IBBusinessDPBusiness ManagementHLRevision Notes4. Marketing4.5 The Marketing Mix (7 P's)Product Portfolio Analysis

Product Portfolio Analysis (DP IB Business Management)

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Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

DP Business Management: HLDP Business Management: SL

The Boston Consulting Group (BCG) Matrix

  • The Boston Matrix is a tool used by businesses to analyse their product portfolio and make strategic decisions about each product

  • The matrix classifies products into four categories based on their market share and the market growth rate

    • Cash Cow

    • Problem Child/Question Mark

    • Star

    • Dog

Diagram: the Boston matrix

The classification of products in the Boston Matrix according to their market share and the growth rate in the market as a whole 
The classification of products in the Boston Matrix according to their market share and the growth rate in the market as a whole 

  • By categorising products into these categories, businesses can allocate resources more effectively, optimising their cash flow and developing marketing strategies that align with the product's potential

The Boston Matrix, Cash Flow and Marketing Strategy

Product Type

Explanation

Implications

Cash Cow

  • Cash cows are products with a high market share in a mature market (the entire market is no longer growing)

  • They generate significant positive cash flow but have low growth potential

  • The business invests minimal resources in cash cows as they are seen as stable sources of income

  • Marketing efforts focus on maintaining their market share and profitability

  • Cash cows are valuable assets and can be used to fund the development of new products

Problem Child/Question Mark

  • Problem child or question mark products have a low market share in a high-growth market

  • These products have the potential to become stars if the company invests in their development

  • There is often a negative cash flow as businesses usually invest in problem child products to increase their market share and turn them into stars

    • If the investment does not result in growth the business may discontinue the product

  • Marketing efforts focus on increasing their market share and brand recognition

Star

  • Star products have a high market share in a high-growth market

  • The company typically invests in stars to maintain or increase their market share

  • They generate significant positive cash flow and have the potential for continued growth

  • Marketing efforts focus on building brand recognition and increasing market share

  • Stars are valuable assets and the business should focus on maximising their potential

Dog

  • Dog products have a low market share in a low-growth market

  • They generate little revenue for the company and have no growth potential

  • Businesses often move away (divest) from these to focus on more profitable products

  • Marketing efforts for dog products are minimal or zero

Examiner Tips and Tricks

In paper 2 you may be asked to apply the BCG matrix to a given product portfolio.

To achieve full marks you will need to demonstrate both knowledge and application skills.

  • To demonstrate knowledge it's a good idea to draw the matrix, ensuring that both the axes and headings are accurately labelled

  • Application is demonstrated through the correct placement of products within the four quadrants and by explaining why you have chosen to place individual products in each quadrant

    • Refer to each product's relative market share and the rate of market growth

    • Look for clues in the stimulus material to help you with this.

Boston Consulting Group (BCG) Matrix Strategies

  • Marketing strategies for products in a business portfolio vary depending on the BCG Matrix quadrant in which they sit

Diagram: Boston matrix strategies

Four different marketing strategies based on the Boston Consulting Group matrix include build, harvest, divest and hold
Four different marketing strategies based on the BCG Matrix 

1. Hold strategies for stars

  • Allocate more resources to support further growth

  • Build market share through continuous investment in product development, marketing and innovation to maintain a strong market position

  • Capture additional market segments by expanding the product's reach into new geographical markets

2. Harvest strategies for cash cows

  • Maintain market dominance by protecting existing market share through branding, quality and customer loyalty

  • Optimise profitability by streamlining operations, reducing costs, and maximising efficiencies to maximise profits

  • Extract cash flows to invest in other products or new ventures

3. Build strategies for question marks

  • Conduct market research and analysis to determine the potential for growth and profitability

  • Invest selectively and allocate resources strategically to question marks with the highest potential and withdraw resources from those with low potential

  • Invest in marketing, research and development to increase market share and convert them into stars

4. Divest strategies for dogs

  • Sell off the product or business unit if it no longer fits with the company's overall strategy or long-term objectives

  • Harvest or maintain if the product can still generate some cash flows

  • If the product has no future prospects plan for an orderly exit from the market

Examiner Tips and Tricks

Before suggesting divestment for 'dog' products, consider whether remaining in a low-growth market may provide the potential to develop a specialised, niche market where little large-scale competition remains. It may mean that a dog may make the unusual step of becoming a cash cow in the future.

  • For example, when mass-market electronics brands such as Toshiba and Sony divested their portfolios of record players in the 1990s, smaller-scale manufacturers such as Denon and Technics continued to sell a small range of these devices alongside more technologically advanced audio equipment.

  • The recent vinyl revival has meant that these brands now generate significant sales revenue and have become market leaders.

Limitations of the BCG Matrix

  • While the BCG Matrix provides valuable insights for marketing managers and serves as a useful starting point for portfolio analysis, there are some limitations to its usefulness

Limitations of the BCG Matrix

Limitation

Explanation

Simplistic approach

  • The BCG matrix relies on a simple framework which classifies products solely based on market growth rate and relative market share

    • Other important factors, such as competition, technological advancements, customer preferences and other industry trends, are ignored

    • Lack of consideration of these factors may lead to poor strategic decisions

  • A high market share does not guarantee profitability when the market is highly competitive or if the company incurs significant costs to maintain its share

    • E.g. despite controlling market share of around 50% between them, the three largest airlines in the USA achieve average annual profit margins of less than 5 per cent

Lack of focus on the future

  • The BCG matrix is based on current market conditions and historical data and does not consider changes in the competitive environment

  • It may not identify emerging trends which are crucial for long-term marketing planning

Ignores interdependencies

  • The BCG matrix treats each product in isolation and does not account for potential synergies or interdependencies among them

  • In reality, some products may complement each other or benefit from shared resources, which can affect the marketing decisions that may be made

Time consuming

  • Identifying market growth rates and market share for each product within a businesses portfolio is likely to take expertise and time

  • If market conditions are changing rapidly regular changes will need to be made to the positioning of products within the matrix to ensure that appropriate marketing decisions are made

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    Lisa Eades

    Author: Lisa Eades

    Expertise: Business Content Creator

    Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

    Steve Vorster

    Author: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.