Optimize the cash cow’s profitability by focusing on operational efficiency and cost control. It could include streamlining processes, renegotiating supplier contracts, or implementing lean practices to cut costs. Once upon a time, long before we could employ technology to sort our messes for us, existed a land of chaos, and manual sorting. Companies did not have a common metric of measurement to manage their multiple businesses. Far from ideal, this was the lawless land in which a knight in shining armour, Mr Bruce Henderson, the founder of Boston Consulting Group (BCG) rode in on his noble steed.

Coca-Cola’s flagship product, its signature cola soft drink, is a cash cow that has maintained a high market share in the global soft drink market for many years. The stable cash flow from this product allows the company to invest in new product development, marketing, and expansion into new markets. While cash cows typically require less investment than other business units, determining the right level of investment can be a challenge. Under-investing could risk the cash cow’s market position, while over-investing could reduce the funds available for other strategic initiatives. Products or business units with high market shares and consistent profitability over an extended period will likely be cash cows.

It is a risk because small competitors may try to capture greater market share and eat into yours. The expression refers to the idea that something produces ‘milk,’ i.e., profit, long after we have recovered the cost of investment. Although most Americans would immediately think of candy bars or hot chocolate when thinking of Nestlé, the Swiss confectionery only accounts for 9.81% of total revenue in 2017. It might be surprising that even PetCare makes up a larger percentage of sales. Inventor of the microprocessors found in most personal computers today. In 2016 Dell accounted for 15% of Intel’s total revenues, Lenovo was 13% and HP was 11%.

Lastly, dogs are the business units with low market shares in low-growth markets. There is no large investment requirement, and they don’t generate large cash flows. Often, dogs are phased out in an effort to salvage the organization. The BCG matrix is an efficient tool used by companies to prioritize and manage their many businesses.

Translations of cash cow

The BCG Matrix has its own limitations, since it’s a very simple tool using only two dimensions—market share and market growth. Small investors love cash cow companies because they can finance their own growth and value. A dominant player in the printer market is HP or the Hewlett-Packard company.

Each of these examples illustrates how companies leverage these assets to maintain financial stability, fund growth in other areas, and achieve a balanced business portfolio. Coke is the perfect example of a cash cow because it generates abnormal profit in a mature market. A cash cow is a profitable product or business that brings in a steady flow of income.

The Cash Cycle Defined

These profits are a result of low investment and high revenue gains from such products. Strategic partnerships and collaborations with complementary businesses to create additional value and revenue sources can help solidify the cash cow position of a company. Cross-selling or bundling products/services can help utilize the cash cow’s customer base.

By expanding into new geographical regions and targeting new customer segments, the company can increase a product’s usage among customers. It will further cement the cash cow’s market position and build success in untapped markets. Next you notice that bubblegum, though having the potential to become a new favourite, doesn’t seem to progress much. You were not keen on keeping this product, but you decided to give it a chance.

Strategies for Managing Cash Cows

While these numbers are staggering, it is worth noting that the iPhone comprises over 60 percent of Apple’s revenue. Today, Windows accounts for only a small part of Microsoft’s business, while it generates a steady revenue for the company. All three of these products belong to a market that witnesses slow growth. It brings in a lot of money for Travelers Gateway and does not cost much, making “Swiss Village Tours” a cash cow for the company.

It may also refer to a business venture that generates more profit than it cost to acquire or create. Other companies and industries paint a different picture with wide revenue stream diversification. The old investing adage of not putting all your eggs in one basket is glaring in technology stocks topping the most valuable companies list. Below are the products, services and markets driving revenues to some of the largest companies in the world by market capitalization. A cash cow is also a reference to a business, product, or asset that, once acquired and paid off, will produce consistent cash flows over its lifespan. Next, you see that the apple candies are rising fast in sales, and are becoming popular.

This candy according to the BCG matrix is your ‘Star’- the high growth, high share asset. Continuing with the example of Coca-Cola company, the Kinley bottled water is one of the ‘Star’ offerings. This consumption negatively impacts the ability of the company to scale up or down to match sales cycles. It can create misalignment internally and hurt the customer experience and the company reputation as a result. The margins may be great but if the Cash Cycle is not in check, growth in revenues can be hard.

What is a cash cow? Definition and examples

The money generated from this division is high enough to support other innovations by the company. These markets have a sustainable demand but do not example of cash cow see significant growth or innovation any longer. They make so much money because they have a lot of customers and a small amount of competition.

These products need to be constantly examined and reconsidered to decide whether they are worth the investment they demand. This concept comes from the Boston Consulting Group’s (BCG) Growth-Share Matrix, a framework developed in the early 1970s as a planning tool to help companies analyze their product portfolio. In this matrix, cash cows are one of four categories, the others being stars, question marks, and dogs, each reflecting different stages in the lifecycle of a product or business unit. This can be achieved by focusing on efficiency and cost reduction. As these products or business units are well-established, there is typically little need for significant investment in areas such as research and development or market expansion. Companies can look for ways to streamline operations and reduce production costs, thereby increasing profit margins.

What Is a Cash Cow?

Since the business unit can maintain profits with little maintenance or investment, a cash cow can also be used to describe a profitable but complacent company or business unit. Examples of cash cows include well-established and popular consumer brands, mature industries with stable market demand, and products with high profit margins. A cash cow refers to a business or product that generates substantial and consistent cash flow over an extended period. Apple’s iPhone, despite facing stiff competition in the smartphone market, has a solid user base that ensures steady sales and substantial profits.

• It’s also referred to as the growth-share matrix since the X-axis is a measure of the relative market share, and the Y-axis is a measure of the market growth rate.
• On June 28th, 2007, one day before the iPhone was released, Apple Computer’s market capitalization was $93.30 billion dollars.
• Below are the products, services and markets driving revenues to some of the largest companies in the world by market capitalization.
• The old investing adage of not putting all your eggs in one basket is glaring in technology stocks topping the most valuable companies list.
• Each of these examples illustrates how companies leverage these assets to maintain financial stability, fund growth in other areas, and achieve a balanced business portfolio.

This company owns 42% of the global market share and has been ruling this market for over 20 years. The printing division alone earned the company a revenue of 17.64 billion U.S. dollars in 2020, making it one of its most important business segments. To attract fresh customers or maintain existing ones, one must constantly develop and improve the cash cow product. Consumer satisfaction requires adding novel features, expanding product lines, or introducing supplementary services. A Cash Cow product was once a Star, which was once a Question Mark product.

These companies are mature and do not need as much capital to grow. Cash cows can also be slow-growth companies or business units with well-established brands in the industry. A BCG matrix divides the product portfolio into four types and assigns cash cows a spot wherein the growth rate is low, and the relative market share is high. Google’s search advertising business generates significant revenue and profits due to its high market share. This cash cow allows Google’s parent company, Alphabet, to fund growth in other areas such as self-driving cars, cloud services, and artificial intelligence.

Despite being a mature product, it continues to generate substantial revenue for Microsoft due to its dominant market share. The profits from Windows help fund Microsoft’s other ventures, including its cloud computing services and hardware development. The BCG matrix is a tool to evaluate the products of a company, and thereby help to decide where the company’s resources can best be allocated to maximize profits in the future.

Thus, in conclusion, the BCG matrix can help you evaluate your businesses, and strategically plan out your product placements and positioning. Even after almost 5 decades of its existence, the BCG matrix is still going strong and is taught in all B-Schools. Here’s hoping you know a little more about the BCG matrix and strategic planning than you did before.