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The Boston Matrix and Ansoff's Matrix

The influences of growth and market share have been brought together into a matrix by the Boston Consulting Group (BCG). Products are labelled according to their likely impact on an organization s resources. They can be classified as a star, cash cow, wildcat (sometimes referred to as problem child or question mark) or dog. The BCG growth-share matrix A star product is growing fast and has achieved a high market share. Although it generates high revenues and is profitable, it uses lots of cash to fuel its growth and maintain its competitive position. It is well placed to survive and prosper when growth slackens. A cash cow has a high share of a market which has matured. Because of its dominant market position, it is able to exploit maturity and generate plenty of surplus cash from its sales. Cash cows evolve from the stars of the growth stage and are a critical source of cash and other resources to develop new products. A wildcat (sometimes referred to as a 'problem child' or 'question mark') is in a growth stage but has achieved a relatively small market share. As this makes the product unprofitable at present and could put it in an even weaker position when the market matures, it requires some changes and probably investment to improve its market position. Wildcats are therefore net users of cash resources. They may be managed into stars but they can also degenerate into dogs if market growth disappears. A dog has the worst of both worlds, having a low share of a market with no or low growth. It represents a drain on an organisation's resources, often at the expense of other products, and is a candidate for deletion unless it can be transformed through growth into a wildcat.

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Figure 1. The BCG growth-share matrix The growth-share matrix emphasizes the need for a balanced portfolio of products if an organization is to grow and be self-sufficient in resources. Once the portfolio profile has been established four basic strategies for each product are possible: Build: Increase market share to strengthen the future position at the expense of shorter-term profits and cash flow, for example turning wildcats into stars. Hold: Maintain current market share to make sure maximum profit and cash is generated now or in the future, for example by sustaining and milking a cash cow. Harvest: Increase short-term cash flow even at the expense of longer-term profits, for example by taking profits from stars and wildcats rather than investing in them and milking cash cows dry if market conditions seem set to worsen. Divest: Cut off a drain on resources even if it means taking short-term losses, for example by terminating a dog. Critics of the growth-share method of analysing product portfolios point to its simplistic assumption that market share is always the key measure of a products competitive position and that market growth is always the most important indicator of an industry's attractiveness. In particular, it overlooks the large number of highly successful products that occupy niche positions in larger markets and the diseconomies of scale in providing some services which undermines the value of a high market share. Ansoff's classification of product strategies Ansoff's Matrix, which links products to the markets they are targeted to serve, as shown in Figure 2.

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Figure 2. Ansoff's matrix Market penetration develops existing products within existing markets. The underlying assumption is that there is still untapped demand or competitive advantage that can be further exploited without either changing the product or looking beyond existing market segments. This strategy usually involves use of other elements in the marketing mix, such as an increase in promotional effort, more aggressive pricing policies or more extensive distribution. Providing the potential exists, it is the strategy of least risk because both products and markets are known, for example, Kellogg's has encouraged the use of breakfast cereals for other meals, so consumers are encouraged to eat cereal for their lunch or evening meal. Product development introduces new products into existing markets. It assumes that an innovation will be accepted by the organization's existing customer group. Product development can be radical, with the introduction of an entirely new product; or moderate, involving only the modification of existing products in some way such as performance, presentation or quality. Many prestige car manufacturers offer a range of merchandise targeted at car owners so that you can buy replica models, clothing and pens. Market extension takes existing products into new markets. This strategy assumes that existing markets are fully exploited or that new markets can be developed concurrently with existing markets. New markets may be defined geographically (e.g. potential export areas), or by customer grouping (e.g. a different age or social group) or other parameters (e.g. purchasing patterns, industrial classification or sectors). Some market extensions may be counter-intuitive for example, Guinness, traditionally a drink for colder climates, is now a successful brand in a number of African countries. Diversification develops new products and offers them to new markets. As it represents a departure from an organization's existing product and market involvement, it is the strategy of highest risk. Richard Branson of Virgin has often used this strategy with mixed results. His forays into the vodka and cola markets have not been successful. The music stores (sold) and airline have been more successful, but the train company continues to be troubled. Testing questions: 1. Which strategy is relevant for a business: a) attempting to turn wildcats into stars, b) dealing with a dog of a product, c) taking profits from stars

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rather than investing the profits? 2. Describe a criticism of the growth-share methods of analysis of product promotion. 3. Which of Ansoff's four matrix strategies best describes: a) taking products into new markets, b) developing new products for new markets. 4. Which of Ansoff's matrix strategies is the highest risk. Extension work: Research ten well known products such as iPhone, CDs, Cadbury's Dairy Milk, Fairy Liquid, Sinclair C5 and allocate them into the BCG growth-share matrix and then Ansoff's matrix. Make sure you include some failures. Choose one product that started out as a wildcat, became a star and is now a cash cow and write a brief history of its development. Information source: This is an extract from a chapter in Marketing: A Brief Introduction by Stokes and Lomax. To find out more about this book, to purchase it as a hardcopy or as an e-book or to buy eChapters please select Cengage Brain

Related resources: The Boston Matrix and Ansoff's Matrix The Boston Matrix Ansoff Matrix Submitted by Neil Reaich on Wed, 16/05/2012 - 19:03

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