Product Portfolio : Boston Matrix 1.3.5

Product Portfolio analysis - assesses the position of each product or brand in a firm's portfolio to help determine the right marketing strategy for each.

Product Portfolio - range of items sold by a business. It can be analysed using the Boston Matrix.

Boston Matrix - A model used to analyse the strategic position of product and brand portfolios.

The Boston Matrix categorises the products into one of four different areas, based on:

▪ Market Share - does the product being sold have a low or high market share?

▪Market Growth - are the numbers of potential customers in the market growing or not?

One product is too big a risk, product portfolio is less risky as there is various products in which to receive financial gain.

The four categories can be described as followed:

1) STARS (HIGH MARKET SHARE AND HIGH GROWTH RATE)

Strategy :
▪Invest to sustain growth
▪Maintain or build market share
▪Repel challenges from competitors
▪Create barriers to entry (e.g branding, customer loyalty, quality advantages)

They're high growth products competing in markets where they are strong, compared with the competition.
Often stars need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep their market share, STARS will become CASH COWS. STARS are the ones to watch in the market. They draw new customers to the market and gets the business more customer loyalty. People want to invest in exciting and dynamic companies = these companies have stars.

2) CASH COWS (HIGH MARKET SHARE AND LOW MARKET GROWTH)

Strategy:
▪ Defend Market Share
▪ Reduce investment in order to maximise cash flow and profits
▪Use profits from cash cows to invest in question marks and stars.

They're low growth products with a high market share. These are mature, successful products with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its STARS. If there is not a Cash cow, this could lead to financial difficulty in supporting other products. You have to "milk the cow" to get as much money for other products without investing in  the cash cow to much. They're considered a market leader.

3) QUESTION MARKS ( LOW MARKET SHARE AND HIGH MARKER GROWTH)

Strategy:
▪Invest to increase market share
▪Try to build competitive advantage- e.g. through selective market segmentation and positioning
▪Build selectively and invest in the most likely to become stars
▪Cash flow likely to be NEGATIVE

Products with low market share operating in high growth markets. This suggests that they have potential, but may need substantial investment to grow market share at the expense of larger competitors. Management have to think hard about "Question Marks" - which ones should they invest in? Which ones should they allow to fail or shrink?

4) DOGS (LOW MARKET SHARE AND LOW MARKET GROWTH)

Strategy:
▪Not worth investing in
▪Uses up more management time and resources that can be justified
▪Phase out, or sell off

This refers to products that have a low market share in unattractive, low-growth markets. Dogs may generate enough cash to break even, but they are rarely, if ever, worth investing in.  Dogs are usually sold or closed. They are normally continued to just please their customer base.

Ideally a business would prefer products in a categories  ( apart from Dogs!) to give it a balanced portfolio of products.

How valuable is the Boston Matrix?

ADVANTAGES

▪ It is a useful tool for analysing product portfolio decisions.

DISADVANTAGES

▪But it is only a snapshot of the current position

▪It has little or no predictive Value

▪ Focus on market share and market growth ignores issues such as developing sustainable competitive advantage.