Either your business use products to generate revenue nor services, it’s always mandatory to define and refine how you can serve your customers and how can you be relevant to the market that you’re in. Usually, you will need to define how relevant your product/service is, for the sake of the business continuity; not only to raise new funds from investors, but mainly to make sure that you are still relevant to the market.

Commonly, businesses will use developed frameworks. One of the most popular is Boston Consulting Group‘s Growth-Share Matrix that has been developed since 1970 by Alan Zakon, the second CEO of Boston Consulting Group (BCG); a consulting group which Bruce Henderson’s (the First CEO) founded to become not as another management consulting firm but as an innovator of new approaches to run a company. Hence why, the firm developed many frameworks including the BCG Growth-Share Matrix.

History of BCG’s Growth Share Matrix

Back then, during Zakon’s tenure, BCG had developed the experience curve concept which emphasised the cost advantages of scale and experience. It’s when a company gain more experiences in producing goods or services, their per-unit costs will be decreased due to improved efficiency, economic of scale and innovation.

In the BCG’s Growth-Share Matrix there are two variables that will be measured as the main parameters; one is the relative market share that reflects a company’s position on the experience curve. The other one is the growth rate of the product or service that you want to measure.

Higher market shares often correlates with lower costs and higher profitability. Commonly, the principle underpins the categorisation of Stars and Cash Cows categories where the company gets the competitive advantages over the market.

But when the company sees the products or services having low on the market share, they often consider to turn from Question Marks position into Stars by maintaining leadership in growing markets or divesting for the products or services that has low market share and low growth rate.

The Implementation

To define the relative market share, you can apply this simple formula:

Relative Market Share = Market Share of Your Company/Market Share of the Largest Player in the Market

Researching the market is the key to define the numbers. Reliable sources such as Statista, Mordor Intelligence, Forbes, Business Insider, or even your own custom research could help you gain the materials to calculate the market share.

While to get the market growth rate, you can exercise this following formula:

Market Growth Rate = ((Current Year’s Market Size – Last Year’s Market Size)/Last Year’s Market Size)*100

For this, you can get the data from your internal sources.

With this principle you can decide where to invest effectively and efficiently as the framework will give you a helicopter view with a simple approach that has been validated throughout more than a decade. But remember, this approach should be not implemented as one single source of truth. It’s better to get yourself more approaches and tests to gain more objective results. Especially for your business growth.