I will first briefly explain the Boston Matrix and then analyse its effectiveness as an aid to making a marketing strategy. Like Ansoff’s matrix, the Boston Matrix is a well known tool for marketingmanagers. It was developed by the large US consulting group and is a way that a business can compare all of its products. The two aspects it looks at are market share (relative to that of competitors) and market growth.
To use it you would look at all of your products and sort them into 4 categories, stars (products with a high market growth and a high market share), cash cows (high market share in a market with little growth), problem children/question marks (low market share in a growing market) and dogs (low market share in a market with no growth). There needs to be an equilibrium of the different types in your product portfolio. Never have any dogs, but try and keep the same amount of the other 3 types. This means that funds can be evenly distributed between the 3, money generated from cash cows needs to be spent turning problem children into stars, which will eventually become cash cows, and the cycle continues. Some problem children will become dogs, and money from cash cows may also have to be spent compensating for these failures. The Boston Matrix is commonly used to try and help plan the future of a company as well as simply categorising products.
But it takes a good marketing team to use the Boston Matrix successfully in conjunction with the marketing mix. There are several advantages and disadvantages of using the Boston Matrix to help make decisions like this. . . Firstly, there is a common assumption that a high market share will automatically mean high profitability of a product.
This isn’t always the case, as the costs of development of a product must be taken into consideration. For example, when Boeing launch a new jet, yes they have a high market share but they still must cover the extremely high development costs. Although jets are a very specialised product, it is the same for other more simple products as a large chunk of a companies resources go on design and research. Also, at the launch of a new product lots of money must be spent on advertising to ensure that the product does get the market share it wants.
The good thing about this is that if this risk is undertaken, the product may in the future become a cash cow and the companies will be able to reap the benefits and the product will be able to support new products. Do you see the cycle that the products follow?, this all links very closely with the product lifecycle. Of course a company should not just assume that a product will follow this cycle, there is no guarantee that a product will follow this cycle and a marketing department would be stupid to assume that a product will. This is another problem with using the Boston Matrix to make decisions (as it is a problem with all other aspects of marketing), that markets just aren’t that predictable.
Nobody can predict accurately consumer trends in a following year. If they could then marketing would be easy. But many companies who thought they could predict market trends are now bust. The Boston Matrix is an attempt to simplify something that is very complicated. It helps, but it doesn’t solve the problem.
The problem with using the Boston Matrix is that it oversimplify a very complex decision making process. Marketing departments should be very careful not to take too much from the use of the Boston Matrix. The main advantage about the Boston Matrix is it is meant to analyse a firms current position, and this it does very well. It should be used in conjunction with the other methods in the product portfolio analysis and the product lifecycles.
After the firm has analysed its current position it can decide what to do next. There are 4 things a firm can do in the future as relates to the Boston Matrix; Building, this involves investment in promotion and distribution to get more sales, commonly used with question marks. Holding, this is spending money on marketing to maintain sales (used with star products). Milking, this is used with cash cows and involves taking the maximum profits you can from the product without much new investment.
And finally divesting, this is just selling off your remaining stock of a product and is done with ‘dogs’. Again though it is not that simple to make a decision about a product based solely on the theories of the Boston Matrix. In closing, the Boston Matrix is a very good way that a firm can access its current market position. Used correctly, with other methods of portfolio analysis, it can give the firm scope for creating a positive marketing strategy. Its main strength is also its weakness though. If used incorrectly the Boston Matrix could effectively destroy a company, that is why it is wise to hire a marketing team that will look at the position of products from more than one angle before throwing money at a problem.
A manager should also go on his gut instinct rather that always following stats and figures, this is the key to success.