Transcript The Boston Matrix

The Boston Matrix
Tom Lu
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To Know Boston Matrix
To understand the Boston
Matrix, you need to
understand how market
share and market growth
interrelate.
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Market Share and Market Growth
Market share
Market share is the percentage of
the total market that is being
serviced by your company,
measured either in revenue terms
or unit volume terms. The higher
your market share, the higher the
proportion of the market you
control.
Market growth
Market growth is used as a measure
of a market's attractiveness. Markets
experiencing high growth are ones
where the total market
is expanding, meaning
that it’s relatively easy
for businesses to grow
their profits, even if
their market share
remains stable.
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Function of
Boston Matrix
The Boston Matrix is a well known tool for
the marketing manager. It was developed
by the large US consulting group and is an
approach to product portfolio planning. It
has two controlling aspect namely relative
market share and market growth.
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General Summary of Boston Matrix
T
he BCG matrix was introduced in the late 1960’s, the concepts underlying
this matrix are those of the experience curve and the product life cycle. The
matrix is made up of four quadrants and the circle size lends a third dimension –
turnover.
•
Cash cows are cash generators and require an invest or hold strategy
while maximizing cash flow.
•
Stars are potential cash cows and require adequate funding to establish
a dominant position before the market growth rate slows down and they
become cash cows.
•
Question marks do not have market share on their side. They are found
in growing markets and require funding if they are to become stars. If
not withdrawal is possible.
•
Dogs are neither cash generators nor in many instances cash drains.
They can be left alone or removed from the portfolio.
The aim is to achieve a balanced portfolio, sustaining or holding the Cash Cows,
investing in the Stars and some select Question Marks and divesting or holding
Dogs. If necessary, Questions marks could also be divested if they do not have a
chance of becoming a Star.
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The Boston Matrix
The matrix is made up of four quadrants and the circle size lends a third dimension
– turnover.
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Details of the sections
Cash cows
Stars
- Cash cows are low-growth
businesses or products with a
relatively high market share.
- Stars are high growth
businesses or products
competing in markets where
they are relatively strong
compared with the
competition.
- These are mature,
successful businesses 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.
- Often they need heavy
investment to sustain their
growth.
- Eventually their growth will
slow and, assuming they
maintain their relative
market share, will become
cash cows.
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Details of the sections
Question marks
Dogs
- Question marks are
businesses or products with
low market share but which
operate in higher growth
markets.
- Unsurprisingly, the term
"dogs" refers to businesses
or products that have low
relative share in
unattractive, low-growth
markets.
- This suggests that they
have potential, but may
require substantial
investment in order to grow
market share at the
expense of more powerful
competitors.
- Dogs may generate
enough cash to breakeven, but they are rarely,
if ever, worth investing in.
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The Boston Matrix for KFC
Type SBU
Strategy
SBU
profits
Required Investment
Net Cash Flow
STAR
Cash Cow
Hold/Increase
Hold
High
High
High
Low
-or+
Increase/Divest
0 or -
Question Mark
DOG
Harvest or Divest
Low or-
Very High or Disinvest
Disinvest
High+
High-or+
+
• Continuously generate cash cows and use the cash throw-up by the
cash cows to invest in the question marks that are not self-sustaining
• Stars need a lot of reinvestments and as the market matures, stars will
degenerate into cash cows and the process will be repeated.
• As for dogs, segment the markets and nurse the dogs to health or
manage for cash Three Paths to Failure
• Over invest in cash cows and under invest in question marks
• Trade further opportunities for present cash flow
• Under invest in the stars
• Allow competitors to gain share in a high growth market
• Over milked the cash cows
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Advantage/Disadvantage of The Boston Matrix
- Biggest advantage of the
Boston Matrix is take very
complex scenarios and allow for
a rapid and easy assessment.
- Biggest disadvantage of the
Boston Matrix is it over simplifies
a complex decision so the Boston
Matrix should only be used for
planning.