By using the matrix to bring perspective to decisions about which products or business units to invest in, organizations can optimize the distribution of funds across business units or product ranges.
Your organization can also use the Boston Matrix to indicate its products strengths and weaknesses in terms of its cash flow management. It was originally intended to help organizations allocate resources between their different categories of business.For example, it may be fulilling the role of a loss leader in terms of the initial purchase, but then proits are made through the associated products. No one expects it to become a major revenue generator for Microsoft and even optimistic estimates expect it to ac- count for less than 2. Low Fast Question market growing Marks share market Question Marks require careful analysis to determine whether or not they are worth the investment required to grow their market share. The relative market share illustrates the positioning of your product or service compared to your main competitors. Hold Harvest Divest A balanced portfolio is not achieved by having a product in each quadrant of the matrix, but this is often what happens in reality because not all of your products or business units will be successful and not all of your markets will be growing at the same rate. All Rights Reserved ISBN The material contained within this electronic publication is protected under International and Federal Copyright Laws and treaties, and as such any unauthorized reprint or use of this material is strictly prohibited. One common misconception about the Boston Matrix as it relates to a balanced portfolio is that it endorses the idea of diverting funds from a Cash Cow to either a Star or a Question Mark. In a study by Slater and Zwirlein actually showed that of the irms they reviewed those who had used the Boston Matrix as part of their portfolio planning presented lower shareholder returns to their investors. The Boston Matrix assumes that by the time a product dominates a mature market it will have recouped its initial investment several times over and that its marketing expendi- ture will be relatively low. Others have sold this product off to specialist companies or just stopped sup- porting it, preferring to use these funds to develop other services. In other words, the higher your market share, the bigger the proportion of the market you control and inluence.
There is no inevitability about this and some products are Stars from the moment of launch, whereas others become Dogs almost immediately.
This information and data will play a signiicant role in analyzing the internal capabilities of the organization, an essential part of strategy development and imple- mentation.
Organizations operating in immature markets should remember that high revenues might come with high product development and marketing costs.
It attributes this to the organization being well established and knowledgeable about the market, and having attained the advantages of the economies of scale. This implies that diverting funds to other growth areas will not have adverse implications for the Cash Cow.It is essential to deine how much investment the organization is prepared to allocate to a Question Mark product in order to gain market share. Over the last forty years its use has gone in and out of fashion and it has been removed from certain contemporary marketing textbooks. It uses market share to illustrate how well a product or service can generate cash and it uses market growth to indicate how much future cash is required. The relative market share illustrates the positioning of your product or service compared to your main competitors. The matrix also assumes that earn- ings rise as your market share does. The analysts then plot a scatter graph within the matrix that ranks either business units or products and services on the basis of their relative market shares and growth rates. In order to appreciate how this prioritization is assessed you need to understand how mar- ket share and market growth are interrelated. There has been a tendency for users to oversimplify the analysis and to focus on categorizing products or business units as Cash Cows, Stars, Question Marks, or Dogs, rather than considering cash low. It can also help you to decide on future positioning and which marketing activities are likely to be the most effective. The relative market share illustrates the positioning of your product or service compared to your main competitors. By using relative market share, rather than profits, the Boston Matrix ensures that it considers more than just cash flow. Reproduction or translation of any part of this work without the permission of the copy- right holder is against the law. Some critics of the Boston Matrix say that it implicitly denies that brands can be transformed, when in fact that is very often the best strategy.
While your role as a manager is unlikely to require you to make decisions at the strategic level, you may be asked to contribute your expertise to meetings where strategic con- cerns are being discussed.
The more accurate and up-to-date an MIS is, the greater your competitive edge will be.
For example, Dial-up internet was at one time a Cash Cow for many companies, but as technology has advanced it has quickly become a Dog.