Boston Matrix analysis and its uses

3.3 The Marketing Mix – Product Portfolio Analysis

Objective

To understand how the product‑life‑cycle (PLC) model and portfolio‑analysis tools – especially the Boston (BCG) Matrix – are used to make strategic marketing‑mix and resource‑allocation decisions, and to evaluate their usefulness in the context of Cambridge IGCSE/A‑Level Business (9609).

1. Product Life‑Cycle (PLC)

1.1 Stages and Typical Marketing‑Mix Actions

1.2 Extension Strategies (Link to PLC)

• Product‑line extension – Adding new items to an existing line (e.g., new flavours, sizes). Most useful in the Growth and early Maturity stages.
• Brand‑extension – Using an established brand name for a new product category (e.g., a shampoo brand launching a conditioner). Effective in Growth or when a product is entering a new market segment.
• Market‑development – Entering new geographic or demographic markets with the same product (e.g., exporting a domestic bestseller). Often pursued during Growth or when a product approaches Maturity.
• Product‑development – Introducing a substantially new product to an existing market (e.g., a smart‑watch version of a fitness tracker). Typical in the Introduction or Growth phases to sustain momentum.

2. Boston (BCG) Matrix

2.1 Definition

A two‑dimensional portfolio‑analysis tool that classifies a firm’s products (or business units) according to:

• Market growth rate – proxy for industry attractiveness.
• Relative market share – proxy for competitive strength.

2.2 The Axes

1. Vertical axis – Market Growth Rate
   Expressed as a percentage per annum.
   • High growth (e.g., > 10 %) → attractive, expanding market.
   • Low growth (e.g., < 10 %) → mature or declining market.
2. Horizontal axis – Relative Market Share
   Calculated as: $$\text{Relative Market Share}= \frac{\text{Company’s market share}}{\text{Largest competitor’s market share}}$$
   • > 1 (or > 100 %) → market leader.
   • < 1 → follower.

2.3 The Four Quadrants

2.4 Step‑by‑Step Construction

1. List all major products or business units.
2. Obtain the industry’s annual growth rate (market‑research reports, trade data, or government statistics).
3. Calculate each product’s relative market share using the formula above.
4. Plot each product on a 2 × 2 grid.
5. Label the quadrant and note the implied strategic action.

2.5 Worked Example – “TechCo”

2.6 Numerical Practice – Calculating Growth Rate

Market for “Smart Home Devices”: 1 million units in 2022, 1.3 million units in 2023.

• Growth Rate =
  $$\frac{1.3\text{ m} - 1.0\text{ m}}{1.0\text{ m}}\times100 = 30\%$$
• Company sales = 150 000 units; market leader = 250 000 units.
  Relative Share = $$\frac{150\,000}{250\,000}=0.60$$
• Result: 30 % (high) growth and 0.60 (low) share → product sits in the Question Mark quadrant.

3. Linking the BCG Matrix to the PLC

4. Other Portfolio‑Analysis Tools (A‑Level Depth)

4.1 GE/McKinsey Matrix

A 9‑cell grid that plots industry attractiveness (vertical) against business‑unit strength (horizontal). It allows up to three criteria per axis (e.g., market size, growth, profitability) and is useful when a company has many units with varied competitive positions.

4.2 Ansoff Matrix

Focuses on growth strategy rather than portfolio positioning. The four growth options – market penetration, market development, product development, diversification – help decide which BCG‑quadrant actions are appropriate (e.g., product development for Question Marks, market penetration for Stars).

5. Impact of Quadrant Placement on the Marketing Mix

6. Uses of the Boston Matrix (Expanded)

• Resource Allocation – Directs capital, R&D and marketing spend toward Stars and promising Question Marks.
• Portfolio Balance – Ensures a mix of cash‑generating (Cash Cows) and growth‑potential (Stars/Question Marks) products.
• Strategic Review & Planning – Provides a visual snapshot for senior management when setting corporate objectives and budgeting.
• Divestment Decisions – Highlights Dogs that may be sold, harvested, or repositioned.
• Performance Benchmarking – Allows comparison with rivals’ portfolios and reveals strategic gaps.
• Link to PLC & Marketing Mix – Translates quadrant status into concrete 4 P actions.
• Scenario Planning – By moving a product from one quadrant to another, students can discuss the implications of market changes (e.g., a Star becoming a Cash Cow).

7. Advantages and Limitations (Evaluation)

Advantages

• Simple, visual and quick to communicate to non‑specialists.
• Highlights the need for a balanced portfolio of cash generators and growth drivers.
• Combines market attractiveness with competitive strength, aiding prioritisation.
• Works well as a starting point for deeper analysis (e.g., feeding into a GE/McKinsey matrix).

Limitations

• Only two variables are considered; ignores profitability, market size, cost structure and synergies.
• Static snapshot – does not show the dynamic movement of products over time.
• Growth rates can be volatile, leading to frequent re‑classification.
• Relative market share may be misleading in highly fragmented markets where no clear leader exists.
• Does not directly account for the PLC stage; a Cash Cow could already be in Decline.
• Data requirements (accurate market‑share and growth figures) can be costly or unavailable for small firms.

Critical Evaluation Checklist (A‑Level)

1. Does the matrix capture the most important strategic factors for the industry?
2. Are the growth‑rate and market‑share figures reliable and up‑to‑date?
3. How would the analysis change if profitability or market size were added?
4. Can the matrix accommodate rapid technological change (e.g., disruptive innovations)?
5. When would an alternative tool (GE/McKinsey, Ansoff) provide a more nuanced view?

8. Practical Tips for A‑Level Examinations

1. Define the axes first. State that market growth rate measures attractiveness and relative market share measures strength.
2. Show all calculations. Include growth‑rate and relative‑share formulas; round to one decimal place unless otherwise specified.
3. Place the product correctly. Reference the quadrant and justify with the numbers you have calculated.
4. Link to the PLC. Mention which stage the product is likely in and why.
5. Recommend marketing‑mix actions. Use the 4 P table (Section 5) as a quick checklist.
6. Discuss both advantages and limitations. A balanced answer gains higher marks.
7. Reference an alternative tool. Briefly note when the GE/McKinsey matrix would be preferable (e.g., more than two significant criteria).
8. Structure your answer. Use headings, bullet points and short paragraphs – examiners reward clear organisation.

9. Summary

The Boston (BCG) Matrix is a concise visual method for analysing a firm’s product portfolio. By plotting products against market growth and relative market share, managers can identify Stars, Cash Cows, Question Marks and Dogs, decide where to invest, harvest or divest, and translate those decisions into concrete marketing‑mix actions. When combined with the product‑life‑cycle model and, where appropriate, other portfolio tools such as the GE/McKinsey or Ansoff matrices, the BCG Matrix becomes a powerful component of strategic planning for Cambridge IGCSE/A‑Level Business.