The primary purpose of the development of the Boston Consulting product matrix was to help firms understand the products that are profitable and should be invested in. The analysis makes use of the relative market share and the market growth rate as the two main controlling aspects. The two classifications reveal the profit levels of the firm regarding the difference between the cash needed to support the brand and the money it generates.
Relative market share dictates that an industry with high corporate’s market share will create high cash results. However, some industries may experience the same benefits even if they have a low market share and low market output. The market growth rate is used to determine the level of potential profits a firm holds considering its expectation of growth rate. Depending on these two controlling aspects, it classifies business portfolio into four major categories namely dogs, cash cows, stars and question marks (Stern, 2012).
Dogs are the products that do not generate cash for the firm but tend to absorb it. They also have low relatively low market share the firm should get rid of them. However, these products can be profitable for a long time can be used as an act of defense to counter competitor’s moves. Companies are advised to retrench or divest such products. Cash cows are the brands that generate more than was invested in them and should be “milked” to create high profits for the firm. They have a high share of a slow growth market, and the firm should keep them in its portfolio of products. Stars are described as both cash users and generators. This category of products generate profits for the firm, and it is advisable for the firm to build and develop them to cash cows (Stern, 2012). Question marks are the products that create little compared to the resources consumed in their production. However, they have the potential of being stars and latter cash cows, and the firm is required to consider them carefully.
Stern, C. W., & Deimler, M. S. (Eds.). (2012). The Boston consulting group on strategy: Classic concepts and new perspectives. John Wiley & Sons.