Of course most companies have a variety of products and will have products at different stages of their life cycle. The marketer who is planning future growth needs to look across their product range and assess the growth options (see the Ansoff matrix) and review their product portfolio to see what future needs will be in terms of product development.
Boston growth/share matrix
A well-established tool for assessing the product or business portfolio is the growth/ share matrix developed by the Boston Consulting Group in the 1960s – also known as the ‘Boston box’.
Using the box a marketer can divide a company’s products into four categories:
These are products with a high market share and good growth prospects. At the same time they will require resources in order to acquire more market share and increase sales. They are regarded as cash neutral – cash invested in them will reap an equivalent return.
These are also dominant products but they require a lower level of resources and consequently will generate good flows of cash for the company.
Have low market share but good growth prospects – these will suck in cash.
Have low market share and low growth prospects – these can be phased out from the product portfolio.
Once the products are mapped on to the matrix, the expected direction of the company’s cashflow can be assessed and an investment strategy can be developed. The ideal is to use cash from cash cows to develop the problem children so that they can become stars – and perhaps when sales start to decline, cash cows.
To see some detailed practical applications of the matrix, look in the cream coursebook – Blob (page 71) and RTJ (page 78).
The value of the matrix in practical terms can be limited by both the quality of the data used and the lack of input regarding the broader social and political environments. Other models went on to broaden the range of factors used.
Market attractiveness-business strength model
This model uses a variety of factors to map out products. It has been used by General Electric in strategic planning – GE is well known for its continuous programme of acquisition and divestment of businesses. Shell also developed a similar, directional policy matrix.
The model plots out the businesses or products that have the opportunity to grow, as compared to those that should be dropped from the portfolio. Industry attractiveness is one side of the matrix – this is measured by factors such as size, competitive intensity, and feasibility of market entry. On the other side is business strength – sales, R&D, product quality, market knowledge.
Products in the bottom right of the diagram are in an unattractive market with little strength – they then should be divested. Those in the top left are in a strong position in an attractive industry – investment in these products will produce strong growth.
There are problems with using a matrix approach to strategic planning. As Kotler writes:
They can be difficult, time consuming and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. In addition, these approaches focus on classifying current businesses, but provide little advice for future planning. Management must still rely on its judgement to set the business objectives for each SBU, to determine what resources to give to each and to work out which new businesses to add. Kotler, Principles of Marketing, 2001
There is also a danger that companies will plunge into new businesses totally unrelated to their own, where they might not have the necessary competences to succeed, whilst starving resources from profitable existing businesses.
In the next blog we will look at the new product development process and issues relating to branding decisions.