Sign up to access the complete lesson and track your progress!
Unlock This CourseImagine you're running a sweet shop with different types of sweets. Some sell really well and make lots of profit, others are new and you're not sure how they'll do and some are old favourites that don't sell as much anymore. How do you decide which sweets to keep, which to promote and which to stop selling? This is exactly the problem the Boston Matrix helps businesses solve!
The Boston Matrix, also called the Boston Consulting Group Matrix or BCG Matrix, is a tool that helps businesses manage their product portfolio. It was created in the 1970s and is still widely used today by companies around the world.
Key Definitions:
The Boston Matrix uses two key measurements: market share (how much of the market you control) and market growth rate (how fast the market is growing). By plotting products on a grid using these two factors, businesses can see which products are performing well and which need attention.
Every product in a business falls into one of four categories. Think of it like sorting your belongings into different boxes - each box tells you something different about what to do with the items inside.
High market share, high growth market
These are your superstar products! They're selling well in markets that are growing fast. Stars need lots of investment to keep growing, but they're worth it because they'll become your future cash cows.
Example: Electric cars for Tesla in the early 2010s.
High market share, low growth market
These products are like reliable old friends. They don't need much investment but generate steady profits. The market isn't growing much, but you dominate it.
Example: Microsoft Office software - it's everywhere and makes steady money.
Low market share, high growth market
These are the tricky ones! The market is growing fast, but you don't have much of it yet. You need to decide: invest heavily to try to become a star, or give up?
Example: A new social media app trying to compete with TikTok.
Dogs have low market share in slow-growing markets. These products are often the hardest decisions for businesses. They don't make much money and the market isn't growing, so there's little hope for improvement.
Kodak dominated film photography for decades - their film was a classic cash cow. But when digital cameras emerged, Kodak's film became a dog. The digital market was growing fast, but Kodak had tiny market share. They failed to invest properly in digital technology and eventually went bankrupt in 2012. This shows how important it is to use the Boston Matrix to make strategic decisions about your product portfolio.
The Boston Matrix isn't just about categorising products - it's about making smart business decisions. Here's what businesses typically do with each category:
Stars: Invest heavily to maintain growth and market position. These are your future.
Cash Cows: Milk them for profit but don't over-invest. Use their profits to fund stars and promising question marks.
Question Marks: Either invest big to turn them into stars, or divest (sell them off) if prospects look poor.
Dogs: Usually divest or discontinue, unless they serve a strategic purpose.
Let's look at how Apple might use the Boston Matrix:
One brilliant aspect of the Boston Matrix is how it shows cash flow. Cash cows generate money that funds stars and promising question marks. This creates a cycle: today's stars become tomorrow's cash cows, funding the next generation of stars. It's like a business ecosystem where different products support each other.
Like any business tool, the Boston Matrix has both strengths and weaknesses. Understanding these helps businesses use it more effectively.
Simple and easy to understand
Helps with strategic planning
Shows cash flow patterns
Guides investment decisions
Useful for portfolio balance
Oversimplifies complex situations
Only uses two factors
Market share isn't everything
Ignores synergies between products
Static view of dynamic markets
Use alongside other analysis tools
Consider qualitative factors too
Review regularly as markets change
Don't make decisions based solely on the matrix
Today's businesses often adapt the Boston Matrix for modern challenges. For example, tech companies might consider factors like user engagement or data value alongside traditional market share. Streaming services like Netflix might look at subscriber growth rates and content costs rather than just sales figures.
The key is understanding that the Boston Matrix is a starting point for strategic thinking, not a rigid rule book. Smart businesses use it as one tool among many to make informed decisions about their product portfolio.
Try classifying these products using the Boston Matrix:
Answers: Star, Dog, Question Mark, Cash Cow
The Boston Matrix remains one of the most useful tools for managing product portfolios. It helps businesses see the big picture, understand cash flows and make strategic decisions about where to invest their limited resources. While it shouldn't be the only tool used, it provides a clear framework for thinking about product strategy.
Remember, successful businesses need a balanced portfolio - reliable cash cows to fund growth, promising stars to secure the future and carefully chosen question marks that might become tomorrow's successes. The Boston Matrix helps achieve this balance by making the invisible visible.