The Psychology of Quality and More
The Boston Matrix
A very popular matrix for analysing products is known the Boston Matrix, the Boston Consulting Group Matrix or just the BCG Matrix, after its originators. The basic purpose is to understand where to place internal investments and it can be viewed as a simpler form of the GE Matrix described last time.
It is useful to understand this model with a quality eye – when business and marketing managers are deciding what to do with products, you may be able to offer strategies that were not otherwise considered.
The two main dimensions of the Boston Matrix are Market Share and Market Growth.
When a product has a high market share, then market dominance may reduce the cost of competitive promotion whilst brand recognition allows you to charge a relatively high price, thus gaining a ‘double whammie’ advantage over smaller competitors. With a smaller market share, there is the opportunity to grab more of the market, though this will need strong product or marketing innovation and investment.
When market growth is high, then there may be opportunity to grab some of the new customers, making the market attractive even if you have a relatively small share. If growth is low, then new customers may well have to be wooed away from competitors, which is much harder. Higher market growth is typical of new and developing markets. Slow if any growth is typical of mature or declining markets. Low growth markets can thus be rather worrying.
By placing your products in the four segments of the matrix, four strategies present themselves.
‘Cash cows’ are dominant products in stable or declining markets. The best strategy here is ‘harvesting’, making minimum investment to get maximum return. Product quality is unlikely to need attention and a ‘holding pattern’ should be used. Cash cows provide the revenue to support other products and create a useful overall profit.
‘Stars’ are, hopefully, tomorrow’s cash cows. They may not be particularly profitable at the moment, due to the significant investment needed to sustain their position in growing, dynamic markets. They thus need lots of attention, including ongoing quality improvement and innovation.
Dogs are small products in limited marketplaces. They promise little whilst usually costing little too. Sometimes the best strategy here is to ‘let sleeping dogs lie’, accepting the small profits whilst doing little to improve the product or its position. Sometimes a little investment or attention to quality may be worthwhile. Often, the best solution, however, is to cull the products, freeing up people and resources to allocate to better opportunities.
These are the trickiest of products when deciding what to do with them. High market growth offers opportunity, although low market share means taking advantage of that opportunity is likely to be expensive. The strategy for question marks is often ‘invest or divest’. Quality may offer possibility here: If you can analyse the reasons for low market share, you might find quality issues in the product, associate service or even the marketing and sales channels, thereby turning the question mark into a star.
Next time: Porter’s Five Forces
This article first appeared in Quality World, the journal of the Chartered Quality Institute
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