How does the BCG Matrix position each business?

How does the BCG Matrix position each business?

• A. By profitability and cash flow.
• B. By historical performance only.
• C. By comparing market growth rate with relative market share.
• D. By product quality and customer satisfaction.

Answer: (C)

The main idea being tested is that the BCG Matrix positions each business unit by two dimensions: market growth rate and relative market share. Market growth rate indicates market attractiveness and potential for expansion, while relative market share serves as a proxy for competitive strength and economies of scale. By plotting units on this two-axis grid, you categorize them into four groups: high growth with high share (Stars), high growth with low share (Question Marks), low growth with high share (Cash Cows), and low growth with low share (Dogs). This helps prioritize where to invest, harvest, or divest. Other options miss the method: profitability and cash flow describe outcomes rather than how the matrix positions units; historical performance alone doesn’t capture market attractiveness and competitive strength; product quality and customer satisfaction aren’t the axes used in the BCG framework.

The main idea being tested is that the BCG Matrix positions each business unit by two dimensions: market growth rate and relative market share. Market growth rate indicates market attractiveness and potential for expansion, while relative market share serves as a proxy for competitive strength and economies of scale.

By plotting units on this two-axis grid, you categorize them into four groups: high growth with high share (Stars), high growth with low share (Question Marks), low growth with high share (Cash Cows), and low growth with low share (Dogs). This helps prioritize where to invest, harvest, or divest.

Other options miss the method: profitability and cash flow describe outcomes rather than how the matrix positions units; historical performance alone doesn’t capture market attractiveness and competitive strength; product quality and customer satisfaction aren’t the axes used in the BCG framework.