Marketing - Product Portfolios

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Marketing - Product Portfolios

  1. 1. Product Portfolios
  2. 2. Boston Matrix• The Boston Consulting Group developed this as a tool of portfolio analysis• It can be applied to the portfolio of products produced by a firm or the portfolio of businesses owned by a firm• Portfolio is the collection of businesses or products that make up a business
  3. 3. Essence of the Boston Matrix• Firms should analyse the portfolio or collection of products• Products are categorised as: – Question marks (also known as problem children) – Stars – Cash cows – Dogs• The ideal is a balanced portfolio with some products in each category
  4. 4. Drawing the Matrix
  5. 5. Comparison with the Product Life Cycle• The product life cycle – Is concerned with individual products – Is concerned with sales over time• The Boston Matrix – Is concerned with the firm’s portfolio of products – Focuses on cash flow from products
  6. 6. The axes of the matrix• Relative market share – This is expressed not as a % but share in relation to other firms in the market – A measure of the firm’s/product’s strength in the market• Market growth – % rate of growth of sales in the market – Measure of market attractiveness – From this we derive four cells as a means of analysing products
  7. 7. “Question mark” product• Low share of a rapidly growing market• Cash flow is negative• Have potential but the future is uncertain• Could become either a star or a dog
  8. 8. Strategy for “question marks”• Invest to increase market share• Substantial investment to achieve growth at the expense of powerful competitors• Invest in promotion and other aspects of marketing• Build selectively
  9. 9. Stars• High share of a rapidly growing market• Position of leadership in a high growth market• The product/business is relatively strong and the market is growing• Require high marketing spending• Net cash inflow is neutral or at best modestly positive
  10. 10. Strategy for stars• Investment to sustain growth• Build sales and/or market share• Spend to keep competitors at bay• Invest to maintain or increase leadership position• Repel challenges from competitors
  11. 11. Cash cows• High share of a slowly growing market• Mature stage in the product life cycle• Mature, successful product• Dominant share• Little potential for growth• Large positive cash inflow
  12. 12. Strategy for cash cows• Harvest• Defend market share• Aim for short term profits• Little need for investment• Little potential for further growth• Reduce investment in order to maximise short term cash flow and profits• Use profits from cash cows to invest in new products
  13. 13. Dogs• Here dog means unattractive• Low share of a slowly growth market• Not going anywhere• No real potential• Dogs are either – Products that have failed or – Products that are in the decline phase of their life cycle
  14. 14. Strategy for dogs• Phase out or sell off (divest)• Not worth investing in• Any profit made has to be re-invested just to maintain market share• Uses up more management time and resources than can be justified• Divest or, at most, focus on a defendable niche
  15. 15. Strategic decisions that flow from the Boston Matrix• Cash from cash cows should be used to support stars• Inadequate funding of stars will lead to a fall in market share and eventually becoming a problem child• As markets mature stars will become cash cows and eventually problem children• Problem children should be funded to become stars-if not they should be dropped• Dogs can be milked for cash but are probably bettered dropped
  16. 16. Value of the Boston Matrix• A useful tool for analysing product portfolio decisions• But it is only a snapshot of the current position• Has little or no predictive value• Does not take account of environmental factors• There are flaws which flow from the assumptions on which the matrix is based
  17. 17. Assumptions underlying the Boston Matrix• Market share can be gained by investment in marketing• Market share gains will always generate cash surpluses• Cash surpluses will be generated when the product is in the maturity stage of the life cycle• The best opportunity to build a dominant market position is during the growth phase
  18. 18. Criticisms of the Boston Matrix• Market growth is an inadequate measure of a market’s attractiveness• Market share is an adequate measure of a products ability to generate cash• The focus on market share and market growth ignores issues such as developing a sustainable competitive advantages• The product life cycle varies
  19. 19. Boston Matrix: summaryStar Problem childHigh market growth High market growthHigh market share Low market shareCash neutral Cash absorbingHold BuildCash cow DogLow market growth Low market growthHigh market share Low market shareCash generating Cash neutralHarvest or milk Divest
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