Unilever is officially the world’s third largest consumer goods company, behind Procter & Gamble and Nestle, having generated a turnover of €49.8 billion in 2013, across its staggering 400+ brands. It is often said however that the company focuses on just 14 brands – those that each generate sales of €1+ billion. If this were the case, the question arises as to why Unilever retains such a large portfolio of brands and why future “selective acquisition” is highlighted in its most recent annual report?
To answer this question, the Boston Consulting Group (BCG) Matrix (also known as the ‘Boston Matrix’) is a very useful marketing tool in understanding portfolio management. The premise of the BCG Matrix is that all products or brands can be classified as one of the following categories, based on its market share and market growth:
Star(HIGH Market Share, HIGH Market Growth): These are brands very much at their peak, holding a large market share in very much a growing market – therefore requiring continued investment to hold or enhance their position, as competitors continually enter the market and innovate. For Unilever, a prime example of this is Lipton, the world’s best selling tea brand. Despite its existing stature, continued investment in the patented TESS technology (which uses the natural essence pressed from freshly picked leaves) enabled a global re-launch of Lipton Yellow Label that fuelled growth of 5.6% in the last two years.
Cash Cow(HIGH Market Share, LOW Market Growth): These are yesterday’s top products in industries that have since reached saturation. This is arguably the most important category of brands for companies like Unilever as they require very little further investment to generate revenue – allowing for profits to be reinvested into Stars or Problem Child brands. Marmite is a key Cash Cow for Unilever with sales just about holding their own in the spreads industry that is slowly beginning to decline in Europe and North America. Investment in Marmite in recent years has been largely limited to advertising campaigns.
Problem Child(LOW Market Share, HIGH Market Growth): These can be described as tomorrow’s bread-winners (Stars). Often relatively young brands, they are yet to maximise their potential within the industry and therefore require greatest investment from the success of Cash Cow brands in order to exploit the fast market growth ahead of competitors. The excess profit from brands like Marmite has been reinvested into new innovative brands like T2, the fast-growing premium tea brand in Australia, and new products like Small & Mighty liquid detergent, under the Omo brand (Persil in the UK), which concentrates the same number of washes into a bottle one third of the size.
Dog(LOW Market Share, LOW Market Growth): These are the dead-end products whose time has been and gone and likely most offer no future profits. Simply keeping them on the market is wasting resources generated by Star and Cash Cow brands. Dogs should be disposed of unless they somehow contribute to the sales of other brands/products within the portfolio. For this very reason, Unilever sold its Slim-Fast brand in July 2024 to private-equity firm, Kainos Capital, to focus on other brands with greater appeal and growth potential. The diet industry has changed dramatically since the brand’s fast growth in the early-2000s to the extent that it was used by 45% of the American health and weight management market – today replaced by fads such as the 5:2 program.
What these four categories demonstrate is that businesses with diverse portfolios such as Unilever’s require a balance of Star, Cash Cow and Problem Child brands because markets are constantly developing, maturing and ultimately declining (as demonstrated by the Product Lifecycle theory). The journey of any product/brand is likely to follow the journey of Problem Child – Star – Cash Cow – Dog and the key to clever marketing is prolonging the Star and Cash Cow stages for as long as possible whilst minimising Dog brands:
Therefore, for Unilever to secure its long-term position as the third largest global consumer goods company, ensuring a sufficient number of Problem Child brands today is as crucial as Stars and Cash Cows, as funded by today’s Cash Cows and Stars. Excellent portfolio management by Unilever will see T2 become the future Dove or Tipton, before naturally becoming a Marmite and subsequently another Slim-Fast, but smart investments will prolong the growth stages and hold off the decline.
This long term perspective is a key strength of the BCG Matrix as a strategic tool. However, there are still a couple of cautions to be considered when using it. Firstly, market growth may be directly influenced by Unilever due to its market power. For example, as Lipton is the world’s best selling tea brand, an increase in investment by Unilever would lead to a growth of the overall market and give the impression that the market is a Star, when in actual fact it should be a Cash Cow. It can also be misleading in terms of defining whether a market is growing or not depending on the brand’s countries of operation. For example, Unilever claimed in 2013 that the soups market declined in developed markets. Therefore, if operating solely in developed markets, a firm may seek to divest its perceived Problem Child brand before it rapidly becomes a Dog even though there are still growth opportunities outside developed markets (which would indicate Unilever’s Knorr soups could actually still be a Star).
Despite the limitations, the BCG Matrix is a very simple and useful tool for portfolio managers to review their brands and products across industries and SBUs, and assist in prioritisation of investment and divestment. It clearly dispels the belief that Unilever focuses on just 14 brands; in reality, these are simply today’s Star brands that are seen within a bigger picture that also consists of the other three BCG Matrix categories.
- (or growth-share matrix) is a corporate planning tool, which is used to portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis (horizontal axis) and speed of market growth (vertical axis) axis.
- is a business tool, which uses relative market share and industry growth rate factors to evaluate the potential of business brand portfolio and suggest further investment strategies.
Understanding the tool
BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and its potential. It classifies business portfolio into four categories based on industry attractiveness (growth rate of that industry) and competitive position (relative market share). These two dimensions reveal likely profitability of the business portfolio in terms of cash needed to support that unit and cash generated by it. The general purpose of the analysis is to help understand, which brands the firm should invest in and which ones should be divested.
Relative market share. One of the dimensions used to evaluate business portfolio is relative market share. Higher corporate’s market share results in higher cash returns. This is because a firm that produces more, benefits from higher economies of scale and experience curve, which results in higher profits. Nonetheless, it is worth to note that some firms may experience the same benefits with lower production outputs and lower market share.
Market growth rate. High market growth rate means higher earnings and sometimes profits but it also consumes lots of cash, which is used as investment to stimulate further growth. Therefore, business units that operate in rapid growth industries are cash users and are worth investing in only when they are expected to grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs. Dogs hold low market share compared to competitors and operate in a slowly growing market. In general, they are not worth investing in because they generate low or negative cash returns. But this is not always the truth. Some dogs may be profitable for long period of time, they may provide synergies for other brands or SBUs or simple act as a defense to counter competitors moves. Therefore, it is always important to perform deeper analysis of each brand or SBU to make sure they are not worth investing in or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation
Cash cows. Cash cows are the most profitable brands and should be “milked” to provide as much cash as possible. The cash gained from “cows” should be invested into stars to support their further growth. According to growth-share matrix, corporates should not invest into cash cows to induce growth but only to support them so they can maintain their current market share. Again, this is not always the truth. Cash cows are usually large corporations or SBUs that are capable of innovating new products or processes, which may become new stars. If there would be no support for cash cows, they would not be capable of such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment
Stars. Stars operate in high growth industries and maintain high market share. Stars are both cash generators and cash users. They are the primary units in which the company should invest its money, because stars are expected to become cash cows and generate positive cash flows. Yet, not all stars become cash flows. This is especially true in rapidly changing industries, where new innovative products can soon be outcompeted by new technological advancements, so a star instead of becoming a cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market development, product development
Question marks. Question marks are the brands that require much closer consideration. They hold low market share in fast growing markets consuming large amount of cash and incurring losses. It has potential to gain market share and become a star, which would later become cash cow. Question marks do not always succeed and even after large amount of investments they struggle to gain market share and eventually become dogs. Therefore, they require very close consideration to decide if they are worth investing in or not.
Strategic choices: Market penetration, market development, product development, divestiture
BCG matrix quadrants are simplified versions of the reality and cannot be applied blindly. They can help as general investment guidelines but should not change strategic thinking. Business should rely on management judgement, business unit strengths and weaknesses and external environment factors to make more reasonable investment decisions.
Advantages and disadvantages
Benefits of the matrix:
- Easy to perform;
- Helps to understand the strategic positions of business portfolio;
- It’s a good starting point for further more thorough analysis.
Growth-share analysis has been heavily criticized for its oversimplification and lack of useful application. Following are the main limitations of the analysis:
- Business can only be classified to four quadrants. It can be confusing to classify an SBU that falls right in the middle.
- It does not define what ‘market’ is. Businesses can be classified as cash cows, while they are actually dogs, or vice versa.
- Does not include other external factors that may change the situation completely.
- Market share and industry growth are not the only factors of profitability. Besides, high market share does not necessarily mean high profits.
- It denies that synergies between different units exist. Dogs can be as important as cash cows to businesses if it helps to achieve competitive advantage for the rest of the company.
Using the tool
Although BCG analysis has lost its importance due to many limitations, it can still be a useful tool if performed by following these steps:
- Step 1. Choose the unit
- Step 2. Define the market
- Step 3. Calculate relative market share
- Step 4. Find out market growth rate
- Step 5. Draw the circles on a matrix
Step 1. Choose the unit. BCG matrix can be used to analyze SBUs, separate brands, products or a firm as a unit itself. Which unit will be chosen will have an impact on the whole analysis. Therefore, it is essential to define the unit for which you’ll do the analysis.
Step 2. Define the market. Defining the market is one of the most important things to do in this analysis. This is because incorrectly defined market may lead to poor classification. For example, if we would do the analysis for the Daimler’s Mercedes-Benz car brand in the passenger vehicle market it would end up as a dog (it holds less than 20% relative market share), but it would be a cash cow in the luxury car market. It is important to clearly define the market to better understand firm’s portfolio position.
Step 3. Calculate relative market share. Relative market share can be calculated in terms of revenues or market share. It is calculated by dividing your own brand’s market share (revenues) by the market share (or revenues) of your largest competitor in that industry. For example, if your competitor’s market share in refrigerator’s industry was 25% and your firm’s brand market share was 10% in the same year, your relative market share would be only 0.4. Relative market share is given on x-axis. It’s top left corner is set at 1, midpoint at 0.5 and top right corner at 0 (see the example below for this).
Step 4. Find out market growth rate. The industry growth rate can be found in industry reports, which are usually available online for free. It can also be calculated by looking at average revenue growth of the leading industry firms. Market growth rate is measured in percentage terms. The midpoint of the y-axis is usually set at 10% growth rate, but this can vary. Some industries grow for years but at average rate of 1 or 2% per year. Therefore, when doing the analysis you should find out what growth rate is seen as significant (midpoint) to separate cash cows from stars and question marks from dogs.
Step 5. Draw the circles on a matrix. After calculating all the measures, you should be able to plot your brands on the matrix. You should do this by drawing a circle for each brand. The size of the circle should correspond to the proportion of business revenue generated by that brand.
This example was created to show how to deal with a relative market share higher than 100% and with negative market growth.