DVIRC 2905 Southampton Road Philadelphia, PA 19154 The Unofficial How To Guide For The: BOSTON CONSULTING GROUP– Matrix Exercise AKA “ The Boston Matrix”
Understanding the Boston Matrix and its Role in Marketing: The Boston Matrix relates to marketing in that it is a well-known portfolio management tool used in product life cycle analysis. It is often used to prioritize which products or services within a company’s product mix get more funding and attention. The BCG model is based on classification of products (and implicitly, also company business units) into four categories based on combinations of market growth and market share relative to the largest competitor.
The matrix is a tool for life cycle planning and optimization. In a business, each product or service area has its own life cycle, and each stage in a life cycle represents a different profile of risk and return. In general, a company should maintain a balanced portfolio of products. A balanced product portfolio includes both high-growth products and low-growth products.
High- vs. Low-Growth Opportunities… A high-growth product or service area is a new opportunity that a business is trying to get to market. It takes some effort and resources to market it, to build distribution channels, and to build sales infrastructure, but it is a product that is expected to bring the gold in the future. An example would be the iPad.
High- vs. Low-Growth Opportunities… A low-growth product or service area is an established product that the market knows well. Low-growth product specifications and prices do not change much, and customers know what they are getting. This area of opportunity has a limited budget for marketing. This is the “milking cow” that brings in constant cash flow. An example of this product would be regular Colgate toothpaste.
Developing the BCG Matrix Can Help Managers Answer: 1. How do we find out exactly what life cycle phase our product or service is in, and how do we classify what we sell? 2. Where does each of our organization’s products or services fit into our product mix? 3. Should we promote one product or service area more than the other? The BCG matrix reaches beyond the product mix. Knowing what we are selling helps managers to make decisions about how to prioritize not only products, but also company departments and business units.
Putting the Matrix in Motion…
What is in Our Matrix and Where?
Take a hard, in-depth look at R&M’s areas of operation. Are there any “Dogs” (areas that provide low market share in a market that is growing very little)? Dogs would produce little, but they would also require few investments. That means that the cash resources used for—and the revenue created by—these products are both low. For that reason, they are in balance. Dogs are worthless cash traps; they do not bring sufficient profits for a company. On the following slide, try and list some of R&M’s cash traps. Remember, these are the areas where you have invested sustained time and effort, but the results are not there and/or there is limited potential.
R&M’s Dogs (from a billable service perspective) would be: INSERT EXAMPLE ONE HERE INSERT EXAMPLE TWO HERE ETC… ETC…
Next, look for any “Question Marks” (areas that provide a small market share in a rapidly growing market). As their name indicates, Question Marks place the organization in an unsure or questionable situation and can create problems. They produce little but require a lot of cash resources. If they are able to strengthen their position, these can become stars; as market growth decreases over time, they can also become cash cows. On the following slide, try and list some of R&M’s Question Marks. Remember, these are the areas where rivals could be growing rapidly in high-potential markets while you are seemingly slow to take flight.
R&M ’s Question Marks (from a billable service perspective) would be: INSERT EXAMPLE ONE HERE INSERT EXAMPLE TWO HERE ETC… ETC…
Next, look for “Stars” (areas that provide a high market share in a rapidly growing market). The cash resources used for—and the revenue created by—these products are both high. Therefore, in principle, they are in balance. After some time, all growth slows. This is the reason why Stars become Cash Cows if they keep their market share. On the other hand, if they are not able to hold the market share, they will become Dogs. On the following slide, try and list some of R&M’s Rising Stars. Remember, these are the areas area of operation that provide you with a high market share in a rapidly growing market.
R&M ’s Rising Stars (from a billable service perspective) would be: INSERT EXAMPLE ONE HERE INSERT EXAMPLE TWO HERE ETC… ETC…
Finally, are there areas that provide high market share in a market that is not growing very much? As a result of their strong market position, “Cash Cows” produce a good deal of revenue, and they require few investments because of the limited market growth. On the following slide, try and list some of your Cash Cows. Remember, these are the areas area of operation that provide you with a high market share in a market that is not growing very much.
R&M’s Cash Cows (from a billable service perspective) would be: INSERT EXAMPLE ONE HERE INSERT EXAMPLE TWO HERE ETC… ETC…
Next Steps… We will go on to review each of the segments and build out a company-specific matrix. Much of its content will eventually play a role in the segmentation and target market identification of future marketing efforts. Ultimately, the application of this approach is a process we recommend to clients as they strive to relentlessly pursue their own distinct competitive advantage.