How we change what others think, feel, believe and do

Boston Matrix

Disciplines > Marketing > Understanding Markets > Boston Matrix

Description | Market share | Market growth | Dogs | Cash cows | Stars | Question marks | Discussion | See also

Description

The Boston Matrix is a method for classifying products based on their current value (as measured by market share) and future value (as measured by market growth), which is why it is also called the Growth/Share Matrix.

There are two ways to increase revenue: increase market share or sustain market share in a growing market. Both market share and market growth are hence important measures.

The matrix is often shown as a 2x2 grid, as below, but can be plotted on scale graph where actual measurements are used rather than qualitative assessments.

The 'market share' axis usually has 'low' on the right, rather than the left.

To use the Boston Matrix:

1. Determine exactly how the scales will be measured (see below for more on this).
2. Take each product or product line and place it on the graph. If possible this is an exact position. If not, then assign it to one quadrant.
3. Rather than a simple 'X', the size of the product revenue or profit can be indicated with a proportionately-sized circle (this is not always done but can be useful).
4. Decide what actions are needed for each product or product line.

Ideally, there should be a balance of stars in rising markets and and cash cows in mature markets (which are used to fund development of the stars and question marks).

In other words, the matrix can help develop a balanced portfolio of products.

In different markets there may be different customers and different competitors, with different market dynamics. Consequently, where products are being sold into different markets, then a different Boston Matrix should be completed for each market.

Market share

Market share is a measure of present value to the company in terms of revenue and profit gained.

If economies of scale can be gained, then higher market share in a larger market also means higher profits per sale, making market share a non-linear scale in terms of profit.

Economies of scale are not only about the price of materials. Marketing costs can decrease greatly when there are less or weaker competitors, when your products are well-known, and when there is significant repeat purchase and recommendation.

Market share can be measured in several ways, for example measuring units sold or total revenue, as compared with all competitors or the largest competitor. This is often shown as a percentage.

Market growth

Market growth is a measure of future value to the company in terms of the trajectory towards a larger market.

Even if the market share does not increase, a larger market can give scope for increasing sales.  The ideal, of course, is to gain an increasing share within a rapidly growing market.

Surviving and thriving in growing markets can be an expensive business, both in the cost of reaching new target customers and the competitive situation as other companies also fight for this new territory.

Markets do not grow forever. When they reach saturation, new customer become rare and sales are mostly re-purchases. In this relatively stable state, increasing market share becomes more difficult and it can even be better to accept one's share rather than invoke a competitive war.

When markets shrink, their growth rate become negative. This is not always shown in the Boston Matrix, but may be worth including.

Market growth can be measured in terms of increasing potential customers, new customers, greater acceptance of new products and so on.

When does a market become 'high growth'? This depends on the industry. In many industries growth of greater than 10% per year is high. In technology and fashion domains, growth of 100% may be considered low.

Dogs

Dogs are products where both market share is low and market growth is also low.

Should you 'let sleeping dogs lie' or terminate them? For streamlining and simplification it would seem logical to just get rid of Dogs. Yet if they incur low costs and give high profit per sale, then they may be worth keeping.

There may be other reasons for keeping Dogs, including:

• They are important to a major customer who spends a lot in other areas.
• They are a part of a 'complete' product line.
• There is potential to increase market share for them.
• There is potential for the market to grow.

Cash Cows

Cash Cows are the profitable products where a good market share is combined with a stable market that needs only a limited amount of marketing and product development to sustain a strong revenue stream.

Cash Cows are a major source of funding for other products and the funds created may be used to develop new products and grow market share in order to create the Cash Cows of the future.

There is a trap with Cash Cows where a company keeps these profitable products but does not use the profit from them to develop new products or grow market share of other offerings. In this way, marketing and development costs can apparently be kept very low. The result is that the company is very profitable for a while, but when the market fades or competition increases, the company does not have the ability or newer products with which to compete and its survival may even be threatened.

Another problem is that when markets fade and Cash Cows slip into becoming Dogs, their past glory continues within the company. The firm may be loathe to kill off the old Dog and may yet pump large amounts of money into attempts to revive it, further weakening their market position.

Stars

Stars are the exciting and promising new products that are getting a lot of attention. A fast-growing market, coupled with a strong share of that market, makes these interesting both for customers and for the company.

The only problem with Stars is that they usually consume a lot of time, money and other resources, which can be to the detriment of other products. As a result of this, although many are being sold, the product may not yet be independently profitable.

A growing market does not necessarily mean a big market and it is possible to have Stars where there are not that many being sold. A critical question is how large the market is going to become. Some markets do grow significantly, yet others remain small. While being a big fish is nice, if the pond is small, the potential also may be very limited. For reasons such as this, sometimes it is better not to invest in Stars.

The goal with many Stars is to convert them into Cash Cows as the market stabilizes. If the market is going to become large enough and stable enough, then it can be worth investing significantly in Stars to keep their leading position and shut out serious competitors.

Question Marks

As the name implies, Question Marks are perhaps the most difficult of all categories to manage. They are in high growth markets, which is promising, yet they only have a small share of that market.

Question Marks do not stay that way. They either become Stars and then Cash Cows or they slips back to become Dogs.

The question for Question Marks is whether it is worth putting money into marketing them to increase market share. The next questions are about how much further the market will grow and the realistic chances of growing share within this.

Question Marks are also known as Problem Children. This terminology illustrates well how personally products are perceived within a company, and the dilemma of difficult decisions that may have to be made about them.

Discussion

The Boston Matrix was created by Bruce Henderson for the Boston Consulting Group in 1970 and is one of the classic marketing tools.

Perhaps one of the reasons this matrix has become popular is the use of novel and memorable names for the quadrants.

No model is perfect and the Boston Matrix has received its share of criticism about the underlying assumptions and the general applicability of the model. As with any model, it should be used intelligently with an understanding of how well or not it fits its intended use.

The Boston Matrix is also known as the Boston Consulting Group Matrix, BCG Matrix, Growth/Share Matrix, Boston Box, B-Box, BCG Analysis or Portfolio diagram

See also

The GE Matrix