The 2 Dimensions of the BCG-Matrix

To understand the BCG-Matrix, you need to understand how market share and market growth interrelate.

Market share is the percentage of the total market that is being serviced by a specific company, measured either in revenue terms or unit volume terms. The higher the market share, the higher the proportion of the market a company controls.

The BCG-Matrix assumes that if a company enjoys a high market share it will be making money. (This assumption is based on the idea that it will has been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that gives it an advantage).

The question it asks is, “Should you be investing additional resources into a particular product line just because it is making you money?” The answer is, “not necessarily.”

This is where market growth comes into play. Market growth is used as a measure of a market’s attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable.

By contrast, competition in low growth markets is often bitter, and while a company might have high market share now, it may be hard to retain that market share without aggressive discounting.  This makes low growth markets less attractive.