Product Levels, Product Hierarchy, Product Mix

Product Levels:

Theodore Levitt proposes that in planning its market offering, the marketer needs to think
through 5 levels of the product. Each level adds more customer value and taken together forms
Customer Value Hierarchy.

i. Core Benefit or Product:

This is the most fundamental level. This includes the fundamental service or benefit that the
customer is really buying. For example, a hotel customer is actually buying the concept of “rest
and sleep”

ii. Basic or Generic Product:

The marketer at this level has to turn the core benefit to a basic product. The basic product for
hotel may include bed, toilet, and towels.

iii. Expected Product:

At this level, the marketer prepares an expected product by incorporating a set of attributes and
conditions, which buyers normally expect they purchase this product. For instance, hotel
customers expect clean bed, fresh towel and a degree of quietness.

iv. Augmented product:

At this level, the marketer prepares an augmented product that exceeds customer expectations.
For example, the hotel can include remote-control TV, fresh, flower room service and prompt
check-in and checkout. Today’s competition essentially takes place at the product-augmentation
level. Product augmentation leads the marketer to look at the user’s total consumption system i.e.
the way the user performs the tasks of getting, using fixing and disposing of the product.

Theodore Levitt pointed out that the real competition is not what the companies have
manufactured in the factories, but between what they add to their factory output in the form of
packaging, services, advertising, customer advice, financing, delivery arrangements,
warehousing and other things that people value.

Some things should be considered in case of product-augmentation strategy.

i Each augmentation adds cost. The extra benefits available in hotels add cost

ii. Augmented benefits soon become expected benefits. The unexpected additions like flower,
remote-controlled TV soon become very much expected by the customers from the hotel.
iii. As companies raise the price of their augmented product, some companies may offer a
stripped- down” i.e. no-augmented product version at much lower price. There are always a set
of low- cost hotel are available among the 5-star hotels.

v. Potential Product:

This level takes into care of all the possible augmentations and transformations the product might
undergo in the future. This level prompts the companies to search for new ways to satisfy the
customers and distinguish their offer. Successful companies add benefits to their offering that not
only satisfy customers, but also surprise and delight them. Delighting is a matter of exceeding
expectations.

Product Hierarchy:

Each product is related to certain other products. The product hierarchy stretches from basic
needs to particular items that satisfy those needs. There are 7 levels of the product hierarchy:

1. Need family:

The core need that underlines the existence of a product family. Let us consider computation as
one of needs.

2. Product family:

All the product classes that can satisfy a core need with reasonable effectiveness. For example,
all of the products like computer, calculator or abacus can do computation.

3. Product class:

A group of products within the product family recognised as having a certain functional
coherence. For instance, personal computer (PC) is one product class.

4. Product line:

A group of products within a product class that are closely related because they perform a similar
function, are sold to the same customer groups, are marketed through the same channels or fall
within given price range. For instance, portable wire-less PC is one product line.

5. Product type:

A group of items within a product line that share one of several possible forms of the product.
For instance, palm top is one product type.
6. Brand:

The name associated with one or more items in the product line that is used to identity the source
or character of the items. For example, Palm Pilot is one brand of palmtop.

7. Item/stock-keeping unit/product variant:

A distinct unit within a brand or product line distinguishable by size, price, appearance or some
other attributes. For instance, LCD, CD- ROM drive and joystick are various items under palm
top product type.

Product Mix:

An organisations product line is a group of closely related products that are considered a unit
because of marketing, technical or end-use considerations. In order to analyse each product line,
product- line managers need to know two factors. These are.

i. Sales and profits

ii. Market profile

A product mix or assortment is the set of all products and items that a particular seller offers for
sale. A company’s product-mix has some attributes such as.

1. Width:

This refers to how many different product lines the company carries.

2. Depth:

This refers to how many variants, shades, models, pack sizes etc. are offered of each product in
the line

3. Length:

This refers to the total number of items in the mix.

4. Consistency:

This refers to how closely the various product lines are related in end use, production
requirements, distribution channels or some other way.

Let us take example of partial product assortment of HLL in its Home and Personal Care (HPC)
division:
So you see that there are three product lines of detergent, bathing soaps and shampoos in our
example. The list is illustrative and not exhaustive as HLL has many more product lines. Hence,
in the example the product width is 3. If Sunsilk has 3 different formulations (oily, dry and
normal hair) and 3 variations (sachet, 50 ml and 100 ml), then the depth of Sunsilk is 3 X 3 = 9.

The average depth of HLL’s product mix can be calculated by averaging the depths of all brands,
which signifies the average depth of each product. For example if Surf, Lifebuoy, Surf Excel,
Lux, Clinic Plus, Sunsilk, Wheel, Liril, Rexona, Dove and Hamam have depths of 3, 2, 1, 3, 6, 9,
2, 3, 2, 1 and 2 respectively (all are hypothetical figures), then the average depth of HLL’s HPC
division is (3+2+l+3+6+9+2+3+2+l+2)/11i. e. 34/11 i.e. 3.1. The length of HPC division is 11.
The average length of line is determined by dividing the total length by the width (i.e. the
number of lines), which signifies the average number of products in a product line. In this case,
the average length is 11/3 i.e. 3.67.

Product-Line Length:

Product-line managers are concerned with length of product line. If adding items to the product
line can increase profits, then we can say that the product line is too short. On the contrary, the
line is too long if dropping items can increase profits. They have to consider these two extremes
of the product line and have to strike a balance between them.

Company objectives influence product-line length. Companies seeking high market share and
market growth will carry longer lines. Companies that emphasise high profitability will carry
shorter lines consisting of carefully chosen items.

A company can lengthen its product line in 2 ways viz. a) line stretching and b) line filling.
Line Stretching:

This occurs when a company lengthens its product line beyond its current range. This is a
frequent measure taken by companies to enter new price slots and to cater to new market
segments. The product may be stretched by the addition of new models, sizes, variants etc. The
company can stretch in 3 ways:

1. Down-market stretch:

A company positioned in the upper market may want to introduce a lower price line. They offer
the product in the same product line for the lower end markets. A company can take this strategy
for 3 reasons:

i. Strong growth opportunities in the down-market

ii. Tie-up lower-end competitors who might try to move up-market

iii. Stagnating or declining middle market

The company has 3 choices in naming its down-market products.

i. Same name Eg: Sony

ii. Sub-brand name: Eg: Maruti 800

iii. Different name: Eg: Panasonic and JVG from Matshushita

ii. Up-market stretch:

Companies may wish to enter the high end of the market for more growth, higher margins or
simply to position themselves as full-line manufacturers. So they offer the products in the same
product line and cover the upper end market. For example, most of the car companies in India
have cars in premium segments like GM (Chevrolet Forester), Ford (Endeavour), Hyundai
(Terracan), Mitusubishi (Pajero), Maruti (Grand Vitara XL-7), Honda (CR-V) and Mercedes
Benz (M-Class)

iii. Two-way stretch:

Companies serving the middle market may decide to stretch their line in both directions. Tata
Motors had Multi-purpose Utility Vehicles (MU V) like Sumo and Safari targeted for middle
segment of the market. It had launched Indica for lower segment of the market as well as Indigo
Marina and Indigo Estate for up-market consumers.
a) Line filling:

As the name applies, filling means adding a product to fill a gap in the existing line. The
company wants to portray itself as full line company and that customers do not go to competitors
for offers or models in particular price slots. There are several motives of line filling as follows:

i) Reaching for incremental profits

ii) Trying to satisfy dealers who complain about lost sales because of missing items in the line

iii) Trying to utilise the excess capacity

iv) Trying to be the leading full-line company

v) Trying to plug holes in the product-line to keep out the competitors

Line Modernisation:

Product lines need to be modernised continuously. Companies plan improvements to encourage

customer migration to higher-valued, higher-priced items. For instance, Intel upgraded its
Celeron microprocessor chips to Pentium 1, 2, 3 and now 4.

Line Featuring:

The product-line manager selects one or few items in the line to feature. Sometimes, a company
finds one end of its line selling well and the other end selling poorly. Then the company may try
to boost demand for the short sellers especially if they are produced in a factory that is idled by
lack of demand.

Line Pruning:

At times a company finds that over the years it has introduced many variants of a product in the
product line. This was required may be because of the changing market situations. In this process
the product lines become unduly complicated and long with too many variants, shapes or sizes.
In the present situation it mind find out that efforts behind all these variants is leading to non-
optimal utilisation of resources. In other words it might be profitable for the company to leave
behind some of the variants.

So when the products are not satisfactorily performing, the product managers need to drop them
form the product line. This may lead to increase in profitability. Thus line pruning is consciously
taken decision by the product manager to drop some product variants from the line. For example
Heads and Shoulders is a well-known brand of shampoo from P&G, which had 31 versions.
They went for line pruning and now they have around 15 versions.
Definition of Branding

According to American Marketing Association - Brand is “A name, term, design, symbol, or

any other feature that identifies one seller’s good or service as distinct from those of other
sellers. The legal term for brand is trademark. A brand may identify one item, a family of items,
or all items of that seller. If used for the firm as a whole, the preferred term is trade name.”

According to Philip Kotler - “Brand is a name, term, sign, symbol, design, or a combination of
them, intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors”

Branding is “a seller’s promise to deliver a specific set of features, benefits and services
consistent to the buyers.”

Packaging Decisions

Another set of questions to consider involves the packaging on which a brand’s marks and name
will be prominently displayed. Sometimes the package itself is part of the brand. For example,
the curvaceous shape of Coca-Cola’s Coke bottle is a registered trademark. If you decide to
market your beverage in a similar-shaped bottle, Coca-Cola’s attorneys will have grounds to sue
you.

Packaging has to fulfill a number of important functions, including

 communicating the brand and its benefits;

 protecting the product from damage and contamination during shipment, as well as
damage and tampering once it’s in retail outlets;

 preventing leakage of the contents;

 presenting government-required warning and information labels.

Sometimes packaging can fulfill other functions, such as serving as part of an in-store display
designed to promote the offering.
Primary packaging holds a single retail unit of a product. For example, a bottle of Coke, a bag of

M&Ms, or a ream of printer paper (five hundred sheets) are all examples of primary packages.

Primary packaging can be used to protect and promote products and get the attention of consumers.

Primary packaging can also be used to demonstrate the proper use of an offering, provide

instructions on how to assemble the product, or any other needed information. If warning or

nutrition labels are required, they must be on the primary packaging. Primary packaging can be

bundled together as well. Consumers can buy bottles of Coke sold in six-packs or cans of Coke in

twelve-packs, for example.

Secondary packaging holds a single wholesale unit of a product. A case of M&M bags is an example, as

are cartons of reams of paper. Secondary packaging is designed more for retailers than consumers. It

does not have to carry warning or nutrition labels but is still likely to have brand marks and labels.

Secondary packaging further protects the individual products during shipping.

Tertiary packaging is packaging designed specifically for shipping and efficiently handling large

quantities. When a Coca-Cola bottler ships cases of Cokes to a grocery store, they are stacked on

pallets (wooden platforms) and then wrapped in plastic. Pallets can be easily moved by a forklift

truck and can even be moved within the grocery store by a small forklift.

Labeling : A label is an information tag, wrapper, seal, or imprinted message attached to a

product.
The other definition which was proposed in 1963 by Regan suggested that “services represent
either intangible yielding satisfactions directly (transportation, housing etc.), or intangibles
yielding satisfactions jointly when purchased either with commodities or other services (credit,
delivery, etc.)”. For the first time services were considered as pure intangibles - capable of
providing satisfaction to the customer and can be marketed like tangible products.

NATURE OF SERVICES It is utmost important to explore the distinctive features of services,

because recognition of these special characteristics will provide insights for enlightened and
innovative management. One reason for the poor quality of service levels across different service
industries is that managers often tend to solve service marketing problems with tools and
techniques that are essentially meant for tangible products. It happens because of inadequate
understanding about the nature of services. As our knowledge of the characteristics of services
grows, so does our ability to deal with them from both an economic and marketing perspective.
Services have a number of unique characteristics that make them different from products. Some
of most commonly accepted characteristics are as follows: 3

(i) Intangibility: The most basic and universally cited characteristic of services is
intangibility, because services are performances or actions rather than objects, they
cannot be seen, felt, tasted, or touched in the same manner that we can sense tangible
goods. For example, when we buy a cake of soap, we can see, feel, smell and use to
check its effectiveness in cleaning. But, when we pay fees for a semester in the
university, we are paying for the benefits of deriving knowledge, skills and education
which is delivered to us by teachers. Teaching is an intangible service. When we travel
by a plane, the benefit which we are deriving is a service (transportation) but, it has some
tangible aspects such as the particular plane in which we fly (Boeing, Avro, Concorde,
etc.) and the food and drink which are served. The broad definition of services implies
that intangibility is a key determinant of whether an offering is or is not a service. While
this is true, it is also true that very few products are purely tangible or purely intangible.
Instead, services tend to be more intangible than manufactured products, and
manufactured products tend to be more tangible than services. The tangibility spectrum
shown in Table 1.1 captures this idea. Intangibility presents several marketing
challenges. Services cannot be inventoried, and therefore fluctuations in demand are
often difficult to manage. It cannot be patented legally, and new service concepts can,
therefore, easily be copied by competitors. It cannot be readily displayed or easily
communicated to customers, so quality may be difficult for consumers to assess. The
actual costs of a ‘unit of service’ are hard to determine and the price/quality relationship
is complex.
(ii) (ii) Inseparability: In most cases a service cannot be separated from the person or firm
providing it. A service is provided by a person who possesses a particular skill (singer,
doctor, etc.), by using equipment to handle a tangible product (dry cleaning) or by
allowing access to or use of a physical infrastructure (hotel, train, etc.). Services are
 typically produced and consumed at the same time. The relationship between production
and 4 consumption, therefore, dictates that production and marketing are highly
integrated processes. The telephone company produces telephone service while the
telephone user consumes it. A plumber has to be physically present to provide the
service, the beauti cian has to be available to perform the massage. The service provider
and the client are often physically present when consumption takes place. Generally,
most goods are produced first, then sold and consumed. On the other hand, services are
usually sold first and produced and consumed simultaneously. Sasser observed that the
firm is unable to store or transport services, that only direct distribution is possible,
thereby potentially limiting the number of markets that firm can cover. Apart from the
stress laid on ‘right place’ and ‘right time’ in case of distributing goods, there is
additional importance given to the performance of service in the ‘right way’ as well.
Another outcome of simultaneous production and consumption is that service producers
find themselves playing a role as part of the product itself and as an essential ingredient
in the service experience for the consumer. Since services often are produced and
consumed at the same time, mass production is difficult if not impossible. The quality of
service and customer satisfaction will be highly dependent on actions of employees and
the interactions between employees and customers. It is not usually possible to gain
significant economies of scale through centralization. Usually operations need to be
relatively decentralised so that the service can be delivered directly to the consumer at
convenient locations. Since the customer is involved in and observes the production
process, and thus may affect (positively or negatively) the outcome of the service
transaction.
(iii) Heterogeneity: Since services are performances, frequently produced by human beings,
no two services will be precisely alike. The human element is very much involved in
providing and rendering services and this makes standardization a very difficult task to
achieve. The doctor who gives us complete attention in one visit may behave a little
differently in next visit. The new bank clerk who encashes our cheques may not be as 5
efficient as the previous one and we may have to spend more time for the same activity.
This is despite the fact that rules and procedures have been laid down to reduce the role
of the human element and ensure maximum efficiency. Airlines, banks, hotels, etc. have
a large number of standardized procedures. Human contact is minimal in the
computerised reservation systems, but when we go to the hotel there will be a person at
the reception to hand over the key of the reserved room. The way that person interacts
with us will be an important factor in our overall assessment of the service provided by
the hotel. The rooms, the food, the facilities may be all perfect, but it is the people
interacting with us who make all the difference between a favourable and unfavourable
perception of the hotel. Heterogeneity also results because no two customers are
precisely alike; each will have unique demands or experience the service in a unique
way. Thus, the heterogeneity connected with services is largely the result of human
interaction (between and among employees and customers) and all of the vagaries that
accompany it. Levitt argues that owing to the industrialisation of services, their
production can no longer be viewed as being heterogeneous. Attempts have been made
to improve productivity in the service sector by introduction of technology. Uniformity
can be achieved by substituting equipment and machinery for labour. Hostage suggested
that service firms could also reduce variability by training the service providers in
appropriate responses to each customer situation. They can also monitor customer
satisfaction through suggestion and complaint system so that poor service can be
detected and corrected. Services are heterogeneous across time, organisations, and
people and as a result, it is very difficult to ensure consistent service quality. Quality
actually depends on many factors that cannot be fully controlled by the service supplier,
such as the ability of the consumer to articulate his or her needs, the ability and
willingness of personnel to satisfy those needs, the presence (or absence) of other
customers, and the level of demand for the service. Because of these complicating
factors, the service manager cannot always know for sure that the service is being
delivered in a manner consistent with what was originally planned and promoted.

(iv) Perishability: Perishability refers to the fact that services cannot be saved, stored,
resold, or returned. Since services are deeds, performances or acts whose production and
consumption takes place simultaneously, they tend to perish in the absence of
consumption. Goods can be stored and sold at a later date in the absence of a customer.
Services, on the other hand, go waste if they are not consumed. A seat on an airplane or
in a restaurant, an hour of a professor’s time, or telephone line capacity not used cannot
be reclaimed and used or resold at a later time. A primary issue that marketers face in
relation to service perishability is the inability to hold inventory. Demand forecasting and
creative planning for capacity utilisation are, therefore, important and challenging
decision areas. The fact that services cannot typically be returned or resold also implies a
need for strong recovery strategies when things do go wrong. Kurtz and Boone observed
that the utility of most services is short lived; therefore, they cannot be produced ahead of
time and stored for periods of peak demand. The perishability of services is not a problem
when demand is steady because it is easy to staff for the service in advance. When there
are wide fluctuations in demand there should be a highly flexible production system or
idle productive capacity. Sasser has described several strategies for producing a better
match between demand and supply in a service business. On the demand side, the firm
can make use of differential pricing, cultivating non-peak demand and developing
complementary services. On the supply side, for effective matching with demand, the
firm may hire part time employees to serve peak demand; peak-time efficiency routines
can be introduced, facilities for future expansion can be developed, and increased
consumer participation can be encouraged. (v) No Transfer of Ownership: When we buy
a product, we become its owner-be it a pen, book, shirt, TV or Car. In the case of a
service, we may pay for its use, but we never own it. By buying a ticket one can see the
 evening film show in local cinema theatre; by paying wages one can hire the services of a
chauffeur who will drive his car; by paying the required charges we can have a marketing
research firm survey into the reasons for our product’s poor sales performance, etc. In
case of a service, the payment is not for purchase, 7 but only for the use or access to or
for hire of items or facilities; and transfer of ownership does not take place.

PEOPLE

In services, ‘People’ refers to all human actors who play a part in service delivery and thus
influence the buyer’s perceptions; namely, the firm’s personnel, the customer, and other
customers in the service environment. All of human actors participating in the delivery of a
service provide cues to the customer regarding the nature of the service itself. How these people
are dressed, their personal appearance, and their attitudes and behaviours all influence the
customer’s perception of the service. If the service personnel are cold and rude, they can
undermine all the marketing work done to attract the customers. If they are friendly and warm,
they increase customer satisfaction and loyalty. Employee behaviour is often an integral part of
the service product. This is not true in a manufacturing operation, where employee behaviour
may affect product quality, but is not a part of the product. People constitute an important
dimension in the management of services in their role both as performers of services and as
customers. People as performers of service are important because, a customer sees a company
through its employees. The employees represent the first line of contact with the customer. They
must, therefore, be well informed and provide the kind of service that wins customer approval.
The firm must recognise that each em-ployee is a salesman for the company’s service. If these
employees are not given training in how to go about face-to-face customer contact, the entire
marketing effort may not prove to be effective. The importance of customers in services stems
from the fact that most services imply active and involved customer-organisation interface. In
many service situations, customers themselves can also influence service delivery, thus affecting
service quality and their own satisfaction. Customers not only influence their own service
outcomes, but they can influence other customers as well. People can be subdivided into:

(i) Service personnel: Service personnel are important in all organisations but more so in an
organisation involved in providing services. The behaviour and attitude of the personnel
providing the service is an important influence on the customer’s overall perception of the
service and he can rarely distinguish between the actual service rendered and the human element
involved in it. Customer contact is very important concept in services, which refers to the
physical presence of the customer in the system. The extent of contact refers to the percentage of
time a customer ought to be in the system out of the total time it takes to serve him. The low
contact services include bank, post offices or retailing and the high contact services include
hotels, educational institutions, restaurants and hospitals. Services with high contact are more
difficult to control and manage because a longer customer contact is more likely to affect the
time of demand, and nature of service and its quality; whereas, in low contact services such
contact has much less impact on the service. Therefore, the high contact personnel must be
dexterous in public relations and inter-personal skills, and the low contact personnel must have
high technical and analytical attributes. The quality and performance of service personnel can be
improved through:

• Careful selection and training of personnel;

• laying down norms, rules and procedures to ensure consistent behaviour;

• ensuring consistent appearance; and

• reducing the importance of personal contact by introducing automation and computerization

wherever possible.

(ii) Customers: Customers are important because they are a source of influencing themselves,
being actively involved in service delivery, and other customers as well. In case of doctors,
lawyers, consultants one satisfied customer will lead to a chain reaction, bringing in his wake a
number of other customers. So, its an important task of service marketers to ensure complete
satisfaction of the existing customers. The kind of customers that a firm attracts exerts an
important influence on prospective customers. The prospective customer may feel attracted
towards the organisation e.g., club, restaurant, school, because it has his type of customers or the
customer may turn away if he perceives the existing customers to be a kind with whom he would
not like to associate.
PHYSICAL EVIDENCE

It refers to the environment in which service is delivered and where the firm and customer
interact, and any tangible components that facilitate performance or communication of the
service. The physical evidence of service includes all of the tangible representations of the
service such as, brochures, letterhead, business cards, report format, signage, equipment, etc.

Packaging importance stems from the fact that it is what comes in between the product and the
customer’s eye. The product package is a visual representation of the whole marketing effort.
The customer judgement and evaluation are often based on the product packaging.

Physical evidence is to a service, what the packaging is to a product. In services, the product
itself being intangible, the need is to tangibles it as far as possible. Thus, physical entities can be
successfully employed to describe the service product and its distinguishing qualities. Since the
potential customers form impressions about the service organisations on the basis of physical
evidence, like building, furniture, equipments, stationery and brochures, it becomes imperative
that the marketers manage the physical evidence in a manner that reinforces the proposed
position and image of the organisation.

Cleanliness in a doctor’s clinic, the exterior appearance and interior decor of a restaurant, the
comfort of the seating arrangement in a cinema hall, adequate facility for personal needs at the
airport, all contribute towards the image of the service as perceived by the customer. The
common element in these is that they are all physical, tangible and controllable aspects of a
service organisation. There may be two kinds of physical evidence:

(i) Peripheral evidence: It is actually possessed as a part of the purchase of service but by itself
is of no value. An airline ticket, cheque book, or receipt for a confirmed reservation in a hotel are
examples of peripheral evidence. A cheque book is of value only if customer has money in the
bank, without that it is of no significance. Peripheral evidence adds on to the value of essential
evidence, such as writing pad, pen, match box, complimentary flowers and drinks, etc. in a hotel,
which customer may take away. Such evidence must be designed keeping in mind the overall
image which the organisation wishes to project and the reminder value of the evidence in its
ability to remind the customer about the organisation.

(ii) Essential evidence: Whereas the peripheral evidence is possessed and taken away by the
customer, the essential evidence cannot be possessed by the customer; the building, its size and
design, interior layout and decor, logo, etc. of the organisations are constituents of essential
evidence. The essential evidence is a very critical input in determining the atmosphere and
environment of the service organisation.

43
Physical evidence can be used to build strong association in the customers’ minds and service
can be differentiated from the competitor’s similar offering. By making the service more tangible
and making it easier for the customer to grasp the concept of the service, marketers can create the
ideal environment for the service offering.

PROCESS

Process in services refers to the actual procedures, mechanisms, and flow of activities by which
the service is delivered- the service delivery and operating systems. In a service organisation, the
system by which customer receives delivery of the service constitutes the process. In fast food
outlets the process comprises buying the coupons at one counter and picking up the food against
that at another counter. The process of a delivery function which can be compared with that of
operations management implies the conversion of input into the finished product. But, in a
service organisation, there is no clear cut input or output. Rather, it is the process of adding value
or utility to system inputs to create outputs which are useful for the customers.

The process by which services are created and delivered to the customer is a major factor within
the services marketing mix, as services customers will often perceive the service delivery system
as part of the service itself. Thus, decisions on operations management are of great importance to
the success of the marketing of the service. In fact, continuous coordination between marketing
and operations is essential to success in most services businesses. Identification of process
management as a separate activity is a prerequisite of service quality improvement. The
importance of this element is especially highlighted in service businesses where inventories
cannot be stored. Through the introduction of automatic teller machines (ATMs) banks have
been able to free staff to handle more complex customer needs by diverting cash only customers
to the ATMs. If the processes supporting service delivery cannot, for example, quickly repair
equipment following a breakdown or provide a meal within a defined period, an unhappy
customer will be the result. This suggests that close cooperation is needed between the marketing
and operations staff who are involved in process management. By identifying processes as a
separate marketing mix element, its importance to service quality is duly recognized.
New Product Development

Step 1: Generating

Utilizing basic internal and external SWOT analyses, as well as current marketing trends, one
can distance themselves from the competition by generating ideologies which take affordability,
ROI, and widespread distribution costs into account.

Lean, mean and scalable are the key points to keep in mind. During the NPD process, keep the
system nimble and use flexible discretion over which activities are executed. You may want to
develop multiple versions of your road map scaled to suit different types and risk levels of
projects.

Step 2: Screening The Idea

Wichita, possessing more aviation industry than most other states, is seeing many new
innovations stop with Step 2 – screening. Do you go/no go? Set specific criteria for ideas that
should be continued or dropped. Stick to the agreed upon criteria so poor projects can be sent
back to the idea-hopper early on.

Because product development costs are being cut in areas like Wichita, “prescreening product
ideas,” means taking your Top 3 competitors’ new innovations into account, how much market
share they’re chomping up, what benefits end consumers could expect etc. An interesting
industry fact: Aviation industrialists will often compare growth with metals markets; therefore,
when Boeing is idle, never assume that all airplanes are grounded, per se.

Step 3: Testing the Concept

As Gaurav Akrani has said, “Concept testing is done after idea screening.” And it is important
to note, it is different from test marketing.

Aside from patent research, design due diligence, and other legalities involved with new product
development; knowing where the marketing messages will work best is often the biggest part of
testing the concept. Does the consumer understand, need, or want the product or service?

Step 4: Business Analytics

During the New Product Development process, build a system of metrics to monitor progress.
Include input metrics, such as average time in each stage, as well as output metrics that measure
the value of launched products, percentage of new product sales and other figures that provide
valuable feedback. It is important for an organization to be in agreement for these criteria and
metrics.

Even if an idea doesn’t turn into product, keep it in the hopper because it can prove to be a
valuable asset for future products and a basis for learning and growth.
Step 5: Beta / Marketability Tests

Arranging private tests groups, launching beta versions, and then forming test panels after the
product or products have been tested will provide you with valuable information allowing last
minute improvements and tweaks. Not to mention helping to generate a small amount of buzz.
WordPress is becoming synonymous with beta testing, and it’s effective; Thousands of
programmers contribute code, millions test it, and finally even more download the completed
end-product.

Step 6: Technicalities + Product Development

Provided the technical aspects can be perfected without alterations to post-beta products, heading
towards a smooth step 7 is imminent. According to Akrani, in this step, “The production
department will make plans to produce the product. The marketing department will make plans
to distribute the product. The finance department will provide the finance for introducing the
new product”.

As an example; In manufacturing, the process before sending technical specs to machinery

involves printing MSDS sheets, a requirement for retaining an ISO 9001 certification (the
organizational structure, procedures, processes and resources needed to implement quality
management.)

In internet jargon, honing the technicalities after beta testing involves final database preparations,
estimation of server resources, and planning automated logistics. Be sure to have your
technicalities in line when moving forward.

Step 7: Commercialize

At this stage, your new product developments have gone mainstream, consumers are purchasing
your good or service, and technical support is consistently monitoring progress. Keeping your
distribution pipelines loaded with products is an integral part of this process too, as one prefers
not to give physical (or perpetual) shelf space to competition. Refreshing advertisements during
this stage will keep your product’s name firmly supplanted into the minds of those in the
contemplation stages of purchase.

Step 8: Post Launch Review and Perfect Pricing

Review the NPD process efficiency and look for continues improvements. Most new products
are introduced with introductory pricing, in which final prices are nailed down after consumers
have ‘gotten in’. In this final stage, you’ll gauge overall value relevant to COGS (cost of goods
sold), making sure internal costs aren’t overshadowing new product profits. You continuously
differentiate consumer needs as your products age, forecast profits and improve delivery process
whether physical, or digital, products are being perpetuated.
 Product Classification
• Can be done in a variety of perspectives

 Consumer-Goods Classification
– Classified on the basis of shopping habits

• Durability and Tangibility

 Industrial-Goods Classification
– Classified in terms of their relative cost and how
they enter the production process.
 Consumer Product Classification
• Convenience Goods
– Inexpensive, frequently purchased.
– Little effort needed to purchase them.
– Staples, Impulse and emergency goods.
• Shopping Goods
– Not as frequently as convenience products
– Costly
– Consumer does research before purchase.
• Specialty Goods
– Unique features
– Consumer is prepared to pay a premium price.
• Unsought Goods
– Those good that consumers do not know or
– Doesn’t think of buying.
 Durability and Tangibility
• Nondurable Goods
– Tangible goods consumed in one or few uses
– Purchased frequently
– Strategy : availability , low priced , heavily
advertised
• Durable Goods
– Tangible goods that survive many uses
– Require more personal selling and service
– Higher margins and requires seller guarantee
• Services
– Intangible product
– Requires more quality control and credibility
 Industrial-Goods Classification
• Materials and Parts

Raw Materials Farm Products

Manufactured materials and Natural Products

parts
 Materials and Parts

Raw Materials Farm Products

Manufactured materials and Natural Products

parts
• Materials and Parts

Raw Materials Component materials

Manufactured materials and parts Component Parts

Materials and Parts

Raw Materials Component materials

Manufactured materials and parts Component Parts

• Capital Items
– Installations
– Equipment
• Supplies
– Maintenance and repair items
– Operating supplies
Business Services
Maintenance and repair services
Business advisory services
Boston Matrix
Strategy Skills

Team FME
[Link]
ISBN 978-1-62620-952-7
Copyright Notice
© [Link] 2013. All Rights Reserved

ISBN 978-1-62620-952-7

The material contained within this electronic publication is protected under International
and Federal Copyright Laws and treaties, and as such any unauthorized reprint or use of
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You may not copy, forward, or transfer this publication or any part of it, whether in elec-
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or the whole, of this eBook.
 Boston Matrix

Table of Contents

Preface 2
Visit Our Website 3
Introduction 4
The Boston Matrix 6
Classifying Products and Business Units 11
Stars 13
Question Marks 14
Cash Cows 16
Dogs 18
Using the Boston Matrix at Brand Level 20
A Balanced Portfolio 22
Summary 25
Other Free Resources 27
References 28

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 Boston Matrix

Preface
This eBook describes the Boston Matrix, an approach to product portfolio planning based
on relative market share and market growth.

You will learn:

●● How the Boston Matrix can be integrated with other strategic planning tools
●● Why this tool is so controversial and why it has been removed from many mar-
keting courses
●● How to categorize your products depending on their relative market share and
market growth
●● Why it can be dangerous to use this tool at brand level
●● How it can be used to help ensure a balanced portfolio of products and services

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 Boston Matrix

Visit Our Website

More free management eBooks along with a series of essential templates and check-
lists for managers are all available to download free of charge to your computer, iPad, or
Amazon Kindle.

We are adding new titles every month, so don’t forget to check our website regularly for
the latest releases.

Visit [Link]

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 Boston Matrix

Introduction
Today’s organizations find themselves operating in an environment that is changing
faster than ever before. The process of analyzing the implications of these changes and
modifying the way that the organization reacts to them is known as business strategy.

‘Strategy is the direction and scope of an organization over the long term,
which achieves advantage in a changing environment through its configura-
tion of resources and competences’ Johnson et al. (2009).

While your role as a manager is unlikely to require you to make decisions at the strategic
level, you may be asked to contribute your expertise to meetings where strategic con-
cerns are being discussed. You may also be asked to comment on pilot schemes, presen-
tations, reports, or statistics that will affect future strategy.

Presentations

Pilot Schemes Reports

How you
Meetings participate in Statistics
strategy

Whether you work in a large multinational corporation or a small organization, a good

understanding of the appropriate business analysis techniques and terminology will help
you to contribute to the strategic decision-making processes.

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 Boston Matrix

• Internal
• External
capability to
environment
respond
Analyze Assess

Aid Assist
• Implementation • Defining the
of the strategy strategy

Typical scenarios where you could be asked to provide information and data for your
organization’s strategic decision making include:

●● Analyzing the organization’s external environment.

●● Assessing the organization’s internal capabilities and how well it can respond to
external forces.
●● Assisting with the definition of the organization’s strategy.
●● Aiding in the implementation of the organization’s strategy.

Strategic
Planning

Strategic Strategic
Analysis Definition

External Internal
SWOT, Ansoff
Environment Capability

PESTLE, Porters
Boston Box
5 Forces

The diagram above shows where five widely used business analysis tools fit into the stra-
tegic planning process. This series of eBooks will give you a solid understanding of how
these tools can be used, as well as an appreciation of their limitations.

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 Boston Matrix

This knowledge will enable you to take an active and productive role when asked to par-
ticipate in the strategic decision-making process.

Key Points
44 You may be asked to contribute your expertise to meetings where strategic
concerns are being discussed.
44 Typical scenarios where you could be asked to provide information for stra-
tegic decision making include: analyzing the organization’s external environ-
ment, assessing internal capabilities, assisting strategy definitions, and aiding
in the implementation.

The Boston Matrix

A key role of management within the strategy planning process is to provide market in-
telligence. This information and data will play a significant role in analyzing the internal
capabilities of the organization, an essential part of strategy development and imple-
mentation.

Whatever your management role, you may sometimes be asked for market intelligence
that can be used in the strategy planning process. The types of data that are fed into
a marketing information system (MIS) cover all areas of the organization—production,
operations, sales and marketing, etc.

The more accurate and up-to-date an MIS is, the greater your competitive edge will
be. An MIS also helps your organization to identify and respond to the opportunities
and threats that have been identified in a SWOT analysis. If you are unfamiliar with the
SWOT analysis or want to understand it in greater detail then visit our website www.
free-management-ebooks and download our free ‘SWOT Analysis’ eBook.

Boston • Provides a method to analyze business

Matrix units, product lines and services

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 Boston Matrix

The organization’s response can only be effective if it has a clear understanding of its
own internal capabilities. One of the most popular tools used by organizations to analyze
these is the Boston Matrix.

Bruce Henderson developed this business analysis technique in 1970 for use within the
Boston Consulting Group. It was designed for use by its consultants to help corporations
with analyzing their business units or product lines.

This technique has become known by several different names including: B-Box, BCG
Analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group Analysis
and the Portfolio Diagram. It is important to be aware of these names because you may
hear the technique referred to by any one of them.

Boston
Matrix is also Portfolio
Diagram
called Boston
Consulting
Group Analysis
B-Box Boston Box

BCG Analysis BCG-Matrix

The Boston Matrix is used to help the organization decide how to allocate resources to
each product or service it sells depending on how that product or service is positioned in
the market. It is often used by people responsible for brand marketing, product manage-
ment, strategic management, and portfolio analysis.

Over the last forty years its use has gone in and out of fashion and it has been removed
from certain contemporary marketing textbooks. Nonetheless, it can be helpful in con-
sidering product positioning as long as its findings are not used in isolation and its limita-
tions are acknowledged.

The Boston Matrix helps to facilitate discussions on the value of the contribution made
by, and investment required for, specific products and services. Its findings enable deci-

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 Boston Matrix

sions to be made as to which ones should be maintained, which should be withdrawn,

and which should be developed further.

The matrix consists of two axes: one showing market growth and the other showing
market share. The resulting four quadrants form the categories by which an organization
can classify its business units or products. The analysts then plot a scatter graph within
the matrix that ranks either business units or products and services on the basis of their
relative market shares and growth rates.

High

Question Marks Stars

Market Growth

Dogs Cash Cows

Low
Low High
Market Share

This provides an initial and high-level way to screen your organization’s opportunities.
It provides a mechanism that enables you to think about how best to allocate resources
and investment funding in order to maximize future profit and growth for your portfolio
of products and services.

This matrix considers the two strategic parameters of market share and market growth
when it allocates a priority to a product in terms of organizational focus and activity. In
order to appreciate how this prioritization is assessed you need to understand how mar-
ket share and market growth are interrelated.

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 Boston Matrix

Market
Growth

To use the
Market
Share Boston Matrix
you need to
understand the
relationship
between

Market Share
Market share is the percentage of either revenue or volume of sales that your organiza-
tion has of the total market. In other words, the higher your market share, the bigger the
proportion of the market you control and influence. The matrix also assumes that earn-
ings rise as your market share does. This is not always the case and is one of the limita-
tions of this analysis.

The Boston Matrix also makes a big assumption in its interpretation of market share and
how it relates to profitability. It assumes that a high market share means that this organi-
zation is highly profitable for this product or service. It attributes this to the organization
being well established and knowledgeable about the market, and having attained the
advantages of the economies of scale.

This may have been a safe assumption nearly fifty years ago, but it is not necessarily the
case today. There are many reasons why a product may be a market leader but not nec-
essarily the most profitable. For example, it may be fulfilling the role of a loss leader in
terms of the initial purchase, but then profits are made through the associated products.

For example,

The leading manufacturer of desktop printers may have the largest market
share but they may be prepared to make a loss on each printer sold because
they make their profit from the sale of the proprietary printer cartridges that
are sold subsequently.

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 Boston Matrix

The usual way that market share is expressed is as a ratio relative to your largest com-
petitor, because this illustrates the extent to which you dominate the market. So if you
have a 20% market share, and your nearest competitor has a 10% share the ratio is 2:1.

Whether a relative share is high or low depends on the industry. For example, in the Fast
Moving Consumer Goods (FMCG) market the brand leader is often very stable and profit-
able. In fact, market share in FMCG tends to follow the ‘123 rule.’ This means that the brand
leader’s share is double that of the nearest competitor and triple that of the next nearest.

Market Growth
Market growth is the percentage growth compared to the previous year. It is used as a
measure of how attractive a market is to existing providers and potential new entrants.

High market growth creates an environment in which it is relatively easy for organiza-
tions to grow their profits, even if their market share remains the same.

In contrast, if your product is in a low growth market you will face intense competitive activ-
ity and your organization will need to employ significant effort just to retain its market share,
even if it is an established provider. Often such market retention is only achieved by aggres-
sive discounting, which makes such a low-growth market less profitable and unattractive.

Boston
Matrix uses Cash Flow to categorize your
products by:

Market Share
• shows how well the product generates cash

Market Growth
• shows how much cash is needed in the future

The Boston Matrix uses cash flow as its means of categorizing an organization’s product
or service portfolio. It uses market share to illustrate how well a product or service can
generate cash and it uses market growth to indicate how much future cash is required.

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 Boston Matrix

Key Points
44 The Boston Matrix is used to allocate resources depending on how a product
or service is positioned in the market.
44 It can be used to analyze business units, product lines, and services.
44 The matrix consists of two axes: one showing market growth and the other
showing market share.
44 Market share is the percentage of either revenue or volume of sales that your
organization has of the total market.
44 Market growth is the percentage growth compared to the previous year.

Classifying Products and Business Units

As described earlier, the Boston Matrix consists of two axes (market growth and market
share) that are split between high and low. The resulting four quadrants form the catego-
ries by which an organization can classify its business units or products.

High

Question Marks Stars

Market Growth

Dogs Cash Cows

Low
Low High
Market Share

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 Boston Matrix

The four categories are given the following names:

●● Stars—tend to be relatively new, have a high market share, and be more or less
self-financing.
●● Question Marks—require substantial amounts of cash to try to attain or regain
dominance in its growth market.
●● Cash Cows—are a market leader in a stable market that has little potential growth.
They generate significantly more cash than is needed to sustain the product.
●● Dogs—are products that represent a cash drain and are near the end of their
product life cycle.

Most organizations expect their products to begin life as a Question Mark, later becom-
ing a Star and then a Cash Cow as the market matures. Finally, the product becomes a
Dog as the market declines.

There is no inevitability about this and some products are Stars from the moment of
launch, whereas others become Dogs almost immediately.

Cash Cows
Stars
Dogs

Question Cash Cows Dogs

Marks
Product
Life Cycle Dogs
within
Boston
Cash Cows Dogs
Matrix
Stars

Dogs

For example, the increasing pace of technological change means that many products
never have the time to achieve Cash Cow status before obsolescence turns them into a
Dog.

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 Boston Matrix

Key Points
44 Stars tend to be relatively new, have a high market share, and be more or less
self-financing.
44 Question Marks require substantial amounts of cash to try to attain or regain
dominance in its growth market.
44 Cash Cows are a market leader in a stable market that has little potential
growth. They generate significantly more cash than is needed to sustain the
product.
44 Dogs are products that represent a cash drain and are near the end of their
product life cycle.

Stars
These are products with a substantial share of a fast-growing market.

High Fast
Stars market growth
share market

An organization will usually consider it worthwhile to invest in retaining and growing a

star’s strong market share because the revenue it brings in equals or exceeds the invest-
ment required.

In an immature market, the rapidly increasing number of new customers results in fast
growth and high potential profits, both of which attract new competitors into the mar-
ket. Organizations operating in immature markets should remember that high revenues
might come with high product development and marketing costs.

As a fast growing market reaches maturity, those products with the biggest market share
become Cash Cows, whereas those that have not been able to build market share will
move into the Dogs category.

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 Boston Matrix

Question Marks
This category of the Boston Matrix has several common names. It is usually known as
‘Question Mark’ but can sometimes be referred to as a ‘Wildcat’ or ‘Problem Child.’ This
eBook refers to it as ‘Question Mark’ throughout.

A Question Mark has a low market share in a fast-growing market. Whilst this type of
product is likely to generate some revenue it may not be enough to sustain rapid growth
and it may become a net consumer of cash as it struggles to retain its market share.

Identifying those Question Marks that have the potential to gain sufficient market share
to become a Star and eventually a Cash Cow is critically important to the future of any
organization.

Low Fast
Question market growing
Marks share market

Question Marks require careful analysis to determine whether or not they are worth the
investment required to grow their market share. This may be especially important if the
emerging market could replace your established market in the near future.

It is essential to define how much investment the organization is prepared to allocate to a

Question Mark product in order to gain market share. This type of decision requires more
sophisticated analysis than the Boston Matrix can offer and an organization may need to
invest heavily to transform a Question Mark product.

Investment could involve a relaunch of the product, creating a new image that fits the
consumer profile better, or some redesigning of the product or service in response to
changing market conditions. Two well-cited marketing examples of this are:

Levi jeans in the 1980s were out of fashion, but the market for teenage
clothes was growing fast. So, Levis relaunched their jeans with 501s, which
were advertised with a new stylish image positioning them as a teenage
fashion item.

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 Boston Matrix

The result within a few months was to increase sales by a factor of 10, turn-
ing the product into a star. The soundtrack of the TV advertisements used
famous pop songs, and the ads became so popular they are still talked about
25 years later.

HMV, whose primary market was music, found that their CD sales were fall-
ing, whilst the music market was growing. Their response was to diversify
and extend their product range into other areas of the ‘home entertainment’
sector such as computer and console games, DVDs, and online downloads.
This turned out to be too little, too late and HMV were taken into administra-
tion in 2013.

The very nature of a Question Mark product or service means that it will be a cash con-
sumer until it can gain sufficient market share to become a Star or Cash Cow. If it is un-
able to do either, it will be withdrawn from the market or become a Dog as market growth
declines.

Organizations need to continually examine the value they achieve in terms of market
share or revenue against continued investment in a Question Mark. Not all new products
will succeed even if they do gain a reasonable market share, because the revenue gener-
ated may not meet the expectations set by the organization.

Key Points
44 It is usually worthwhile to invest in a Star because the revenue it brings in
equals or exceeds the investment required.
44 Identifying those Question Marks that could become Stars and Cash Cows is
critically important to the future of any organization.
44 Organizations need to continually examine the value they achieve in terms of
market share or revenue against continued investment in a Question Mark.

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 Boston Matrix

Cash Cows
Successful products or services in mature markets are referred to as Cash Cows. Some
well-known examples are:

●● Ford Transit Vans and Pickup Trucks

●● Kellogg’s Corn Flakes
●● Coca-Cola

These products and services consistently generate substantial revenues that can be used
to invest in markets that offer higher growth rates. Products that are described as Cash
Cows will typically be market leaders and be able to provide a return on assets (ROA)
that exceeds the market growth rate.

High Slow
Cash
market market
Cows
share growth

This market leadership enables a Cash Cow to earn profits that easily exceed any fund-
ing or investment required to produce or sustain them. This factor combined with few
growth opportunities in this type of market allow organizations to divert or ‘milk’ the
majority of the revenue generated to invest in faster-growing markets.

In fact, one problem with the classification of products as Cash Cows is that it can en-
courage people to think in terms of ‘milking’ the Cash Cow, something that may turn out
to be short-sighted.

The Boston Matrix assumes that by the time a product dominates a mature market it will
have recouped its initial investment several times over and that its marketing expendi-
ture will be relatively low. This implies that diverting funds to other growth areas will not
have adverse implications for the Cash Cow. Such an assumption is rarely true as there
is nearly always an ongoing need to invest in maintaining and enhancing the Cash Cow’s
brand value and associated customer loyalty.

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 Boston Matrix

Having said that, new entrants into the mature market are rare because the slow growth
rate offers a poor return on any investment a new competitor would be required to make
in order to cover its entry and marketing costs.

Cash Cows have high:

• Sales revenue
• Profitability
• Market share

• Lower marketing costs as

established image & brand
• Minimal investment required
• Low growth deters new entrants

These marketing costs can be considerable, as the new entrant needs to achieve suf-
ficient brand and image awareness if they are to take a significant share of the market
away from the existing suppliers.

The speed of technological change is continually shortening the time markets can be
seen as ‘emerging’ and/or ‘mature.’ This impacts the ability of a product to pay off its
investment costs and become a Cash Cow.

This issue is one that must be discussed when deciding how to position your product
or service within the Boston Matrix. Organizations need to be mindful when using the
process that the length of time a product has to recoup any investment is shortening as
technological advances are occurring at an ever-faster rate.

Key Points
44 Successful products or services in mature markets are referred to as Cash Cows.
44 Cash Cows have high sales revenue, profitability, and market share.
44 They have low marketing costs and require minimal investment.

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 Boston Matrix

Dogs
Dogs are found in slow-growing or shrinking mature markets and their market share
is low. Any revenue they generate is just enough to sustain this low market share and
from the organizational perspective they represent a drain on its resources because even
though they may be ‘breaking even’ financially, they are using assets (people and capital)
that could be better used to support a Question Mark or Star.

Low Slow or
Dogs market shrinking
share market

Ideally, the number of Dogs should be minimized so that they don’t use up resources that
could be better deployed elsewhere. Many products in this category are reaching the
end of their product life cycle and management need to judge the benefits of continued
production against withdrawing them from the market. Any redevelopment of the prod-
uct is unlikely to be covered by increased revenues because any costs associated with a
redesign or relaunch will prove difficult to recover in a stagnant market.

The profitability of Dogs should be constantly reviewed as the lack of profits impacts an
organization’s return on assets (ROA) ratio. This ratio is important to potential investors
and is one of the tools that they use to make judgments about how well your organization
is being run and whether or not to invest in it.

One criticism of the Boston Matrix is that the term ‘Dog’ is unnecessarily pejorative and
derogatory. An organization may continue to produce a Dog, even though its profitability
is marginal, because of its synergy with other product offerings. For example,

The cell phone manufacturer Nokia continues to produce a simple phone that
retails for around $15. Even though there is no profit in selling the phone, cus-
tomers still need to buy airtime, which is where the profit is made.

Some mature markets are so big that even a small share of them can be worth having.
For example,

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 Boston Matrix

Snack food company Cadbury has a huge range of products including many
bestsellers in their particular niche. One of their least popular products, the
‘Dairy Milk Whole Nut’ chocolate bar, is responsible for only around one per-
cent of sales in a low-growth market. However, that still represents some
$60 million of revenue in the UK alone.

Another reason for maintaining production of a Dog is that it can be beneficial to have
a ‘complete’ range of products. This can add credibility to the brand at the point of sale
as well as dissuading distributors from looking for other suppliers to fill any gaps in your
product range.

An organization may find it worthwhile to subsidize a loss-making Dog because it ben-

efits its public image, for example by appearing to be ‘green’ or socially responsible in
some other way.

Finally, there may be social or political reasons for continuing with a Dog. Its production
may attract government funding or the political consequences of closing down a factory
or ceasing to offer a particular service may be unacceptable.

Continue because:
Dogs in • niche product within range
Boston • synergy with other products
Matrix • cause social issues if stopped
• positive impact on image

Organizations would like all of their products or services to be either Cash Cows or Stars,
but in reality there is always a mixed product portfolio with a variety of products at dif-
fering stages of their life cycle.

Even a company like Microsoft has Dogs: its internet search engine, Bing, has only around
4.5% market share, with Google leading by a huge margin. No one expects it to become
a major revenue generator for Microsoft and even optimistic estimates expect it to ac-
count for less than 2.5% of total revenues in the foreseeable future. However, it would
have such a negative impact on Microsoft’s image if it were to abandon this market alto-
gether that it continues to support this loss-making service.

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 Boston Matrix

Key Points
44 Dogs have a low market share in slow-growing or shrinking mature markets.
44 They use up resources that could be better deployed elsewhere.
44 They can be a niche product within a bigger range.
44 They can have synergy with other products or services.
44 They may be retained if they have a positive impact on image.
44 They may be retained if stopping them would create social or political problems.

Using the Boston Matrix at Brand Level

As part of the management team, you may be involved in strategy discussions where you
are asked to contribute and comment on the categorization of your products or services
in terms of the Boston Matrix.

Understanding the terminology is essential but you also need to be aware of the short-
comings of this technique.

Boston Matrix assists with

decisions that

judge how best to

exploit the market conditions for your

business units and

recognize the benefits of using profits

from their best business units to fund

future development

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 Boston Matrix

The Boston Matrix is most often used to make the following decisions about products,
services, or business units.

1. How best to manage individual products within a complete range taking into ac-
count the market conditions.
2. How to use successful and profitable products to fund the development of future
products.

By using the matrix to bring perspective to decisions about which products or business
units to invest in, organizations can optimize the distribution of funds across business
units or product ranges. It will also highlight those areas they need to divest themselves
of to meet profitability and growth targets.

The Boston Matrix has generated a lot of controversy since its introduction in 1970. It
was originally intended to help organizations allocate resources between their different
categories of business. However, financial capital is more freely available now than it was
in the 1970s and the allocation of scarce capital is now less of an issue than it was then.

The important thing is that the model was originally developed to allocate capital across
operating companies or divisions; it was never designed to be used at the brand level.
This use (or abuse, as some would say) of the Boston Matrix can create self-fulfilling
prophesies because some people see it as implied in the model that a Cash Cow will
eventually become a Dog, and that that this is in some way inevitable or even desirable.
In fact, a brand that was once a Cash Cow can be reinvigorated by an inspired marketing
effort or product redesign.

A good example of this would be the acquisition and relaunch of the Mini brand by BMW,
or the relaunch of Heinz Tomato Ketchup in its revolutionary upside-down bottle. Some
critics of the Boston Matrix say that it implicitly denies that brands can be transformed,
when in fact that is very often the best strategy. This undervaluing of a brand makes no
sense because brands often represent assets of real value to an organization.

Despite the controversy surrounding it, the Boston Matrix can be a valuable tool pro-
vided that you are aware of its shortcomings.

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 Boston Matrix

Key Points
44 The Boston Matrix can help to optimize the distribution of funds across busi-
ness units or product ranges.
44 It is often used at the brand level, although it was never designed to be.
44 It is a model that can lead to poor decision making by those who misuse it.
44 It can be a valuable tool provided that you are aware of its shortcomings.

A Balanced Portfolio
A balanced portfolio within an organization allows it to position itself so that it is ideally
situated to take advantage of its current and future market growth opportunities.

Balanced Product Portfolio has:

CASH COWS QUESTION MARKS

providing the STARS that ensure that use these
investment funds future success funds to develop
for into STARS

For example, Cash Cow products provide investment funds that can be used to convert
today’s Question Marks into tomorrow’s Stars. Once a balanced portfolio has been de-
fined, your organization can choose to apply the most appropriate of the following four
strategies:

●● Hold—you choose to continue doing the same things to maintain the status quo.
●● Build—you select to make further investments, either to maintain the market
share of a Star, or make a Question Mark into a Star.
●● Harvest—you decide to utilize your cash flow from a Star or Cash Cow to reduce
the burden of investment and maximize profits.
●● Divest—sell off or withdraw Dogs so that human resources and financial capital
can be invested in your Star and Question Mark products and business units.

ISBN 978-1-62620-952-7 © [Link] 22

 Boston Matrix

The Boston Matrix can also be used to understand how well your current portfolio match-
es your organizational objectives. This can help to identify areas that you need address
in order to achieve a balanced portfolio. It also offers an alternative perspective to that of
looking solely at the life cycles (product portfolio analysis) of each product.

Hold Build

Harvest Divest

A balanced portfolio is not achieved by having a product in each quadrant of the matrix,
but this is often what happens in reality because not all of your products or business
units will be successful and not all of your markets will be growing at the same rate. For
example,

Dial-up internet was at one time a Cash Cow for many companies, but as
technology has advanced it has quickly become a Dog.

Some companies have retained this product to ensure a full range of prod-
ucts for its customers. They feel the benefits of retaining it as part of their
product range outweigh those of removing it from their portfolio.

Others have sold this product off to specialist companies or just stopped sup-
porting it, preferring to use these funds to develop other services.

One common misconception about the Boston Matrix as it relates to a balanced port-
folio is that it endorses the idea of diverting funds from a Cash Cow to either a Star or a
Question Mark. Whilst it might make sense to do this under certain circumstances, it is
not something that is implied by the model.

ISBN 978-1-62620-952-7 © [Link] 23

 Boston Matrix

Another misconception is that a balanced portfolio means having equal numbers of

products or services in each quadrant. Again, this is not something that is implied by the
model. If your product range does not have a Dog it would not make sense to create one
just so that you can have a product in each quadrant.

Your organization can also use the Boston Matrix to indicate its products’ strengths and
weaknesses in terms of its cash flow management. This is gauged by the amount of cash
each product generates (relative market share) compared to the quantity it uses (market
growth rate).

By using relative market share, rather than profits, the Boston Matrix ensures that it con-
siders more than just cash flow. The relative market share illustrates the positioning of your
product or service compared to your main competitors. It can also help you to decide on
future positioning and which marketing activities are likely to be the most effective.

Key Points
44 A balanced product portfolio has Cash Cows that can provide the investment
funds to develop Question Marks and Stars.
44 Once a balanced portfolio has been defined, there are four strategies that can
be followed: Hold, Build, Harvest, or Divest.
44 A balanced portfolio does NOT mean having equal numbers of products or
services in each quadrant.

ISBN 978-1-62620-952-7 © [Link] 24

 Boston Matrix

Summary
Any organization using the Boston Matrix to help define its strategy, rather than just pro-
vide an indication of future potential, must properly represent the cash flow of each busi-
ness unit or product being assessed. There has been a tendency for users to oversimplify
the analysis and to focus on categorizing products or business units as Cash Cows, Stars,
Question Marks, or Dogs, rather than considering cash flow.

This trivial approach has led to the matrix being seen as impractical for organizations
that want to develop their business, resulting in its decline in popularity. In 1992 a study
by Slater and Zwirlein actually showed that of the 129 firms they reviewed those who had
used the Boston Matrix as part of their portfolio planning presented lower shareholder
returns to their investors.

Boston Matrix cannot assess:

Importance of interdependencies

Benefits of niche products

Advantages of differentiation

Key industry characteristics

The danger of focussing on market growth and market share is that it can encourage
you to disregard other key factors that define your competitive position. In addition, you
need to take into account interdependencies between your products and be aware of the
merits of differentiation as a way to gain a competitive edge.

The Boston Matrix assumes that the higher your market share the more profitable your
product or business unit will be. It also rejects the possibility that a niche product with a
low market share can be profitable, whilst in reality many Dogs offer higher profit mar-
gins than many Cash Cows.

Another key factor the matrix is unable to take into account is the characteristics of the
particular industry sector you operate in. For instance, ranking products or business units

ISBN 978-1-62620-952-7 © [Link] 25

 Boston Matrix

often has a subjective aspect and an element of guesswork with regard to future growth.
Some industry sectors may be more optimistic, insistent, and persuasive than others
about the rates of market growth and their own market share. The senior management
of many ‘[Link]’ companies in the early 2000s demonstrated this clearly.

There are other analysis tools that can help you assess your environment such as PESTLE
and Porter’s Five forces. If you are unfamiliar with these tools or want to understand
them in greater detail then visit our website [Link]-management-ebooks and down-
load our free eBooks on these topics in our business strategy section.

Key Points
44 The purpose of the Boston Matrix is NOT just to categorize products or busi-
ness units.
44 Focussing on market growth and market share can encourage you to disre-
gard other key factors that define your competitive position.

ISBN 978-1-62620-952-7 © [Link] 26

 Boston Matrix

Other Free Resources

The Free Management eBooks website offers you over 100 free resources for your own
professional development. Our eBooks, Checklists, and Templates are designed to help
you with the management issues you face every day. They can be downloaded in PDF,
Kindle, ePub, or Doc formats for use on your iPhone, iPad, laptop or desktop.

eBooks—Our free management eBooks cover everything from accounting principles to

business strategy. Each one has been written to provide you with the practical skills you
need to succeed as a management professional.

Templates—Most of the day-to-day management tasks you need to do have already

been done by others many times in the past. Our management templates will save you
from wasting your valuable time re-inventing the wheel.

Checklists—When you are working under pressure or doing a task for the first time,
it is easy to overlook something or forget to ask a key question. These management
checklists will help you to break down complex management tasks into small control-
lable steps.

FME Newsletter—Subscribe to our free monthly newsletter and stay up to date with the
latest professional development resources we add every month.

Social Media—Share our free management resources with your friends and colleagues
by following us on LinkedIn, Facebook, Twitter, Google+, and RSS.

Visit [Link]

ISBN 978-1-62620-952-7 © [Link] 27

 Boston Matrix

References
Cadle, J., Paul, D. and Turner, P. (2010), Business Analysis Techniques, 72 Essential Tools for
Success, BCS The Chartered Institute for IT.

Johnson, G., Whittington, R. and Scholes, K. (2009), Exploring Corporate Strategy with
MyStrategyLab, Financial Times/Prentice Hall.

Kotler, P., Keller, K.L., Brady, M., Goodman, M., and Hansen, T. (2009), Marketing Man-
agement, Pearson Education.

McDonald, M. and Wilson, H. (2011), Marketing Plans: How to Prepare Them, How to Use
Them, 7th Edition, John Wiley.

ISBN 978-1-62620-952-7 © [Link] 28

The Ansoff Matrix – deciding
your growth strategy
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The Ansoff Matrix

The Ansoff Matrix is an old business model that survives to this day because it still helps you
develop a growth plan for your business. It won’t magically reveal an option you’d never
thought of before but it will help you understand the difficulties you’ll face with different
growth options.

Market Penetration
Selling your existing products to your existing
markets is called a Market Penetration strategy. It
gets a bad rap compared to the other growth
strategies because it’s not so revolutionary. It seems
a bit stale. Sceptics ask “If you’re selling the same
products and you’re targeting the same markets,
why are you going to grow?”

That’s a poor way to view the market penetration strategy.

The Advantages of Market Penetration

Before you dismiss market penetration as a growth strategy, get an honest and accurate
assessment of your market share. If you’ve got less than 10%, market penetration should be
the first growth strategy you look at, not the last.

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Consider its advantages. You don’t have to develop any new products/services. You may need
to improve your current offering but that’s far simpler than developing something entirely
new.

You also know the market. Not only do you understand the customers, there’s a good chance
that a lot of them will already be familiar with your brand. You already have the foundations
you need to build a bigger market share.

Market Penetration for SMEs

Market penetration is a great growth strategy for SMEs that have grown organically without
much in the way of marketing support. They know from their existing customers that their
product/service is satisfactory; it may even be good or exceptional. What they don’t know is
how to grab more of the market. That’s why they need marketing support.

When devising a new strategy for market penetration, remember all four of the 4P’s (product,
price, place and promotion). Growth isn’t just about a new promotional campaign. Growth
might come from improving the product or its customer care wrapper – that’s ‘product’ too.
Growth could be generated by new pricing or offers. Or growth might come from a new
distribution strategy, putting the product/service in more places from which customers could
buy it. And yes, you could grow through new promotional techniques, especially if you haven’t
used marketing before.

The Virgin Group & Market Penetration

The Virgin Group is so diverse it provides examples of every type of growth strategy. You
might look at the launch of Virgin Megastores as an example of a market penetration strategy.
It gave the original music production business a new and more direct route to its ultimate
customers. You might also look at it as a Market Development strategy, but that comes later.

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Product Development
If you want to develop a new product/service for
your existing customers, that’s a Product
Development growth strategy. Imagine you’re a
software company producing a time-management
app. Adding an accounting app to your range and
selling it to your existing customer base would be
product development.

The Advantages of Product Development

The advantage of this option is that you have a ready-made market in which you’ve already
established your credibility. You’ve broken down most of the barriers to entry.

Your problems come if you try to develop something that is not a logical extension of what
you already do. If a lot of doctors buy your time management software, they might think twice
if you try to sell them medical supplies.

We’ve worked for a company that sold control panels to the manufacturers of industrial
generators. The company developed fuel cleaning and emissions reduction systems because
those same manufacturers needed the technology. That’s a perfect example of a product
development growth strategy.

Product Development Oddities

Some product development strategies can look very strange.
Years before I became a respectable marketer (if there is such a
thing), I was a journalist for Computer Shopper magazine. Shopper
was by far the biggest magazine in this market at the time (this is
back in the 1990s when people still bought magazines). It had the
biggest circulation, it had the biggest advertising revenue and,
when it peaked at almost 1,000 pages an issue, it was the
physically the biggest magazine too.

So it would seem strange for the publisher of such a successful

magazine to launch another magazine into the same market. But
that’s exactly what Dennis Publishing did. The reasoning may have looked illogical but it was
perfectly sound. Even though the new magazine took readership away from Computer
Shopper (and you’d better believe we screamed about it), the publisher gained market share
when the two titles were viewed together.

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The Virgin Group & Product Development
Harking back to the Virgin Group example, having successfully targeted holiday-makers with
Virgin Atlantic, it showed a product development strategy when it launched Virgin Holidays;
new product, same market.

Market Development
The Market Development route envisages you
selling what you already produce to new markets.
Engine manufacturers like Caterpillar are a great
example. They sell engines to truck
manufacturers, boatbuilders and generator
suppliers. They even supply engines to their own
competitors in the construction equipment
market.

The Advantages of Market Development

The advantage of the market development strategy is that it extracts more revenue from
existing products. R&D is expensive, whatever the technology. If you can sell it successfully to
several markets, you extract a better return for your investment.

The challenge in Market Development is understanding the technical and commercial nature
of the new market. The engines Caterpillar sell to truck manufacturers, for example, are
subject to different emissions legislation than the static engines in generators. Which is very
bizarre when you think about it because they’re all pumping their fumes into the same
atmosphere.

The Virgin Group & Market Development

Continuing our focus on the Virgin Group, you might also say that its activities in space
represent market development with Virgin Galactic addressing the well-heeled consumer
market and Virgin Orbit addressing the commercial satellite market.

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Company Diversification
The most ambitious growth strategy is Company
Diversification, where you try to develop a new
product to sell into a new market.

Company diversification is advantageous for

businesses that already dominate their existing
and potential markets and can’t see a new product
that could be developed viably for those markets.

The Risk of Company Diversification

Company diversification is the riskiest of all the strategies. It’s very difficult to establish
credibility in a market that doesn’t know you for a product/service you’ve only just developed.
That’s why most companies diversify by acquisition. They skip the product development
phase by buying the expertise of an existing company. At the same time, they acquire
whatever credibility and brand recognition the subsidiary had built.

Soft drinks companies are great examples of businesses that expand by diversification. A
company like Coca-Cola, for example, sells its drinks into practically every country in the world
and it’s doubtful you could teach it anything about distribution strategies. Furthermore, the
world has a limited appetite (pun entirely intended) for more soft drinks. We’re already
flooded with them (okay, I’ll stop the puns now).

So Coca-Cola expands by diversification. In 2019 it bought Costa Coffee, for example. Costa
may still be a drinks company but the consumer who sits in a coffeehouse or grabs a drive-
through coffee is very different to the shopper who buys a can of Coke.

The other reason why the Coca-Cola example is illustrative is that shows company
diversification needs deep pockets. Whether you acquire an existing company or develop a
new product for a new market, you have to be ready for a significant investment.

The Virgin Group & Company Diversification

By happy coincidence, this market also provides us with our Virgin Group example. Virgin
diversified when it launched Virgin Cola. It hadn’t produced soft drinks before and it didn’t
operate in the fast moving consumer goods market (FMCG). Virgin Cola was not a success
which should be pause for thought for the rest of us.

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The Nine-Box Ansoff Matrix
Since the original Ansoff Matrix was published in 1957 it has been “improved” by adding
enhanced products and expanded markets in between the new and existing positions.

It’s our advice to ignore this improvement. The Ansoff Matrix isn’t a precise planning tool. It
was never meant to be. It’s beauty is its simplicity and its familiarity. When you make it more
complex you rob it of its prime assets and get no benefit in return.

So, that’s the Ansoff Matrix. It’s an old model but it’s still useful because, as we said at the
start, it opens your eyes to the challenges that face any growth plans you have.

Next steps
1. The DIY route. If you want to put the Ansoff Matrix in action, you have all you need.
2. The Assisted route. If you don’t have the time, people or system to do this yourself,
well, that’s what we’re here for. Give us a call. We’re surprisingly friendly.

Remember, Forbes Baxter Associates is a marketing development agency so we develop your

in-house marketing skills while we help you grow your business.

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Some links to servcies you may find useful

Marketing Events & Marketing Training &

Strategy Webinars Department Developing

Brand Lead Market Marketing

Marketing Generation Research Automation

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