cannot win.
Paragraph 4 — what to protect and what to cut
The studio headphones need only enough spending to hold a 31% share, because their market grows at 2% and extra promotion would add little. The wired earphones, at 3% in a shrinking market, should be wound down — unless retailers only stock the range as a whole.
Paragraph 5 — conclusion with limitations
Splitting the budget between the earbuds and the speaker balances earning now against earning later. The case study does not give profit margins or the size of each market, though, and a 4% share of a huge market may be worth more than 31% of a small one.
notice the last line: the matrix uses percentages, but it never tells you how big the markets are.
How useful is the BCG matrix?
✓ WHY IT HELPS
It shows the whole portfolio at once, so managers stop judging products one at a time.
It makes the case for spreading money across products at different stages.
It is quick, visual, and easy to explain to people who are not accountants.
✗ WHERE IT FALLS SHORT
Only two measures. Profit margin, brand value and customer loyalty are all ignored.
The line between “high” and “low” is a judgement, so two managers can classify the same product differently.
It is a snapshot, and products move between boxes as markets change.
💡 Exam tip
Quote both numbers for each product — the share and the growth rate. One on its own does not justify a box.
Say what the classification means for the money. “It is a cash cow” is knowledge; “so it funds the speaker launch” is analysis.
Argue for balance in recommendation questions rather than picking everything from one box.
Look for movement. If the case study shows growth slowing, say the star is becoming a cash cow.
Question the cut-off. Who decided 15% share counts as “high”? That is a fair evaluation point.
Mention what is missing — market size, margins, and how loyal the customers are.
⚠ Common mix-up
Confusing market share with market growth. Share is the product’s slice; growth is how fast the whole market is expanding.
Thinking stars are the most profitable. They earn a lot and spend a lot. Cash cows generate the spare money.
Automatically dropping every dog. Some support other sales or keep a key customer happy.
Assuming high growth is always good. Fast-growing markets attract rivals and cost a fortune to hold.
Classifying with no figures. If the data is in the case study, use it.
Treating the boxes as permanent. Products move, and saying which way is worth a mark.
Up next: Writing a Business Plan — pulling all of this analysis together into the document a bank actually reads.
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