Boston Matrix

 The range of products owned by a business  Also refers to Strategic Business Units (SBU), which are businesses or divisions owned by a firm  PepsiCo / KFC / Pizza Hut

 A product portfolio analysis helps a business to look at the range of products it offers to ensure that it has products that are performing well and generating profit, but also has new products in the pipeline to replace existing products once they reach the decline phase of the product life cycle.

 A product portfolio analysis model  Helps businesses decide where to best devote their scarce resources of time and money  The Boston Matrix requires two pieces of information: how much market share a product has and how quickly the whole market is growing. Based on this, a product can be classified into one of four categories.

 A star has high market share and high market growth. Stars are dominant products in the market but they must work much harder to retain the lead because the market is growing quickly and rival businesses can attract new customers.  Rising stars require high levels of marketing expenditure to retain their status. If they manage to do this, the benefits will come as they will be the cash cows when market matures.

 A cash cow is a product with high market share and low market growth. Cash cows are to be milked. The fact that the market share is high means that the product is strong in the market and the business may be able to charge a high price for it. A cash cow’s reputation allows it to get by on relatively little marketing expenditure as the market is not growing (mature). This means increased market share is hard to come by as it can’t be gained from new customers, but must be taken from competitors. Cash cows are very profitable for businesses to have in their portfolio.

 This type of product has low market share and high market growth. Question marks pose a problem for businesses. Although many will fail to break thru and earn high profits, the potential exists for them to become the stars of the future. This is because market growth is rapid, offering a business the possibility of growing its market share thru new customers, which is far easier than trying to tempt them from a rival.  If a business wants to develop a question mark, it will need to spend a lot of money on marketing, and might not even succeed due to the highly competitive nature of the high growth market. As a result, businesses will selectively choose which of their question marks to develop, spending on the ones with the best chances and selling or dropping the others.

 A product classified as a dog has low market share and low market growth. Very few businesses want dogs in their product portfolio.  Not only do these products not have much market share, the chances of them gaining a greater share are very limited as the market itself is not growing. Because of this, businesses tend to get rid of dogs (divest) unless the products have secondary benefits, such as being a necessary part of a product line that is profitable overall.

 Businesses must ensure they have a good range of cash cows, stars and a few question marks. This helps to ensure long term viability of business, because when cash cows decline and die, rising starts can take their place. Selective investment in question marks will lead to a future supply of stars.

 It is easy to assume that the Boston Matrix is the ideal way to make decisions on the marketing mix. But some issues must be considered…

BCG Matrix assumes you need a large market share to be successful – some businesses are successful and profitable by targeting niche markets within larger markets BCG Matrix assumes that a fast growing market is where opportunities are found. This is not necessarily always the case…there are occasions in which slow moving markets have been revolutionized by new entrants (e.g. Dyson)