“It’s a Cash Cow”

“Cash cow” is a term I usually hear used somewhat sarcastically in reference to a high margin product. The expression itself is probably pretty old, but it’s adoption into business is about 40 years old and comes from a matrix produced by Boston Consulting Group in 1968.

It’s a 2 by 2 matrix, perhaps one of the first to be popularised by consultants, with decreasing market share on the x axis and increasing growth on the y axis, the four quadrants are then categorised as shown below.

matrix

Matrix showing the categorisation of products according to market share and growth

A star is a product with high growth and high market share, this is likely to be a new product. A company should invest in further development and marketing of this product.

A question mark indicates that a product has high growth but hasn’t really gained a sizable market share, it may be a new product. There is a risk that such a product could turn out to be a fad, or may be vulnerable to competition. A company must watch the question marks and judge investment carefully as the product could evolve into a star, or fall into a dog.

A cow, often termed a cash cow, has high market share and and low growth. It’s likely to be a mature product in a mature market. A company should exploit the revenues from the products in the cow quadrant to finance the investments in the stars.

The dog is in the fourth quadrant, and refers to products that have low market share and low growth, they may be products that have reached the end of their life-cycle. Companies should not invest in these products directly unless there is an opportunity to re-invent the product and relaunch it. In general companies should cease production of products categorised as dogs as they will quickly become unprofitable.

Of course this is a simplification but it does help understand your product mix and where your investment should go.

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