As the old business adage goes, it takes money to make money.
You, the business owner wanting to succeed and profit in today’s competitive marketplace need to be implementing optimized and cohesive marketing strategies. If you fail to invest in digital marketing, you will be left behind, as your customers are increasingly turning to the Internet to inform their purchase decisions.
Digital marketing is the way of the future. If you want to expand your brand, boost sales, and grow your businesses exponentially, then you have to invest money into digital marketing to drive these goals. Both your prospects and existing customers are actively searching for different products and services online. They’re also reading reviews and comparing various products and services.
You need to strategize your marketing budget accordingly with the help of online marketing professionals, as well as the application of methodical analysis such as the BCG Growth-Share Matrix.
Applying the BCG Growth-Share Matrix Analysis to Marketing Initiatives
The BCG Growth-Share Matrix is a portfolio planning model that was created by Bruce D. Henderson for the Boston Consulting Group in 1970 to help companies analyze their business units or product lines. The BCG Growth-Share Matrix can help companies allocate resources, and is used as an analytical tool in brand marketing, product management, portfolio analysis, and other disciplines. The BCG Growth-Share Matrix analysis can also be applied to marketing initiatives.
The BCG Growth-Share Matrix classifies a company’s business units into four categories—cash cows, dogs, question marks, and stars—based on combinations of market growth and market share relative to the largest competitor; hence the term “growth-share”.
Cash cows possess high market share in a slow-growing industry and are considered to be leaders in a mature market. Because cash cows have a return on assets that is greater than the market growth rate, they generate more cash than they consume. Like a real cow, such business units should be “milked” for profits and should be invested with as little cash as possible.
Dogs, in contrast, have low market share and a low growth rate, and as a result, neither generate nor consume large amounts of cash. While dogs typically “break even” and generate barely enough cash to maintain the business unit’s market share, they’re considered to be cash traps because of capital that is tied up in a business that has little potential.
Question marks are businesses that operate in high market growth, but have low market share. Their high growth rate ensures that they consume large amounts of cash, but their low market share ensures that they do not generate much cash. This results in considerable net cash consumption. Question marks have the potential to gain market share and become stars, and eventually, cash cows when market growth slows.
On the other hand, if the question mark does not fulfill its potential, then it will eventually degenerate into a dog after years of cash consumption, particularly after the market growth declines. Hence, question marks need to be analyzed carefully to determine if they are worth the investment required to grow their market share.
Less problematic are stars, which are business units that possess high market share in a fast-growing industry. While they generate large amounts of cash due to their strong relative market share, they also consume large amounts of cash because of their high growth rate. If a star can maintain its large market share, it will eventually become a cash cow when the market growth rate starts to slow down or after the star reached a level of maturity by gaining efficiency and cost advantage.
As noted earlier, the BCG Growth-Share Matrix analysis can be applied to marketing initiatives. The online marketing campaigns of successful businesses occupy most of the cash cow and the star quadrants because of the high market share (brand expansion, reach and conversions) that have resulted from these optimized, revenue-generating online marketing campaigns.
Typically, the first step is concerned with evolving online marketing campaigns from the question mark phase to the star phase, and finally, to the cash cow phase. Businesses that started early with their online marketing most likely started their campaigns in the question marks quadrant. These businesses have tested and selected the best online marketing campaigns, and in turn, have optimized these campaigns with their online marketing agency for maximum effectiveness until they became stars.
To paraphrase the words of the legendary advertising executive David Ogilvy: “Never stop testing and your [online marketing] will never stop improving”.
While stars generate huge revenues due to their high market share, they also tend to require huge budgets due to their high platform and market growth rate. Stars that eventually reach maturity will become cash cows.
Cash cows are the most effective marketing campaigns and resulting revenues from this quadrant should be coursed out to fund questions marks until they become stars. Also, a greater portion of the marketing budget should be invested in stars to increase their market share until they reach maturity and become cash cows. This process needs to be repeated in order to be always ahead of the curve in digital marketing.
In the infographic, you will see the cash flow and transformation cycle in action. After going through the experience curve, and gaining cost efficiency and cost advantage, these businesses have online marketing campaigns that have matured and have evolved into cash cows. This leads to high overall revenues for the business, which in turn allows them to develop more stars.
We’ll help you identify the ideal marketing budget for your organization in order to drive your marketing objectives and business goals. By establishing an optimal marketing budget, your business will become more competitive and profitable in an increasingly cutthroat marketplace.
We’ll also help you test and select the best online marketing campaigns, and optimize them to ensure maximum effectiveness to further your brand expansion initiatives.
We’ll drive your growth, boost your profits, expand your brand online, and increase your leads and sales.
Contact our professional digital marketing agency today, and get a FREE consultation on how to strategically increase your marketing budget.
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