How the Boston Matrix can be used to manage the product portfolio
- Balancing product lines
Businesses must ensure that their product portfolios do not contain too many items within each category. Naturally, they do not want lots of dogs, but they should also avoid having too many stars and question marks. Product on the top of the Boston matrix are in the early stages of the product life cycle and are in growing markets. But the cost of developing and promoting them will not yet have been recovered. This will drain resources. Balancing these with cash cows can be used to support products in a growing market. The development cost of cash cows is likely to have already been recovered and promotional costs should be low relative to sales. This does not mean though that a business would want lots of cash cows and few question marks and stars. This is because many of the stars and perhaps some question marks might become the cash cows of the future.
Taking appropriate decisions
Products in different categories in the matrix require different approaches
- Stars have great future potential. They are future cash cows. A business will need to build the brand of these products so that sales increase and competition is fought of successfully.
- Cash cows might be milked for cash, which can then be used to develop other products. Or the business may decide to spend just enough on promotion and developing to maintain sales and the market share, known as holding.
- For question marks a business has choices. It can build the brand, hoping to then it into a star, harvest the product by raising price and cutting promotion so that profits are increased, or divest itself of the product, withdrawing it or selling it because it not making profit.
- Dogs may be divested if they are not making a profit of in some cases harvested.
Strategies for mass markets
- PRODUCT – In a mass market there will be many products varying for customer attention. Most of these products will be very close substitutes for each other. The most successful businesses are likely to be those who can differentiate their product in some sort of way. Developing a USP will help the product stand out. If a business can differentiate, they will have to rely on other elements of the market mix to compensate,
- PRICE – The prices charged by a business in a market are likely to be similar. All businesses in the market are likely to fear a price war because they usually reduce revenue for each competitor. This helps to explain why businesses are happy to charge the “going rate” in the market. Price leadership is common in mass markets where the dominant business, perhaps the one with the lowest unit costs, sets the price and everyone else decides to follow.
- PROMOTION – In the absence of price competition, firms look to non-price competition to gain an edge. This means they are prepared to invest heavily in advertising and promotion as it is such a vital part of the marketing mix in mass markets. An overwhelming majority of TV adverts are laced by businesses selling into mass markets. Perhaps less than 5% of those that see the adverts will buy the product, but this is highly significant.
- PLACE – Businesses serving mass markets will often use multiple channels to distribute their goods. Businesses selling fast-moving consumer goods will target supermarkets, wholesalers, independents and any other outlet which is suited to their products. Some businesses pay supermarkets to display their goods in prominent places. The internet is being used more and more by businesses to sell goods and services in mass markets. The internet has allowed smaller businesses to enter and compete in mass markets.
Strategies for niche markets
- PRODUCT – In a niche market the product is likely to have significant differences from its rivals. PRICE – There is less competition in niche markets so higher prices can be charged without losing a significant market share to rivals. Also, consumers may be prepared to pay higher prices if their specific needs are met effectively. PROMOTION – Since markets are smaller there is less needed to use national media when advertising. Businesses need to identify their customer profile very accurately to ensure that advertising and promotion expenditure is not wasted.
- PLACE – businesses selling into niche markets are often more selective when choosing distribution channels. They are more likely to use exclusive distributors or to handle distribution privately. They will also use the internet if it is practical.
Strategies for B2B markets and B2C markets
- Many businesses supply goods and services to other businesses.
- The marketing strategies used by companies that sell to other businesses (B2B) are likely to be different from those that sell to consumers (B2C).
- In B2B marketing, one approach is to distinguish between outbound and inbound marketing strategies.