The Boston Matrix (Product Portfolio Management)

Question 1

What can the Boston Matrix help with?

Answer 1

• Tool to help businesses decide how to manage their portfolio of businesses, brands, products.
• Model which helps analyse firm’s strategic position

Question 2

Products/Brands are categorised as either:

Answer 2

• Stars
• Problem child
• Cash cows
• Dogs

Question 3

What 2 things does the Boston Matrix measure?

Answer 3

• Growth rate

- Market share

Question 4

Relative market share:

Answer 4

• Expressed not as %, but share in relation to competitors

- Measures product’s strength in market

Question 5

Market growth:

Answer 5

• % rate of growth of market sales

- Useful measure of market attractiveness, but not only one

Question 6

Stars:

Answer 6

• High share of rapidly growing market (ideally market leadership)
• Product is strong and market’s growing
• Requires high marketing spending
• Cash flow may be positive, depending on profitability and market share

Question 7

Strategy for stars:

Answer 7

• Invest to sustain growth
• Maintain or build market share
• Repel challenges from competitors
• Create barriers to entry (e.g. branding, customer loyalty, quality advantages)

Question 8

Problem child:

Answer 8

• Low share of fast-growing market
• Cash flow usually negative
• Products have potential, but future is uncertain
• Could become either star or dog

Question 9

Strategy for problem child:

Answer 9

• Invest to increase market share
• Try to build competitive advantage - e.g. through selective market segmentation and positioning
• Build selectively and invest in most likely stars
• Cash flow likely to be negative

Question 10

Cash cows:

Answer 10

• High share of low growth market
• Likely to be mature stage in product life cycle
• Little potential for growth
• Large, positive cash inflow

Question 11

Strategy for cash cows:

Answer 11

• Defend market share
• Reduce investment in order to maximise cash flow and profits
• Use profits from cash cows to invest in problem child and stars

Question 12

Dogs:

Answer 12

Usually products that have failed/that are in decline phase of product life cycle

• Low share of low growth market
• Not going anywhere & no real potential

Question 13

Strategy for dogs:

Answer 13

• Not worth investing in
• Uses up more management time and resources than can be justified
• Phase out, or sell off

Question 14

How valuable is the Boston Matrix Model?

Answer 14

• Useful tool for analysing product portfolio decisions
• But only snapshot of current position
• Relative market share and market growth are not only dimensions important to business

Question 15

What is the difference between the Product Life Cycle and the Boston Matrix?

Answer 15

• Product Life Cycle concerned with individual products and focused on sales
• Boston Matrix concerned with portfolio of products, brand, businesses and greater focus on cash flow