cash cow

In business, a cash cow is a product or a business unit that generates unusually high profit margins: so high that it is responsible for a large amount of a company's operating profit. This profit far exceeds the amount necessary to maintain the cash cow business, and the excess is used by the business for other purposes.

Risks of a cash cow include complacency, with management ignoring the need for change as market forces erode value; and ongoing turf wars between the management in charge of the cash cow and other managers trying to garner support for other products.

That said, every business longs for a cash cow product. The BCG growth-share matrix developed by the Boston Consulting Group, still used by analysts in large companies, uses the term "cash cow" to describe business units experiencing high market share and low market growth.

Origins

The expression is a metaphor for a dairy cow that can be milked on an ongoing basis with little expense after being acquired.

Uses

The term "cash cow" is often used by lecturers and can give the audience a wrong impression.

"Cash cow" is also used sarcastically by sales & business people to describe a customer or organization that has no control over its spending. Quite often used to describe government departments like: Defense; Foreign Aid; Highways & Social Security, where the spending is out of proportion to the services or goods received. In other words the tax payer is being cheated because Congress & government procurement personnel are not doing their jobs properly. This problem is not confined to the USA. European Union countries also experience milking in the same way. Hence, milk cow or cash cow is used to describe the process.

Signs of a Cash Cow

• Product variations
• customer segmentation
• pricing flexibility
• cost reduction
• targets specific competitors

Examples

The mini storage (or self-storage) industry's net profits of 35-40% are not uncommon with a minimal amount of work. This industry has long been considered a cash cow for this reason.

An example of a product cash cow is Blizzard's hugely successful World of Warcraft. Released in 2004 this massively multiplayer online role playing game has a combined worldwide subscriber base of 8.5 million players. Using US dollars to estimate a total the average^[1] monthly charge is US$12. This adds up to US$102 million gross every month. This monetary sum doesn't account for product and merchandise sales based on World of Warcraft (e.g. t-shirts, soundtrack albums, key chains, mouse pads, novels, trade card game, toys, and the like).

References

Donate to Wikimedia