Final answer:
In the BCG matrix, a cash cow is a product or business unit with a high market share in a mature industry that generates steady cash flow. The profits can be used for reinvesting in other areas of the business, such as new technologies or mergers and acquisitions. Managing cash cows is critical to maintain their market position and continued profitability.
Step-by-step explanation:
A cash cow in the BCG matrix refers to a business unit or product that has a large market share in a mature, slow-growing industry. These units typically generate more cash than is needed to maintain the business; thus, they are considered a source of steady income without the need for significant reinvesting. The BCG matrix, or Boston Consulting Group matrix, is a tool used by companies to analyze their business units or product lines to help allocate resources.
The cash flow generated by cash cows provides funds that the company can use to support other parts of the business that may need investment, such as question marks (products with potential but requiring investment to grow market share) or to branch into new markets. The idea is that a company should ensure its cash cows maintain their dominant position to secure those profits which can be used for further growth.
Companies often use the cash from cash cows for mergers and acquisitions, to invest in new technologies or products, or for other strategic business needs. It's important for a company to manage its cash cows carefully to avoid neglect, which could result in a decrease in market share and cash generation.