Boston matrix
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Boston Matrix. Fred Lee Period 3. What is Boston Matrix ?. A tool of portfolio analysis developed by the Boston Consulting Group in the early 1970’s Well-known management tool used in product life cycle theory

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Boston Matrix

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Boston matrix

Boston Matrix

Fred Lee

Period 3


What is boston matrix

What is Boston Matrix?

  • A tool of portfolio analysis developed by the Boston Consulting Group in the early 1970’s

  • Well-known management tool used in product life cycle theory

  • A tool that numerous companies utilize to enhance their products and help decide on their portfolio decisions


Functions

functions

  • Categorizes products based on market growth and market share

  • It prioritizes which products of a firm should get more investment and attention, and vice versa

  • It focuses on a portfolio of products

  • It focuses on the products’ cash flow


Its essence

Its Essence

  • Products are categorized into:

    • Question Marks (a.k.a. problem child) : Products with high market growth but low market share

    • Stars: Products with high market growth and high market share

    • Cash Cows: Products with low market growth and high market share

    • Dogs: Products with low market growth and low market share


Details 1

Details #1

  • Question Mark: Low share, and low market growth -> negative cash flow -> uncertain potential -> can potentially become a star or a dog

  • Star: High share and high market growth -> The product is relatively strong -> neutral or modest cash inflow


Details 2

Details #2

  • Cash Cow: High market share, but low market growth -> at mature state of the product cycle -> successful -> unlikely to grow more -> large positive cash flow

  • Dog: Low market share, and low market growth -> unattractive -> no potential -> failed products or in the decline phase


Strategy 1

Strategy #1

  • Question Mark:

    • Invest for a high market share or divest

    • Promote the product

    • Produce selectively, meaning do not produce in excess

  • Star:

    • Invest for a sustained market growth

    • Increase sales and market share

    • Maintain leadership among the firm’s competitors

    • Counter challenges from the firm’s competitors


Strategy 2

Strategy #2

  • Cash Cow:

    • Harvest

    • Defend its share

    • Try for short term profits

    • Do not need to invest much; in fact reduce investment to maximize short term profits

    • Use profits to supplement other products

  • Dog:

    • Phase out or divest

    • Do not invest

    • Its profits should invest in its own product


Examples

Examples

  • Star: Walmart -> It has a high market share, and it is growing rapidly too; IPod -> high market share in a growing market, but needed a lot of investment

  • Question Mark: Panasonic smartphones -> small market share in a rapidly growing market -> customers are aware of Panasonic’s cash cow examples, but unaware of its smartphone market entrance.

  • Cash Cow: Pepsi -> high market share, but low market growth rate. Customers are already aware of its products, and fluctuate little

  • Dog: GM’s Hummer -> low market share, and it is not growing much either.


Advantages

advantages

  • Very simple and useful for any companies

  • Highlights important factors of the firm’s portfolio products

  • Helps to generalize and make decisions with certain products

  • Can become an efficient planner tool for firms


Disadvantages

disadvantages

  • It only is a “snapshot” of a short-term condition and position

  • Assumptions on which the matrix is based have flaws

  • Does not look into environmental forces

  • The product of cycle is not fixed; it varies over time

  • Market share itself is sometimes enough to decide if the product is able to generate cash flow


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