BOSTON MATRIX

The Boston Matrix

Firms can analyse the collection or portfolio of products. Products can be categorized as follows:

Questions Marks also called Problem children

Stars

Cash cows

Dogs

Product life cycle is concerned with

i. individual products

ii. sales over time

Boston Matrix is concerned with the

i. firm’s portfolio of products

ii. cash flow from products

BOSTON MATRIX DIAGRAM

High Market Growth PROBLEM CHILD STAR

Cash absorbing Cash neutral

Strategy - build Strategy - hold

Introduction Growth

Low Market Growth DOG CASH COW

Cash neutral Cash generating

Strategy - Divest Strategy - harvest or milk

Decline Maturity

Low relative market share High relative market share

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Problem Child characteristics

1. Low share of a rapidly growing market

2. Cash flow is negative

3. May have potential but the future is uncertain

4. It can therefore become either a star or a dog

Strategy for Problem Child

a. Build selectively – engage in niche marketing

b. Invest to increase market share

i. Invest in promotion and other marketing activities to compete with competitors

Cash Cows characteristics

1. High share of a slow growing market

2. Mature stage in the product life cycle

3. Mature successful product

4. Dominant share

5. Little potential for further growth

6. Large positive cash flow

Strategy for Cash Cows

a. Defend the market share

b. Aim for short term profits

c. Little need for investment

d. Little potential for future growth

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e. Use profit from cash cows to invest in new products

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Dogs characteristics`

1. Unattractive

2. Low share of a low growth market

3. Not going anywhere

4. No real potential

5. Products on the decline stage of the product life cycle

Strategy for Dogs

a. Phase out or sell off (divest)

b. Not worth investing in

c. Any profit has to be reinvested just to maintain market share

d. Uses up more management time and resources than can be justified

e. Focus on a defendable niche if to continue

Stars characteristics

1. High share of rapidly growing market

2. Position of leader in a high growth market

3. Although the product generates income it is countered by high spending on marketing the
product

4. Net cash is neutral or at best modest.

Strategy for Stars

a. Investment to sustain growth

b. Build sales and or market shares

c. Spend to keep competitors at bay

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d. Invest to increase or maintain leadership position

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Strategic decision that flow from the Boston matrix

1. Cash from the cash cows should be used to support the stars

2. Inadequate funding of stars will lead to a fall in the market share and eventually will cause it to
become a problem child

3. As the market matures stars will become cash cows and eventually question marks.

4. Question marks should be funded to become stars otherwise they should de dropped.

Dogs should be milked for cash but probably it may be better to discontinue th

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