Developed by a firm of
management consultants called the
Boston Consulting Group, the Boston Matrix is a form of
product portfolio analysis. It allows a company to examine the position of its products in terms of
market share and
market growth, and helps them decide what to do next. The Boston Matrix looks like this -
--------------------------
| | | high
| | Problem | /\
| Star | child | |
| | | |
| | | |
|------------------------- | market
| | | | growth
| Cash | Dog | |
| cow | | |
| | | |
| | | low
--------------------------
high low
<----- market share ----
Products are placed on the Boston Matrix according to two factors - their share of the total market for that product, measured in value or units sold, and the growth of that market as a whole. It should be noted that the axes of the graph do not represent 0 to 100 or anything so fixed - their values will be relative depending on what market the product is in. In what market 30% might be considered a 'high' share, in another 3% might be.
Once the products are plotted, they are split into four categories - cash cow, star, problem child (occasionly called question mark) and dog.
A cash cow is the most attractive product for a firm to possess. These are products have reached the maturity stage of the product life-cycle, and have a big share of a stable market. An example would be Heinz in the baked beans market. Cash cows generate a lot of profit for the firm because sales are high and profit margins also typically high, because the firm will be benefitting from economies of scale due to its large output. Cash cows can be used to provide a stable source of cash to finance new products and projects ("milking the cow").
This sounds great, but a company never wants all of its products to be cash cows. If they have just a number of established, mature products then there won't be much pressure on them to innovate - and innovation is one of the primary sources of competitive advantage for a business. Also, if the market for their cash cows crashes, they'll have nothing to replace them - so a company is best investing the money made from cows into new, more risky products.
Problem children have a low market share in a high growth market. This is how many products start off - it is hoped that given enough investment these products will turn into stars. Their markets are attractive because of the high growth and possibility for high sales, but this will usually only happen following significant investment. Elements of the marketing mix may well need to be tweaked, with advertising and promotion provided, or perhaps a change of pricing strategy to get the product into the mainstream. This is, of course, financed by the cash cows.
Question marks that do well will eventually turn into Stars. These products have a high share of a high growth market, but they require significant investment because the company needs to retain this share. Competitors will be snapping at the heels of these products constantly, trying to steal the precious market share away. The company needs to focus on its competitive advantage and hope the star turns into a cash cow.
Stars and Question Marks are in the growth stage of the product life-cycle.
When a product enters decline, it is classed as a Dog. These products have little share in a fairly static market, and aren't good for much. The firm might decide just to scrap them or try some sort of extension strategy to pick their sales back up again. More often than not they just forego the relaunch and allocate the resources elsewhere.