ACCA Applied Knowledge · Business and Technology · Competitive factors
A company sells a product that has a high share of a market that is growing very slowly. The product generates strong cash inflows and needs little further investment in promotion or capacity. Under the Boston Consulting Group (BCG) matrix, which category does this product fall into, and what is the usual strategy?
The product is a cash cow because it has a high market share in a low-growth market. It generates more cash than it needs, so the usual strategy is to maintain its position and use the surplus cash to fund question marks and stars.
- ACash cow: maintain the position and 'milk' the surplus cash to fund other productsCorrect
- BStar: invest heavily to defend the share in a fast-growing market
- CDog: divest or harvest because the product has a low share in a low-growth market
Explanation
The BCG matrix classifies products by relative market share and market growth. High share with low growth is a cash cow, which earns more cash than it needs to maintain its position. The surplus is normally used to fund question marks and stars. A star would need high market growth, and a dog would have a low market share, so neither matches the description.
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