Boston Matrix

The
Boston Matrix is a model which helps businesses analyse their portfolio of

businesses and brands. The Boston Matrix is a popular tool used in marketing and
business strategy.
A business with a range of products has a portfolio of products. However, owning a

product portfolio poses a problem for a business. It must decide how to allocate
investment (e.g. in product development, promotion) across the portfolio.
What is the Boston Matrix?
A portfolio of products can be analysed using the Boston Group Consulting Matrix.

This categorises the products into one of four different areas, based on:
 Market share – does the product being sold have a low or high market share?
 Market growth – are the numbers of potential customers in the market growing
or not
How the Boston Matrix is Constructed
The Boston Matrix makes a series of key assumptions:
 Market share can be gained by investment in marketing

 Market share gains will always generate cash surpluses
 Cash surpluses will be generated when the product is in the maturity stage of the
life cycle
 The best opportunity to build a dominant market position is during the growth
phase
How does the Boston Matrix work?
The four categories can be described as follows:
 Stars are high growth products competing in markets where they are strong

compared with the competition. Often Stars need heavy investment to sustain
growth. Eventually growth will slow and, assuming they keep their market share,
Stars will become Cash Cows
 Cash cows are low-growth products with a high market share. These are

mature, successful products with relatively little need for investment. They need
to be managed for continued profit - so that they continue to generate the strong
cash flows that the company needs for its Stars
 Question marks are products with low market share operating in high growth
markets. This suggests that they have potential, but may need substantial
investment to grow market share at the expense of larger competitors.
Management have to think hard about “Question Marks" - which ones should they
invest in? Which ones should they allow to fail or shrink?
 Unsurprisingly, the term “dogs" refers to products that have a low market share

in unattractive, low-growth markets. Dogs may generate enough cash to break-
even, but they are rarely, if ever, worth investing in. Dogs are usually sold or
closed.
Ideally a business would prefer products in all categories (apart from Dogs!) to give it a
balanced portfolio of products.
The main values of using the Boston Matrix include:
 A useful tool for analysing product portfolio decisions

 But it is only a snapshot of the current position
 Has little or no predictive value
 Does not take account of environmental factors
 There are flaws which flow from the assumptions on which the matrix is based
However, the model can be criticised in several ways:
 Market growth is an inadequate measure of a market's attractiveness

 Market share is an adequate measure of a products ability to generate cash
 The focus on market share and market growth ignores issues such as developing
a sustainable competitive
 advantages
 The product life cycle varies
What is the Boston Consulting Group (BCG) Matrix?

The Boston Consulting Group Matrix (BCG Matrix), also referred to as the product
portfolio matrix, is a business planning tool used to evaluate the strategic position
of a firm’s brand portfolio. The BCG Matrix is one of the most popular portfolio
analysis methods. It classifies a firm’s product and/or services into a two-by-two
matrix. Each quadrant is classified as low or high performance, depending on the
relative market share and market growth rate. Learn more about strategy in
CFI’s Business Strategy Course.

Understanding the Boston Consulting Group (BCG) Matrix
The horizontal axis of the BCG Matrix represents the amount of market share of a
product and its strength in the particular market. By using relative market share, it
helps measure a company’s competitiveness.
The vertical axis of the BCG Matrix represents the growth rate of a product and its
potential to grow in a particular market.
In addition, there are four quadrants in the BCG Matrix:
1. Question marks: Products with high market growth but a low market share.
2. Stars: Products with high market growth and a high market share.
3. Dogs: Products with low market growth and a low market share.
4. Cash cows: Products with low market growth but a high market share.

The assumption in the matrix is that an increase in relative market share will result
in increased cash flow. A firm benefits from utilizing economies of scale and gains a
cost advantage relative to competitors. The market growth rate varies from
industry to industry but usually shows a cut-off point of 10% – growth rates higher
than 10% are considered high while growth rates lower than 10% are considered
low.
Learn more about strategy in CFI’s Business Strategy Course.
The BCG Matrix: Question Marks
Products in the question marks quadrant are in a market that is growing quickly
but where the product(s) have a low market share. Question marks are the most
managerially intensive products and require extensive investment and resources
to increase their market share. Investments in question marks are typically funded
by cash flows from the cash cow quadrant.
In the best-case scenario, a firm would ideally want to turn question marks into
stars (as indicated by A). If question marks do not succeed in becoming a market
leader, they end up becoming dogs when market growth declines.
The BCG Matrix: Dogs
Products in the dogs quadrant are in a market that is growing slowly and where the
product(s) have a low market share. Products in the dogs quadrant are typically
able to sustain themselves and provide cash flows, but the products will never
reach the stars quadrant. Firms typically phase out products in the dogs quadrant
(as indicated by B) unless the products are complementary to existing products or
are used for a competitive purpose.
The BCG Matrix: Stars
Products in the star quadrant are in a market that is growing quickly and one
where the product(s) have a high market share. Products in the stars quadrant are
market-leading products and require significant investment to retain their market
position, boost growth, and maintain a competitive advantage.
Stars consume a significant amount of cash but also generate large cash flows. As
the market matures and the products remain successful, stars will migrate to
become cash cows. Stars are a company’s prized possession and are top-of-mind
in a firm’s product portfolio.
The BCG Matrix: Cash Cows
Products in the cash cows quadrant are in a market that is growing slowly and
where the product(s) have a high market share. Products in the cash cows
quadrant are thought of as products that are leaders in the marketplace. The
products already have a significant amount of investments in them and do not
require significant further investments to maintain their position.
Cash flows generated by cash cows are high and are generally used to finance stars
and question marks. Products in the cash cows quadrant are “milked” and firms
invest as little cash as possible while reaping the profits generated from the
products.

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The

Boston Matrix is a model which helps businesses analyse their portfolio of

A business with a range of products has a portfolio of products. However, owning a

What is the Boston Matrix?

A portfolio of products can be analysed using the Boston Group Consulting Matrix.

How the Boston Matrix is Constructed

The Boston Matrix makes a series of key assumptions:

 Market share can be gained by investment in marketing

How does the Boston Matrix work?

The four categories can be described as follows:

 Stars are high growth products competing in markets where they are strong

 Cash cows are low-growth products with a high market share. These are

 Unsurprisingly, the term “dogs" refers to products that have a low market share

The main values of using the Boston Matrix include:

 A useful tool for analysing product portfolio decisions

However, the model can be criticised in several ways:

 Market growth is an inadequate measure of a market's attractiveness

What is the Boston Consulting Group (BCG) Matrix?

Understanding the Boston Consulting Group (BCG) Matrix

In addition, there are four quadrants in the BCG Matrix:

Learn more about strategy in CFI’s Business Strategy Course.

The BCG Matrix: Question Marks

The BCG Matrix: Dogs

The BCG Matrix: Stars

The BCG Matrix: Cash Cows

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