_ Yours Non-Technically: Boston Matrix

The Boston Matrix aka "BCG Matrix"; is a decision-making tool used by managers to evaluate the portfolio of products (and services) offered by 1 business based on levels of 1) market growth and 2) market share as a snapshot of the current situation. When using this tool, it is ideal to also consider the product life cycle (PLC) of each product being offered.

The aim of a commercial business is essentially to get its products into the cash cow quadrant. If you find that most of your products in your portfolio are doing exceedingly well as cash cows, extend your aim to consider the long term. Specifically, use proceeds from cash cows to re-invest into question marks which will hopefully eventually graduate to being stars and then cash cows.

Question marks | Stars | Cash Cow | Dogs

Total Available Market | Market Share | Market Growth

Uses & Benefits

to analyze products in the portfolio
to know into which products in your portfolio you should invest (for product development, promotion, etc)

Key terms

The Total Available Market (TAM) refers to the total revenue opportunity or demand for your product or service across all segments, all possible substitutes or alternatives and over all possible channels. In other words, the number of people that would want your product if they had the budget. Another way to consider it is all of the demand available to a supplier if he were the only supplier (ie with no available alternatives). For instance, if you sold juice, your TAM will include all types of beverages from water, to areated drinks, to fruit juices and so on. The TAM ought not be confused with the 'Served Available Market' aka SAM. The SAM relates to market subset that you serve as a specialist segment or through particular channels. If you sold health smoothies, your SAM would be a niche or subset of the TAM of beverages. It would comprise the subset of the population that is willing and able to invest in healthy living.

For the sake of clarity, always specify your market in a way that is meaningful, including the product type and whether using demographic and or geographic location parameters.

Diagramatically, your TAM (and or SAM) is most commonly illustrated with a piechart. Other forms are on bar charts and stacked bar charts. The piechart represents 100% of gross sales in dollars. FYI, the percentage can also relate to other measures like units sold or number of buying customers.

To calculate the TAM, look for research data that may have been published by an industry analyst. Use the data form that suits your needs best. For instance, the most common form relates gross sales dollars. Sources of data for completing the calculation may include Nielsen. You can calculate in a top-down fashion, meaning that you start with data for the entire market, usually from a third party or a bottom-up fashion, meaning that you start with your individual very best scenario. For the latter, use the following.

SAM = target customer profile's average customer value for a period X population.

Market Share is the portion of a market's total sales revenue enjoyed by a single product within your portfolio. The formula is as follows.

Market Share = (your product's revenue / whole market's revenue) x 100

Example(s):

Your product revenue is $1k, whole market's revenue is $5k.
Market share = (your product's revenue / whole market's revenue) x 100
Market share = ($1 / $5k) x 100

Market share = 20%

Whichever product has the highest market share is considered the market leader. A leader can demand higher prices and negotiate more easily with retailers to have the leading product stocked. However, leaders ought never rest on their laurels. The strength of a leader's market share depends on how brand loyal his customers are and how near behind and strategically engaged his competition / 'market challenger' (the 2nd place leader) is. In other words, customer switching to other brands becomes a significant risk.

Market Growth of the TAM. NB. Unlike the market share which relates to your individual product, market growth relates to the percentage change of your whole market for a period. (There is no need working this out first on your individual market growth and then considering the possibly varying industry-wide growth. Rather considering the market growth for the whole industry skips those extra steps. Besides, the market share considers your individual product's share within the current whole market). Below is the formula for calculating the industry's market growth.

Market growth = (new revenue - old revenue) / old revenue.

Example(s):

Old revenue is $1m

new revenue is $1.5m

TAM / Market growth = (new revenue - old revenue) / old revenue.

TAM / Market growth = ($1.5m - $1m) / $1m.
TAM / Market growth = 50% growth or +50%

Question Mark products

Current performance:

low market share
high growth

PLC stage (probably): introductory.
Aspirations: to become a 'star'
Cash situation: cash neutral
Usual decision: to build

invest in R&D (if established business, from cash cows)
brand awareness

Tasks:

Do you have sufficient cash?
Does your average rate of return (ARR) suggest that this is product worthwhile?
If you want to increase market share, there are 2 ways.

While difficult, it is possible to increase your overall market or TAM. This involves convincing behavioral change or perceptions. Example(s)

Scientific' research from sources that the market trusted in the 1980s motivated consumers to consider coconut oil very unhealthy and therefore undesirable. Olive oil was promoted as a healthier alternatives. Ironically however, the market has swayed again in the opposite direction after wealthy companies funded new market research that said otherwise, Currently, coconut oil has manic popularitiy among the health movement.

Take market share from your competition. BEWARE. Your competition is not asleep. New entrants are monitored closely because their growth presents a threat to the market share of pre-existing brands. Stealing market share involves SWOT analyses; manipulating internal strengths and weaknesses regarding each of the 4Ps according to opportunities and threats regardin your competition and the industry as a whole.

Star products

Current performance:

high market share
high growth rate

PLC stage (probably): growth, possibly quick growth. New competitors entering into the market.
Aspirations: to become a 'cash cow'
Cash situation: neutral
Usual decision: to hold
Tasks:

Do lots of marketing to create entry barriers against new entrants to protect your USP
Do price skimming, if you can

Cash Cow products

Current performance:

high market share
low growth rate

PLC stage (probably): Slower growth, mature.
Aspirations:
Cash situation: cash generating. Very good sales.
Usual decision:

to 'milk it', ie exploit the market as much as possible.
to set aside some cash and plan for future investments.

Tasks:

Pay shareholders or other invesstors.
Withhold some of the dividends for future R&D for other innovations you hope to develop into being another cash cow.

Dog products

If you remained in the cash cow, you might eventually end up naturally in the dog phase.

Current performance:

low market share
low growth rate

PLC stage (probably): growth but you are not getting any of the market share. This is the least ideal situation because the market is not actually in decline. Instead, you are experiencing negative growth.
Aspirations: ...
Cash situation: cash neutral. While there is a negative sales trend, this situation does not necessarily mean that you always lose cash at this point.
Usual decision: to divest
Tasks:

to make a decision regarding when you will finally divest. This point is usually when your revenues start to fall below a specific point.
to perform a breakeven analysis to see whether you have already broken even.
to exploit whatever little you can get before it is definitely time to finally divest
to do as many product extension strategies as possible like re-branding, re-packaging.
to use this product as a loss leader or part of a bundle to push your upcoming stars for which you are price skimming.

CONTENT RELATED TO THE BOSTON MATRIX