Economics and management in the field of information and communication technologies

What Do the Four Quadrants of the BCG Matrix Mean?

The BCG model assumes that relative market share of a product is an indicator of its cash generation potential. A product with a high market share typically has a high cash return, and it also has a strong brand position relative relative to its major competitors. These features are indicators of future success.
The market growth rate is an indicator for cash outflows. A high growth rate means a product is earning well but these products normally require a large injection of cash to stimulate future growth. You're getting nice growth but at a cost. Setting these numbers against each other gives a better indicator of the product's viability than measuring cash flow generation alone.
What you end up with, are four scenarios with respect to the market share of the business, cash flow generation and growth rate of the industry in which the business is operating. Each of the four quadrants has a specific meaning. Here's the breakdown:
Cash Cows
Cash cow products are your market leaders. These products sit in the bottom right quadrant of your matrix and generate more revenues than they consume. Under normal conditions, a business will aspire to carrying as many cash cows as possible since these products provide the cash you need to invest in marketing, cover the operating costs of the business, fund product development and pay down debt.
To continue the cow analogy, businesses are advised to "milk" their cash cows by extracting the profit from them while investing as little into them as possible. Ideally, you will use your cash cows to generate passive gains for your business. Maintaining a healthy supply of these products means you have the cash you need to act upon the next market trend.
Stars
The products in the upper right quadrant of your matrix have the best market share and bring the most cash into your business. First-to-market products often fall into this category, and these products are considered stars. While stars generate a lot of revenue because of their strong relative market share, they also gobble up investment dollars because of their high growth rate. All things being equal, this results in the same cash coming in that is going out.
Sustaining a neutral cash flow is not an ideal position for the business to be in; you want to move to a position where the stars bring in more revenues than they take out. Companies are usually advised to prioritize their stars. These products have the potential to become cash cows if they sustain their cash generation until the growth rate levels out.
Question Marks
Question marks have a low relative market share and a high growth rate, meaning they have the potential to grow rapidly if you invest large amounts of cash into them. At the moment though, they are returning very little compared to the investment you're making. Ultimately, a question mark will go one of two ways:

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  It will become a dog and lose money, in which case you should probably abandon this product; or,
  
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  It will turn into a star, and then into a cash cow as market share grows.
  

Question marks require careful analysis to decide if they are worth the further investment. Products with growth potential may warrant a cash injection; dead-in-the-water products do not.
Dogs
The final category belongs to your dogs which have an underwhelming market share and growth rate. These products neither generate nor consume a large amount of cash — sometimes they will lose money but frequently, they will break even. Dogs are often referred to as cash traps because the business has money tied up them, even though they have little potential for growth. Businesses are usually advised to dispose of these products.