The BCG Matrix is a very popular and useful tool in business, used mostly for portfolio management and investment decisions. However, the BCG Matrix (short for Boston Consulting Group Matrix) can be used in a large variety of situations as its focus is helping managers diversity the assets they own, to make sure that they are not unbalanced in any of the four categories.
In this first introductory paragraph, we’ll explain how the basic model works, but we’ll then delve into different applications which are specific to the fashion industry.
As you can see from the image below, the BCG is essentially looking at two distinct dimensions to analyze firms on the grounds of their industry’s market size and the relative market share that each company takes up.
- On the Y-Axis we’re looking at companies who are competing in a low or high growth industry. A low growth industry can be for instance the paper publishing industry, while a high growth industry could be blockchain technologies. This axis is used to express the potential for growth and profit connected to the industry itself. A growing industry will provide more opportunities for profit growth as opposed to a low growth or even shrinking one.
- On the X-Axis, we’re looking instead at the relative market share. Companies within their respective industries can take on a bigger or smaller piece of the market, depending on how established they are. A smaller company will therefore be less attractive than a more established player.
The market growth rate and the relative market share are very important dimensions while assessing a business, and by looking into these categories, we can position firms relative to each other in a very visual way. Based on this premise we can qualify companies in the four quadrants which are described below:
- Dogs. These companies are small organizations in small markets. This means that as a result, these entities may not be particularly profitable or able to grow, as their market is capped. The general principle, in this case, is that if we have ‘dogs’ in our portfolio, we may want to sell them to make money to invest in projects which have higher growth and profit potentials.
- Question Marks. Question marks are instead firms that small, or with small market shares, but still competing in a large market. As a result of this even if companies may still look unprofitable they still may be more attractive, as their growth potential and untapped market can make them look like appealing investments. In this case, therefore, the idea is to buy a company when it is still a little risky, in order to cash in later on when the business may have grown.
- Cash Cows. On this side of the graph instead, we have large companies in small markets. Sure, these firms may be big fishes in small ponds, but they are in the position of exploiting a position of dominance. This is why they are called Cash Cows, or companies that should be milked or squeezed out of their profitability before they will turn into dogs. These firms are still relevant, but they may be destined to shrink and as a result, the approach may be more directed towards exploitation than investment.
- Stars. Last but not least we’ve got stars. These companies are large organizations with a high market share in booming industries. As a result, these are the most attractive and profitable assets you can have in your portfolio. The general principle here is to hold them, in terms of fully benefitting from a bet (usually made at the question mark stage) that has turned into a big business opportunity.
Great! Now that we’ve clarified how the Boston Consulting Group Matrix works, let’s see how it can be applied to the fashion industry. Please find below a short index to help you navigate through the content.
- Use the BCG Matrix to acquire or sell existing brands.
- Use the BCG Matrix to manage your collection TTM and PLC.
- Use the BCG Matrix to manage your retail merchandise.
1. Use the BCG Matrix to acquire or sell existing brands.
The first and most immediate application is seeing how this model can apply to fashion brands. In the fashion industry, each firm starts off by selecting a positioning statement designed to attract, convert, and retain the customer segments that are better connected to the brand’s values. However, as discussed in another article from our blog, this approach can be limiting as a company does not want to corner itself to a particular market segment but instead would like to maintain the potential to expand its offer to the broadest range of customers possible.
One brand cannot be everything to everyone, so from a positioning perspective options are limited. At the same time, however, we can see that conglomerate brands try to develop a brand portfolio that allows them to span across multiple markets, price points, and customer profiles. In this context therefore we see how these organizations may use the Boston Consulting Group Matrix to explore a variety of niches and opportunities within an umbrella brand that looks into multiple spaces in the market.
If you’d like to read up more about how fashion brands move across the industry and develop market-specific business models to compete within them, then this article is for you.
2. Use the BCG Matrix to manage your collection PLC (Product Life Cycle).
Fashion companies are challenged with a very high pace of product development and launch. Years ago, before the advent of fast fashion, firms could comfortably develop 2 collections a year, and manage their production accordingly. As the pace of the industry has quickened fashion companies are now tasked with the creation of a high volume of new products and collections every year, posing a variety of production management issues.
The Boston Consulting Group Matrix, in this context, can help fashion brands manage their production based on the time it will take each product to go through the different adoption volume stages foreseen by the Product Life Cycle model as shown in the picture below.
This mindset will allow companies to plan their productions and market launches so that at any given time, different products on the market will be at different stages of adoption and different stages of profitability. As shown in the model, as the product is launched into the market, it will be a Question Mark, as it Grows in adoption it will be a Star, once it has achieved maximum adoption it will be a Cashcow and finally a Dog when it enters its decline stage.
For a company’s financial sustainability, the important element to take into account is that at any given time, the mature products (cash-cows) will fund the stars, and the dogs will be sold to invest in new question marks.
Great, now let’s move to another useful application that is connected with something entirely different: store merchandise and layout management.
3. Use the BCG Matrix to manage your retail merchandise.
The management of retail spaces in fashion is a challenge. Floor space is expensive and the more prestigious the address, the higher the rent. We’ve actually covered this topic before in posts like 7 Best Practices to Effectively Manage Your Inventory In A Small Retail Space but in this post, we’d like to look at how the product categories that we’ve identified can help us manage our retail space.
In every retail space, we’ll have to make sure that we can manage every single square meter in the best possible way. In this context, we can simply start by identifying two types of areas in the store, hot zones, and cold zones.
- Hot zones are the areas of the store where we’ll have more customers passing by, as these zones are the most visible and exposed. In these areas, we want to position our weakest products such as dogs and potentially question marks, as these are the hardest to sell.
- Cold zones are instead the areas of the store which are the hardest to find, the ones that customers explore with clear search intent. These areas are the ones where customers go as they are looking for something specific to buy and in order to lure them into these areas of the store, we need to make sure that we’re positioning our most attractive and profitable categories, the ones represented by Stars and Cash Cows.
By doing this we’ll be able to maximize the profitability of our inventory, taking advantage of the layout of our store in a very effective and profit-oriented way. Alright, now that we’ve explored in-depth the different applications of the BCG Matrix to the fashion industry, let’s move towards our conclusive remarks.
There you have it! In this post, we’ve applied the Boston Consulting Group Matrix (BCG Matrix) to the fashion industry to see how it can be applied to a broad set of managerial situations.
The fashion industry is really unique, and as such we have to take into account how traditional business models and frameworks should be adapted or entirely re-imagined when applied to this sector.
The Boston Consulting Group Matrix is one of them, and as we’ve seen, it can be extended to help us choose where our business should invest, how it can manage its production strategies, and even how to allot space in our brick-and-mortar retail stores.
440 Industries’ blog is dedicated to helping creatives to understand all of the business frameworks that can help you develop a product, build a community or even start your own business. Please take a look below to discover other articles that may be helpful to you.