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:Jim Riley Wednesday 24 October, 2012

A business with a range of products has a portfolio of products. However, owning a

product portfolio poses a problem for a business. It must decide how to allocate

investment (e.g. in product development, promotion) across the portfolio.

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A portfolio of products can be analysed using the . This

categorises the products into one of four different areas, based on:

does the product being sold have a low or high market share? are the numbers of potential customers in the market growing or

not

The Boston Matrix makes a series of key assumptions:

Market share can be gained by investment in marketing Market share gains will always generate cash surpluses

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Cash surpluses will be generated when the product is in the maturity stage of thelife cycle

The best opportunity to build a dominant market position is during the growthphase

How does the Boston Matrix work? The four categories can be described as follows:

are competing in markets where they are strongcompared with the competition. Often Stars need heavy investment to sustain

growth. Eventually growth will slow and, assuming they keep their market share,

Stars will become Cash Cows

are with a high market share. These are mature,successful products with relatively little need for investment. They need to be

managed for continued profit - so that they continue to generate the strong cashflows that the company needs for its Stars

are products with low market share operating in high growthmarkets. This suggests that they have potential, but may need substantial

investment to grow market share at the expense of larger competitors. Management

have to think hard about Question Marks - which ones should they invest in?

Which ones should they allow to fail or shrink?

Unsurprisingly, the term refers to products that have a low market share inunattractive, low-growth markets. Dogs may generate enough cash to break-even,but they are rarely, if ever, worth investing in. Dogs are usually sold or closed.

Ideally a business would prefer products in all categories (apart from Dogs!) to give it a

balanced portfolio of products.

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

Market growth is an inadequate measure of a markets attractiveness

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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