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Boston matrix

A tool of product portfolio analysis that examines a business’s products and classifies them in terms of market growth and market share. See market growth and market share. Products are placed into one of four categories depending upon their level of market share and rate of growth of the market in which they are sold. See star, problem child, cash cow and dog. Successful new products usually move from problem children to stars, which mature into cash cows and provide a source of finance for selected problem children and, hopefully, a new generation of stars. Long term survival requires a balanced portfolio of products. Use of product portfolio analysis techniques such as the Boston Matrix can help a business to arrange their product portfolio to ensure products pass through different stages of the life cycle at the same time and thus balance growth, cash flow and risk. This is to prevent the situation where all profit earners enter the decline stage at the same time, putting the entire business at risk. Businesses obviously do not want lots of dogs and need to avoid lots of stars due to the high investment costs, which drain resources. These need to be balanced with cash cows – where development costs are likely to have been recovered and the cost of advertising and promotion is relatively low in comparison to sales, and where a healthy profit (and cash flow) is being realised. However, there are limitations in using such a technique, including: the fact that it can prove difficult, time consuming and expensive to obtain accurate data on market size, growth, and share; the Matrix is concerned with the present and the immediate future, and is less useful in terms of the longer term; and it does not take into account other factors that are vitally important when making decisions over the future of a business’s products eg the contribution a product makes to total sales and, in particular, to profit.

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