Boston Consulting Group (BCG) developed a product analysis methodology in which entity’s product portfolio is analysed against two criteria or potentials i.e. market share and market growth. On the basis of such analysis products can be divded in four categories.
One of the four categories is named as cash cow which represents such products that hold high market share but no longer has high growth prospects or in other words they have already achieved their apex and are now enjoying that established position on persistent basis.
As this analysis is based on market growth and market share, both aspects are connected to cash flows. So basically this methodology attempted to categorise entity’s products on their potential to generate cashflows and this involve both cash inflows and cash outflows.
Cash cows as mentioned above are such products that have high market share. This means that cash inflows are high as majority of the customers in the market prefer this product over other alternative offerings. On the other hand as growth is low this means that product is not investment hungry any more. Product has already achieved its best mark in the existing market and more investment will only make market oversaturated with such product. Therefore, investment is required only to maintain this product in the market. Comparing large inflows with small outflows make cash cows very attractive and for this reason every company wishes to have as many cash cow products as possible.
As the name suggest it is such a product on which initial investment has been done and now it is reaping benefits on consistent benefits requiring not so large funds to maintain itself just like a cow that gives milk without requiring large resources to generate cash flows.
Cash cow does not necessarily represent a product, it can be a department or a group of personnel for example in service sector organisation.
Extending the discussion to other three categories, cash cows are mostly such products that used to be a star of the entity in the past. But ultimately if it is not maintained or competitor comes up with an alternative which is better than this cash cow will become dog and will no longer be generating enough cash inflows. So every entity tries to capatilize as much possible by using the money generated by such cash cows by investing in existing stars or converting question marks to stars or on developing new products to replace existing stars and cash cows. In simple words cash cows provide strong financial support to the entity.