The Boston Matrix

I recommend reading the Article on the Product Life Cycle beforehand in order to assist in your understanding.

The Boston Matrix goes hand-in-hand with the product life cycle due to the fact that they both look at products in a company's portfolio. The following is an example of what the Boston Matrix looks like:

Firstly we can see that the axes are labelled with Market Growth (Is the product gaining more sales in its respective market?) and Market Share (How much of a given market i.e. the soft drink market does your product have?) into which four symbols in a quadrant formation are slotted.

This is where the correspondence to the product life cycle comes into play as each of the four symbols pictured above correspond to a section of the product life cycle.

Problem Child 

The problem child refers to a product in the introduction stage of its life. These products have low market share in a high growth market which is where the name comes from. At this stage the company doesn't really know where the product is destined. It is causing problems in that a product will require a lot of hard work and capital to transform into a rising star (see below) or it may simply become a flop if sales never pick up.

Rising Star
These products are experiencing rapid market growth and have high market share; meaning that in their respective markets they will have a large percentage of the customers looking to buy a product in that particular category. For example, the Apple Ipod Touch has a nice slice of the MP3 Player market along with other models from rival firms who are all competing to take as much of the customers looking to buy an MP3 Player (This is the MP3 market) as possible.

Cash Cow 
The Cash Cow products correspond to the Maturity stage of a product's life. These products have high market share but low growth because although sales are at a high, they will not be increasing or growing any more. Hence they are at their peak. These products make the most profit for the company and will probably fund those that aren't yet in profit (such as the problem children) or fund the Research and Development of new projects and ventures. A firm ideally wants as many Cash Cows as they can.

Dog 
Finally the Dog is a product in the decline stage and generally firms want as few of these as possible. Both market growth and share become low if no extension strategy was executed at its maturity. These products will eventually be making a loss and so they may have to be "put down" and removed from the product portfolio.However you must not assume that once sales drop, the production of the product should cease. Sales may pick up. Heinz Salad Cream was in this situation and after Heinz announced it was going to stop making the Salad Cream sales recovered again.

Why use the Boston Matrix?
The Boston Matrix allows a company to see where all of its products are in terms of success and is valuable in identifying gaps that need to be filled. This is because a firm needs a range of products at different stages / quadrants of the Boston Matrix in order to bring in profits today and also in the future. Also it is such an easy tool to draw up and use effectively in portfolio analysis.

In fact a challenge for you: Take the products of your favourite brand and put them into the four quadrants of the Boston Matrix to see which products are currently the successes and "paying the bills!"

However the Boston Matrix DOES NOT SHOW PROFIT and firms must not be misled by this!

Sam Wareham

See also: Product Life Cycle