The BCG Strategic Portfolio Model is a method of approaching and analyzing business

marketing and growth developed by the Boston Consulting Group. The primary guiding
principle of the BCG group's strategy is that experience in a market share leads to
reduced costs and higher profits. This model uses the BCG marketing matrix, a system
to classify business enterprises based on their potential for profits and growth. The
model also applies mathematical formulas to business enterprises or products to
calculate potential growth and earnings.

Cows, Children, Stars and Dogs
The BCG growth matrix part of the model classes each product as a "cash cow," "problem
child," "star" or "dog." "Cash cows" represent product lines that bring in a high income at low
cost to the company, leaving plenty of money to put to other uses. "Star" product lines may bring
in some profits but require more investment to maintain their market share. These are products
with the potential to become future "cash cows" if the company invests in them wisely.
"Problem children" do not generate cash flow and require more investment but still have
potential to grow. These are the products to watch, as they can eventually become either "stars"
and then "cash cows" or "dogs." "Dog" products may generate some income or loss but have
slow-growing markets, making them poor continuing investments for a company's dollars.
The "Experience Curve"
Another portion of the BCG model proposes an "experience curve" that graphs the increased
profit as a company gains experience and market share with a particular product. The BCG
model theorizes that each time a company's output increases so that it produces twice as much of
a specific product as it used to, the cost to create each unit declines by 20 to 30 percent. This
decrease is due to workers increasing production speed as they become familiar with the process.
This theory relies on maintaining a low turnover in the work force and no increase in materials
costs.
Related Reading: Model Marketing Plan
Analysis
Once a company divides its products into these four categories, it can develop a marketing
strategy to support the "cash cows," increase market share for "stars," phase out "dogs" and keep
an eye on "problem children." Based on these divisions, dollars earned by the "cash cows" are
allotted to marketing and production efforts for "star" products to increase the "experience curve"
for those products and gain a larger market share. Marketing and production dollars may also
flow toward the "problem children" to turn these products into "stars." The BCG model looks at
competitors for those products to determine whether the potential to gain market share justifies
the costs.
Considerations
As with any marketing model, the BCG works in some situations but not in others. It offers a
valuable way to assess a company's offerings as far as which products to promote and which
ones to cut, but the "experience curve" profit increase does not apply to all situations. It does not
take into account outside factors such as supply shortages that can affect the company's
production costs and overall profits. Combining the BCG model with other marketing models
can give a broader view of how marketing efforts for a particular product will affect a company's
overall cash flow.