F R E D L E EP E R I O D 3

BOSTON MATRIX

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: • 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: • 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