There are many large companies that control a big part of their markets in the US economy. These companies often own assets that continue to bring in money even after the initial costs are paid off. People in business call these assets “cash cows.” Cash cows are amongst the quadrants of the BCG Matrix.
If you want to get into the business world, a student or an aspiring marketer, it is important to understand how cash cows work.
In this article, we will explain what are cash cows in the BCG and cash cow companies with examples.
What is a BCG Matrix Cash Cow?
A cash cow is a product or business unit that holds a large share of a stable, well-established market. These products bring in steady, high profits and require little investment.
In simpler terms, cash cows are in markets that don’t grow much anymore but still make a lot of money. This revenue helps support other parts of the business.
Understanding BCG Cash Cows
A “cash cow” is a term used to describe a business that generates steady income with little effort or investment. The term comes from the idea of a dairy cow that produces milk regularly without needing much attention.
Similarly, a cash cow in business requires minimal capital and keeps providing consistent profits over time. These profits can then be used to support other parts of the company. Cash cows are considered low-risk, high-reward investments.
In the BCG matrix, cash cows are one of the four categories in the BCG matrix. This matrix, developed by the Boston Consulting Group in the 1970s, is a tool used to assess the different products or divisions of a company.
The four categories in the BCG matrix are: star, question mark, dog, and cash cow. The matrix helps businesses understand their market share and the growth potential of their products. It acts as a guide to evaluate where a business stands and how it compares to others in the industry.
However, some products may not fit neatly into one category for many companies, especially larger ones. Products can sometimes fall between two categories, especially as they move through different life cycle stages. For example, cash cows and stars usually support each other, while dogs and question marks may not use resources as efficiently.
Characteristics of BCG Cash Cows
A cash cow product has two main features:
- It belongs to a slow-growing market, so companies focus on making profits without investing much in it.
- It holds a large market share and is well-known, often from trusted brands. These products are reliable sources of steady income.
What is a Cash Cow Company?
A cash cow company is one that makes steady profits with little effort. It holds a large share of a market that is not growing quickly, but the company has a strong reputation in its industry. The extra profits from their cash cow products can be used to fund other projects, helping the company grow.
For example, a footwear brand may have a popular line of shoes that athletes prefer to use in competitions. This shoe line is the company’s cash cow. As long as the shoes maintain their strong reputation, the company will continue to earn steady revenue. This money can then be used to create new products or invest in other areas.
Importance of BCG Cash Cows
Cash cows are vital to a company because they bring in a large portion of its profits. These profits come from low investment and high revenue, making the products or divisions highly valuable and competitive.
The money earned from cash cows is often more than what is needed to keep the business running. So, companies can use these extra profits for other purposes.
Some ways companies use cash cow profits include:
- Funding research and development
- Growing market share
- Investing in new products
- Covering administrative costs
- Reducing company debt
- Paying dividends to shareholders
Overall, cash cows help a company grow and succeed, making them essential to its long-term success.
Examples of BCG Matrix Cash Cow
Here are a few examples of BCG Matrix cash cows.
Microsoft Windows
Microsoft’s Windows operating system has been a key part of the company since its release in 1983. Although Windows now represents a smaller portion of Microsoft’s business, it still generates a steady income. For this reason, Windows is categorized as a cash cow in Microsoft BCG Matrix.
Garnier and L’Oréal Paris
Garnier has a large market share but slower growth. Known for affordable skincare and haircare products, it competes with brands like Neutrogena and Nivea. Despite slower growth, Garnier continues to generate steady revenue for L’Oréal through strong distribution and reliable product quality.
As L’Oréal’s flagship brand, L’Oréal Paris holds a strong market share but faces slower growth. The brand offers a wide range of products and competes with both high-end and mass-market brands. Despite slower growth, L’Oréal Paris remains a major revenue driver for the company. Both are categorized as cash cows in the BCG matrix of L’Oréal.
Remicade, Neutrogena, Acuvue, and Listerine
Remicade, Neutrogena, Acuvue, and Listerine are all cash cows in the J&J BCG matrix. Each has a strong market share but faces slow growth due to increasing competition or a saturated market. Despite this, they continue to generate steady revenue.
Strategies That Help Cash Cows in BCG Matrix
Cash cow products are essential for a company because they help fund its operations. To keep earning steady profits from these products, companies need effective strategies. Here are some strategies to support cash cow products.
Marketing the Product: Some cash cows do not need much marketing because they are already well-known. However, if the product is not as popular, the company should invest in promoting and advertising it.
Product Development: Even for cash cows, product development is important. This means improving the existing product to ensure it stays competitive and in demand.
Creating a Budget: A cash cow cannot sustain itself without careful planning. The company needs to set a budget to keep the product relevant in the market. This involves monitoring market demand and making improvements based on customer feedback.
Prioritizing the Cash Cow: Since a cash cow brings in the most profit with minimal investment, it should be a top priority. Maximizing sales from this product is key to increasing overall profits.
Frequently Asked Questions
What is the meaning of cash cow?
A cash cow is a reliably profitable business, asset, or product that generates earnings to fund a company’s investments in other sectors.
What is the cash cow stage?
A cash cow operates in a well-established market where sales and growth have stabilized, and there is little potential for new competitors to disrupt the industry. In these markets, companies typically hold significant market shares, and growth tends to be slower compared to emerging markets.