A business is likely to produce a range of products.
This is known as its product portfolio.
The Boston Matrix is a model which helps businesses analyse their portfolio of brands.
It uses market share and market growth as key indicators of success or potential growth in the market.
This places a firms products into one of four categories.
A 'star':
Star products have a high market share in a fast growing market.
Products may generate cash but because of the fast growing market, stars require huge investments to maintain their lead.
Net cash flow is usually modest.
Products in this category are attractive as they are located in a growing industry and these products are highly competitive in the industry.
Example:
If successful, a star will become a cash cow when the industry matures.
A cash cow:
Cash Cows have a high market share in a slow growing market.
Cash cows require little investment and generate cash that can be utilised for investment in other products.
These products are the corporation’s key source of cash, and are specifically the core business. They are the base of an organisation.
Example:
A 'problem child':
Problem Children products have a low market share in fast growing markets.
These products require huge amount of cash to maintain or gain market share.
Problem children / Question marks are generally new goods and services which have a good commercial prospective.
Most products start as question marks as the company tries to enter a high growth market.
Example:
If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars.
A 'dog':
Dogs are products with a low market share in slow growing markets.
These products neither generate cash nor require huge amount of cash.
Due to low market share, these business units face cost disadvantages.
These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc.
Example:
Unless a dog has some other strategic aim or is making reasonable profits, it should be removed from the product portfolio.
You need to know about the implications for a firm of having products in each category.
Limitations of the Boston Matrix:
3. There are high costs also involved with maintaining high market share.
