The Boston Matrix is a popular tool for analyzing the performance and potential of different products or services in a portfolio. It was developed by the Boston Consulting Group in the 1970s and is based on market share and growth.
Market share is the percentage of sales a product or service has in its market compared to its competitors. It indicates how well a product or service performs relative to others in the same market. Market growth is the annual percentage increase in the market size for a product or service. It indicates how attractive and dynamic the market is for a product or service.
The Boston Matrix divides products or services into four categories based on their market share and market growth:
- Stars: These are products or services that have high market share and high market growth. They are the leaders in their markets and generate high revenues and profits. They also require high investments to maintain their position and to keep up with the growing demand. Stars are expected to become cash cows in the future as their markets mature.
- Cash cows: These are products or services that have high market share and low market growth. They are well-established in their markets and generate steady revenues and profits. They require low investments to maintain their position and to exploit their loyal customer base. Cash cows are a business’s main cash flow source and should be protected from competitors.
- Question marks: These are products or services that have low market share and high market growth. They are new market entrants or niche players with uncertain prospects. They require high investments to increase their market share and to compete with the dominant players. Question marks can either become stars if they succeed or dogs if they fail.
- Dogs: These are products or services that have low market share and low market growth. They are weak performers in their markets and generate low revenues and profits. They require low investments to maintain their presence but may not be worth keeping. Dogs should be either divested or discontinued.
To determine which category a product or service falls into in the Boston Matrix, you must measure its market share and growth relative to its competitors and the industry average. You can use various data sources, such as sales reports, market research, industry reports, etc., to calculate these metrics. You can then plot your products or services on a matrix with market share on the x-axis and market growth on the y-axis. The matrix is divided into four quadrants corresponding to the four categories: stars, cash cows, question marks, and dogs.
The Boston Matrix can help you make strategic decisions about your product or service portfolio, such as where to invest, divest, grow, harvest, etc. It can also help you identify market gaps and opportunities and assess your competitive position. However, you should also be aware of some limitations of the Boston Matrix, such as:
- It assumes that market share and market growth are the only factors that determine the success of a product or service while ignoring other factors such as customer satisfaction, quality, innovation, differentiation, etc.
- It assumes that markets are clearly defined and stable while ignoring changes in customer preferences, technology, regulations, etc.
- It assumes that a high market share leads to high profitability while ignoring costs, margins, economies of scale, etc.
- It assumes that products or services have a single life cycle while ignoring variations across different segments, regions, channels, etc.
Therefore, you should use the Boston Matrix as a starting point for your analysis but not as a definitive guide for your actions. You should also complement it with other tools and frameworks to provide more insights into your products or services and markets.