Assumptions of the BCG Matrix

BCG Matrix Assumptions

• MARKET GROWTH RATE: THE BCG Matrix assumes that the growth rate of a market is an important indicator of its attractiveness. It categorizes markets as high, medium, or low growth based on the rate at which overall demand for the product or service is increasing.
• RELATIVE MARKET SHARE: THE BCG Matrix assumes that a business unit's relative market share is indicative of its competitive strength within the market. It categorizes business units as high, medium, or low market share based on their market position compared to competitors.
• CASH FLOW GENERATION: THE BCG Matrix assumes that businesses with a high relative market share are able to generate more cash than those with a low market share. This is because high market share typically correlates with higher sales volumes and economies of scale, leading to greater profitability and cash flow.
• CASH USAGE: THE BCG Matrix assumes that businesses with high market growth rates require significant cash investment to sustain their growth. This is because fast-growing markets often demand heavy spending on marketing, research and development, and other activities to maintain or increase market share.
• MARKET SHARE AND GROWTH RELATIONSHIP: The BCG Matrix assumes that there is an inverse relationship between market share and market growth rate. It suggests that businesses with high market share are likely to operate in mature or slow-growing markets, while businesses with low market share are more likely to operate in high-growth or emerging markets.
• BUSINESS UNIT INDEPENDENCE: The BCG Matrix assumes that each business unit operates independently and can be evaluated separately from the overall company. This allows managers to make strategic decisions about resource allocation and portfolio management at the business unit level.