Key Points
- Cash cow is represent a product or business unit that has a high relative market share in a low growth market.
- The cash cow is one of four categories in the BCG growth-share matrix, developed by the Boston Consulting Group.
- As products mature within their markets, most are end up as the cash cow.
What is Cash Cows?
Cash cow is represent a product or business unit within a company that has a high relative market share compared to the largest competitor in a slow-growing market. As products mature within their markets, most are end up in the cash cow category.
The cash cow is one of four categories in the BCG growth-share matrix, developed by the Boston Consulting Group. The cash cows are placed in the bottom-left quadrant, which is have high relative market share in a slow-growing market. This mean the cash cow is a product or a business unit are in the strong competitive position, while they are need low investment since the cash cows are in the low-growth opportunity market.
Benefit of having a cash cows in the company portfolio is the ability to generate profit without more investment. These cash cows products play a supporting role for generating cash that can be invested in other products in the porfolio. The company able to use cash flow (from a cash cow) to invest in other product or business unit which are required a lot of investment.
Be wary, as we mentioned in the BCG matrix article, this is not about a “whole company” analysis. The BCG growth-share matrix is a single product or business unit in a company. It is possible to have (or not have) both cash cow and dogs in the same company.
Business Strategy for the Cash Cows
Since a cash cow business unit and product are in low-growing market, then the cash cows doesn’t need a lot of investment since the cash cows are in the low-growth opportunity market as we mentioned above.
The cash cow can be the most profitable products for a company portfolio, so a good number of cash cows are recommended because they are generate consistent cash flows throughout its life to the company.
Then the best strategy for a cash cow product and business unit is milk a cash cow for cash to reinvest in Stars and Question marks product and business unit to make another cash cow, while look after them and don’t take them or their customers for granted.
However, you need to milk cows efficiently and do not neglect the need to exploit existing sources of advantage. The company may milk low-growth businesses by improving profitability through incremental innovation and streamlining of operations.
References: What is the Growth Share Matrix? by Boston Consulting Group
