Boston Matrix Fred Lee Period 3

What is Boston Matrix? A tool of portfolio analysis developed by the Boston Consulting Group in the early 1970’s Well-known management tool used in product life cycle theory A tool that numerous companies utilize to enhance their products and help decide on their portfolio decisions

functions Categorizes products based on market growth and market share It prioritizes which products of a firm should get more investment and attention, and vice versa It focuses on a portfolio of products It focuses on the products’ cash flow

Its Essence Products are categorized into: Question Marks (a.k.a. problem child) : Products with high market growth but low market share Stars: Products with high market growth and high market share Cash Cows: Products with low market growth and high market share Dogs: Products with low market growth and low market share

Details #1 Question Mark: Low share, and low market growth -> negative cash flow -> uncertain potential -> can potentially become a star or a dog Star: High share and high market growth -> The product is relatively strong -> neutral or modest cash inflow

Details #2 Cash Cow: High market share, but low market growth -> at mature state of the product cycle -> successful -> unlikely to grow more -> large positive cash flow Dog: Low market share, and low market growth -> unattractive -> no potential -> failed products or in the decline phase

Strategy #1 Question Mark: Star: Invest for a high market share or divest Promote the product Produce selectively, meaning do not produce in excess Star: Invest for a sustained market growth Increase sales and market share Maintain leadership among the firm’s competitors Counter challenges from the firm’s competitors

Strategy #2 Cash Cow: Dog: Harvest Defend its share Try for short term profits Do not need to invest much; in fact reduce investment to maximize short term profits Use profits to supplement other products Dog: Phase out or divest Do not invest Its profits should invest in its own product

Examples Star: Walmart -> It has a high market share, and it is growing rapidly too; IPod -> high market share in a growing market, but needed a lot of investment Question Mark: Panasonic smartphones -> small market share in a rapidly growing market -> customers are aware of Panasonic’s cash cow examples, but unaware of its smartphone market entrance. Cash Cow: Pepsi -> high market share, but low market growth rate. Customers are already aware of its products, and fluctuate little Dog: GM’s Hummer -> low market share, and it is not growing much either.

advantages Very simple and useful for any companies Highlights important factors of the firm’s portfolio products Helps to generalize and make decisions with certain products Can become an efficient planner tool for firms

disadvantages It only is a “snapshot” of a short-term condition and position Assumptions on which the matrix is based have flaws Does not look into environmental forces The product of cycle is not fixed; it varies over time Market share itself is sometimes enough to decide if the product is able to generate cash flow