Your products are the most important element of your business. Without products, you have nothing to sell and therefore have no market or customers. Even if you only have one product, in order to succeed you must still target that product into the right market. You must also continue to develop and enhance that product in order to meet the changing demands of the market.As part of that development you will need to take decisions on quality, features and benefits, together with branding and packaging. Some of these decisions will, of course, also overlap into your decisions on promotion techniques considered in Chapter 11.

Using The Boston Consulting Group (Bcg) Matrix

The Boston Consulting Group was established in the 1960s specifically to provide strategic marketing advice. As a result of their research they developed a matrix that analysed the product portfolio of a business in relation to the market.

This matrix classifies products according to cash usage and cash generation compared with relative market share and growth rate.

The Bcg Matrix

‘Star’ products	‘Question Mark’ products
These have a high market share and high growth rate.	These have a high growth rate although they only have a low market share.
They also generate a large cash inflow although this is fully offset by the cash they require for production.	Cash generated is minimal against cash used, the net cashflow is negative.
‘Cash Cow’ products	‘Dog’ products
These have a high market share although a low potential growth rate.	These have a low market share and low potential growth rate.
They generate a high cash inflow against minimal cash required for production.	They generate minimal cash inflow which is fully matched by the cash they require for production.

From the above you can see that following introduction into the market, your products will move through a cycle represented in chronological order by ‘Dog’, ‘Question Marks’, ‘Stars’, and then ‘Cash Cows’. The cash generated by the ‘Cash Cows’ is used to invest in the ‘Stars’ and a select few from the ‘Question Marks’.

It is important that you also understand the potential dangers of misusing the BCG matrix. When conducting your product audit, you may find that a large number of products are in low growth markets, i.e. ‘Dog’ products. It is essential, therefore, that you establish the relationship that this product has within the overall market.

It may be that one such product was the initial product introduced by you that established your brand name and reputation in the market. It would be very unwise to remove that product from your product range, even if it does now only have a low market share. It is likely that if it is a manufactured product it will share the same production and distribution facilities with other new products. As such, despite the low market share, it will still remain a profitable product.

There are also limitations in using the BCG matrix as the sole form of analysis.

• Only two factors, market share and market growth, are taken into consideration but this can over-simplify the position.
• Cash flow rather than profitability is used to measure performance.
• Classification of individual products can be difficult.
• Products can move very quickly from one segment to another.
• It does not cater for the introduction of new products.
• It does not deal with markets that are experiencing decline.

 

The BCG matrix can be a very powerful tool to aid your product planning, especially if you link it together with the life cycle concept. This will give the matrix a new dimension and bring together the key components of products and markets.