THE BOSTON MATRIX
CONTENTS
The Boston Matrix
Product portfolio management
Activity 20 : Smith and Sons Ltd
the boston matrix
The Boston Matrix
If a business provides a portfolio (range) of products, a helpful technique for analysis is the Boston
Matrix. Created by the Boston Consulting Group, this model looks at the value of products by looking
at two criteria: market growth and market share. Why is there a concern to identify market growth?
If total sales of this product type by all firms is growing quickly there is more opportunity for sales
growth. It is harder to achieve sales growth when the market is declining or stagnant. Why look at
market share? Market share is used as a criterion because of the advantages that being a market leader
brings.
Categorising different products within a portfolio by using the Boston Matrix means that each product
is put into one of four broad categories. In matrix form this is shown below.
High
Low
High
Stars
Problem children
Low
Market Growth
Relative Market Share
Cash cows
Dogs
The Boston Matrix
Problem children (low market share in a high growth market)
Problem children can also be described as ‘question marks’. Problem children are products that have so
far not sold enough in what should be a rapidly growing and therefore profitable market. The business
should either be prepared to invest time and money into turning around the market position of these
products or consider whether to admit defeat and stop production.
Rising stars (high market share in a high growth market)
Rising stars are profitable, or at least on their way to becoming so. But because the market has high
growth, the business may need to invest in increasing production capacity. Marketing expenditure
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the boston matrix
will also be quite high because of the need to maintain market position in the face of competition.
Other businesses will have seen the opportunities in this market. Although rising stars require a lot
of resources, any business will seek to hold them in their range of products as they are potentially
lucrative.
Dogs (low market share in a low growth market)
These products may produce some income, but they will probably need to be deleted from the product
portfolio in the near future. Even if the relative market share of dogs can be improved, there is limited
opportunity for sales growth in a market where consumer demand is stagnating.
Cash cows (high market share in a low growth market)
Although the size of the market in which these products sell is not expected to increase significantly in
the future, the products are profitable. There is no need to invest in extra production facilities. Due to
high levels of customer awareness, there is less need for promotional spending. Cash cows generate
income that can be used to fund the development of rising stars. If this is managed well, when cash
cows enter the decline phase revenue from sales of the product portfolio as a whole can remain at a
steady level, assuming rising stars have achieved their sales potential.
Product portfolio management
The Boston Matrix can be used to evaluate whether a business has a balanced portfolio of products. A
business should not have too many products in any one category within the matrix.
To illustrate this, suppose that a business has mostly cash cows in its portfolio. These products are sold
into are low growth markets. Cash cows obviously account for most of the company’s revenue. When
the cash cows enter the decline stage, total revenue will fall quite sharply. Now answer Activity 20
below.
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the boston matrix
Activity 20 : Smith and Sons Ltd
Smith and Sons Ltd has a portfolio of 5 products (A, B, C, D and E). Sales figures are available for the past 7
years. Throughout this period, the product range has been unaltered. The market share for each product has
changed very little over time. The tables and bar chart below show:
• Market growth for the markets in which Smith and Sons sells its products.
• Percentage market share held by Smith and Sons in each of those markets.
• The value of company sales in millions of pounds over the 7 year period.
Look at the figures carefully before answering the tasks.
smith and sons ltd: market growth years 1 to 7 (%)
product
market growth
A
13
B
0
C
-3.2
D
-25
E
130
smith and sons ltd: approximate market share (%)
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product
market share
A
50
B
19
C
60
D
63
E
16
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the boston matrix
smith and sons ltd company sales by product (£m)
year
a
b
c
d
e
1
1.1
1.0
3.7
7.3
0.2
3
1.2
1.0
3.8
6.2
0.3
5
1.2
1.0
3.7
5.7
0.3
7
1.0
1.0
3.5
5.9
0.4
MARKET SHARE FOR YEAR 5 (%)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
A
B
C
D
E
PRODUCTS
TASKS
1. How would you classify each of these products within the Boston Matrix? (10)
2. The market demand for D has fallen. Briefly give three possible reasons for a fall in demand. (6)
3. Calculate the percentage change in total revenue for Smith and Sons Ltd between year 1 and year 7. (2)
4. Based on the available evidence, how well has the product portfolio been managed? What approach
should the company take with respect to managing its product portfolio in the future? Justify your
recommendations. (10)
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