Problem Solving - Part 11

The Boston Matrix
(Also called the BCG Matrix, the Growth-ShareMatrix and Portfolio Analysis)Focusing effort to give the greatest returns

If you enjoy visual representations and vivid descriptions of your business then you'll love the Boston Matrix!

Also called the BCG Matrix, it provides a useful way of looking at the opportunities open to you, and helps you analyse which segments of your business are in a good position – and which ones aren’t. That way, you can decide on the most appropriate investment strategy for your business in the future, and where best to allocate your resources.

Understanding the Model
Market Share and Market Growth

To understand the Boston Matrix you need to understand how market share and market growth interrelate.Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher proportion of the market you control.The Boston Matrix assumes that if you enjoy a high market share you will normally be making money (this assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that give you an advantage).The question it asks is, "Should you be investing your resources into that product line just because it is making you money?" The answer is, "not necessarily."This is where market growth comes into play. Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, which should provide the opportunity for businesses to make more money, even if their market share remains stable.By contrast, competition in low growth markets is often bitter, and while you might have high market share now, what will the situation look like in a few months or a few years? This makes low growth markets less attractive.

Note:The origin of the Boston Matrix lies with the Boston Consulting Group in the early 1970s. It was devised as a clear and simple method for helping corporations decide which parts of their business they should allocate their available cash to. Today, this is as important as ever because of the limited availability of credit. However, the Boston Matrix is also a good tool for thinking about where to apply other finite resources: people, time and equipment.

The Matrix ItselfThe Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:

These groups are explained below:

Dogs: Low Market Share / Low Market Growth

In these areas, your market presence is weak, so it's going to take a lot of hard work to get noticed. Also, you won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit.

Cash Cows:High Market Share / Low Market Growth

Here, you're well-established, so it's easy to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing and your opportunities are limited.

Stars:High Market Share / High Market Growth

Here you're well-established, and growth is exciting! These are fantastic opportunities, and you should work hard to realize them.

Question Marks (Problem Child):Low Market Share / High Market Growth

These are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there.Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted.

How to Use The Tool:

To use the Boston Matrix to look at your opportunities, then use the following steps:

Step One: Plot your opportunities in terms of their relative market presence, and market growth on the blank matrix provided on the worksheet.

Step Two: Classify them into one of the four categories. If a product seems to fall right on one of the lines, take a real hard look at the situation and rely on past performance to help you decide which side you will place it.

Note:Be careful about these lines - there's nothing magical about them or their position. There may be very little real difference between a "Problem Child" with a market share of 49%, and a "Star" with a market share of 51%. It's also not necessarily true that the line should run through the 50% position. As ever, use your common sense.

Step Three: Determine what you will do with each product/product line. There are typically four different strategies to apply:

Build Market Share: Make further investments (for example, to maintain Star status, or turn a Question Mark into a Star)

Hold: Maintain the status quo (do nothing)

Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star or Cash Cow)

Divest: For example, get rid of the Dogs, and use the capital to invest in Stars and some Question Marks.

Tip 1:From a personal perspective, you can evaluate the opportunities open to you by substituting the dimension of "Market Share" with one of "Professional Skills". Plot the options open to you on the personal version of the BCG Matrix, and take action appropriately.
Tip 2:A similar (and equally powerful) tool is the Action Priority Matrix, which helps you pick projects which legitimately give you the quickest and highest value returns. By using the BCG Matrix and Action Priority Matrix together, you get the best of both worlds!

Key Points

The Boston Matrix is an effective tool for quickly assessing the options open to you, both on a corporate and personal basis.
With its easily understood classification into "Dogs", "Cash Cows", "Question Marks" and "Stars", it helps you quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.

The Ansoff Matrix: Part 10

Understanding the risks of different options(Also known as the Product/Market Expansion Grid)

The Marketing Mix and 4 Ps: Part 9

Understanding how to position your market offering


What is marketing? The definition that many marketers learn as they start out in the industry is:


Putting the right product in the right place, at the right price, at the right time.
It's simple! You just need to create a product that a particularly group of people want, put it on sale some place that those same people visit regularly, and price it at a level which matches the value they feel they get out of it; and do all that at a time they want to buy. Then you've got it made!


There's a lot of truth in this idea. However, a lot of hard work needs to go into finding out what customers want, and identifying where they do their shopping. Then you need to figure out how to produce the item at a price that represents value to them, and get it all to come together at the critical time.


But if you get just one element wrong, it can spell disaster. You could be left promoting a car with amazing fuel-economy in a country where fuel is very cheap; or publishing a textbook after the start of the new school year, or selling an item at a price that's too high – or too low – to attract the people you're targeting.


The marketing mix is a good place to start when you are thinking through your plans for a product or service, and it helps you avoid these kinds of mistake.
Understanding the Tool


The marketing mix and the 4 Ps of marketing are often used as synonyms for each other. In fact, they are not necessarily the same thing.


"Marketing mix" is a general phrase used to describe the different kinds of choices organizations have to make in the whole process of bringing a product or service to market. The 4 Ps is one way - probably the best-known way - of defining the marketing mix, and was first expressed in 1960 by E J McCarthy.


The 4Ps are:

Product (or Service)
Place
Price
Promotion


A good way to understand the 4 Ps is by the questions that you need to ask to define you marketing mix. Here are some questions that will help you understand and define each of the four elements:


Product/Service
What does the customer want from the product/service? What needs does it satisfy?
What features does it have to meet these needs?
Are there any features you've missed out?
Are you including costly features that the customer won't actually use?
How and where will the customer use it?
What does it look like? How will customers experience it?
What size(s), color(s), and so on, should it be?
What is it to be called?
How is it branded?
How is it differentiated versus your competitors?
What is the most it can cost to provide, and still be sold sufficiently profitably? (See also Price, below).


Place

Where do buyers look for your product or service?
If they look in a store, what kind? A specialist boutique or in a supermarket, or both? Or online? Or direct, via a catalogue?
How can you access the right distribution channels?
Do you need to use a sales force? Or attend trade fairs? Or make online submissions? Or send samples to catalogue companies?
What do you competitors do, and how can you learn from that and/or differentiate?


Price

What is the value of the product or service to the buyer?
Are there established price points for products or services in this area?
Is the customer price sensitive? Will a small decrease in price gain you extra market share? Or will a small increase be indiscernible, and so gain you extra profit margin?
What discounts should be offered to trade customers, or to other specific segments of your market?
How will your price compare with your competitors?


Promotion


Where and when can you get across your marketing messages to your target market?
Will you reach your audience by advertising in the press, or on TV, or radio, or on billboards? By using direct marketing mailshot? Through PR? On the Internet?
When is the best time to promote? Is there seasonality in the market? Are there any wider environmental issues that suggest or dictate the timing of your market launch, or the timing of subsequent promotions?
How do your competitors do their promotions? And how does that influence your choice of promotional activity?


The 4Ps model is just one of many marketing mix lists that have been developed over the years. And, whilst the questions we have listed above are key, they are just a subset of the detailed probing that may be required to optimize your marketing mix.
Amongst the other marketing mix models have been developed over the years is Boom and Bitner's 7Ps, sometimes called the extended marketing mix, which include the first 4 Ps, plus people, processes and physical layout decisions.


Another marketing mix approach is Lauterborn's 4Cs, which presents the elements of the marketing mix from the buyer's, rather than the seller's, perspective. It is made up of Customer needs and wants (the equivalent of product), Cost (price), Convenience (place) and Communication (promotion). In this article, we focus on the 4Ps model as it is the most well-recognized, and contains the core elements of a good marketing mix.


Using the 4Ps Marketing Mix Model


The marketing mix model can be used to help you decide how to take a new offer to market. It can also be used to test your existing marketing strategy. Whether you are considering a new or existing offer, follow the steps below help you define and improve your marketing mix.
Start by identifying the product or service that you want to analyze.
Now go through and answers the 4Ps questions - as defined in detail above.
Try asking "why" and "what if" questions too, to challenge your offer. For example, ask why your target audience needs a particular feature. What if you drop your price by 5%? What if you offer more colors? Why sell through wholesalers rather than direct channels? What if you improve PR rather than rely on TV advertising?


Tip:

Check through your answers to make sure they are based on sound knowledge and facts. If there are doubts about your assumptions, identify any market research, or facts and figures that you may need to gather.


Once you have a well-defined marketing mix, try "testing" the overall offer from the customer's perspective, by asking customer focused questions:
Does it meet their needs? (product)
Will they find it where they shop? (place)
Will they consider it's priced favorably? (price)
And will the marketing communications reach them? (promotion)
Keep on asking questions and making changes to your mix until you are satisfied that you have optimized your marketing mix, given the information and facts and figures you have available.
Review you marketing mix regularly, as some elements will need to change as the product or service, and its market, grow, mature and adapt in an ever-changing competitive environment.


Key points:


The marketing mix helps you define the marketing elements for successfully positioning your market offer.
One of the best known models is the Four Ps, which helps you define your marketing options in terms of product, place, price and promotion. Use the model when you are planning a new venture, or evaluating an existing offer, to optimize the impact with your target market.