GCSE / Level 2 Revision Notes

Marketing - Product portfolios and the Boston Matrix

Why businesses have more than one product

Most businesses sell more than one product. Often they will produce several similar products that appeal to different customers.  A collection of such products is known as a “product group” or “product range”.
Good examples of product groups include:

• Dell’s range of desktop and laptop computers
• Sony’s range of DVD players and televisions

There are several advantages to having a product range rather than just one product:

• Spread the risk – a decline in one product may be offset by sales of other products
• Selling a single product may not generate enough returns for the business (e.g. the market segment may be too small to earn a living)
• A range can be sold to different segments of the market e.g. family holidays and activity holidays

However a greater range of products can mean that the marketing resources (e.g. personnel and cash) are spread more thinly. 

Managing the product portfolio

A business with a range of products has a portfolio of products. However, owning a product portfolio often poses a problem for a business.  It must decide how to allocate investment (e.g. in product development, promotion) across the portfolio.  Which products should it focus on?

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 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.