Boston MatrixThis relates closely to product life cycle. The Boston Matrix looks at the market growth and the market share of a product and identifies four types of products in an organisation's portfolio.
Question mark
Question marks are products with a low share of a high growth market. They absorb most money as you attempt to increase market share and many products fail to move beyond this phase. It is possible to develop these products and turn them into the stars and cash cows in the future, but a lot of financial support and commitment is required.
Stars
Stars are products that have successfully reached the growth stage in the life cycle. Although these products will also require a great deal of financial support, they will also provide a neutral cash flow and are good prospects for the future.
Cash cows
Cash cows have a high market share of a slow growth market. Cash cows generate more than what is invested in them and the cash may be used to help the question marks.
Dogs
Dogs are products in decline. These are products with a low share of a low growth market. They do not generate cash for the company and will usually be disposed of.
To maintain an effective portfolio development, it is important to have a balance of products at anyone time. The company will require a number of cash cows to be able to turn Question marks into stars, which may eventually become cash cows. Some of the question marks will become dogs, which need to be removed from the portfolio and this means the company will need a larger contribution from the successful products to compensate for the failures.
At each position within the matrix there are a number of opportunities 'open' to the company. For example, at the Cash-Cow stage the options are either to invest to maintain market share, or to minimise investment in the product, maximise the cash returns and grow market dominance with other products.
- Cadbury’s Question Marks would be the new Mye and Snaps as they have recently entered the market and have a low market share and high growth and they haven't started to make a profit yet as it has high costs from making, development and introducing it to the market.
- An example of a Star at Cadbury is Boost as it is still growing but is starting to make a profit.
- Cadburys Cash Cows include Flake, Roses, Crunchie, Wispa, Caramel and Dairy Milk as they have a high market share, low growth, and profitable as they earn more cash than is needed to maintain them and they are also market leaders.
- Cadburys Dog is Fuse as the product is in decline and it has cost more to make, development and introduce than they have received from sales.
My product will begin as a Question Mark as it will have only just entered the market and will have a low market share in a high growing market. By plotting Cadbury’s existing products onto the model, it tells me there are plenty of Cash Cows. This shows that Cadbury can support my product. There are currently two products classified as question marks, however, I do not think this would be a problem when launching my product. The model also tells me there is a gap in the market because, although I looked at the snacking segment, there does not appear to be many products aimed specifically for children. Hopefully, my product will quickly begin to make a profit and become a star then become well known and gain a high market share to move on to the cash cow stage.
Ansoff Matrix
The Ansoff Matrix shows the growth of a product and is widely used to analyse the strategic direction of a company. The matrix matches existing and new product strategies with existing and new markets. It identifies four options, shown on the model below.
Market penetration
This increases the company’s market share in its existing markets through its existing products. There is a low risk strategy because there is already a market and therefore there should be immediate interest from customers.
Market expansion
The company seeks to enter new markets or segments with its existing products. This has a medium risk strategy because the product already exists and there is an interest in it, but it is intended for a different market.
Product expansion
New products are developed for existing markets. This also holds a medium risk strategy. The firm already exists in the market, but the company has to rely on its customer loyalty in order for them to buy a new product.
Diversification
New products are developed for new markets. This has a high-risk strategy, as there is no certainty that people will be interested in the product or buy into the market. Diversification can be classified as:
- Horizontal
- Vertical
- Conglomerate
Horizontal diversification refers to the development of activities, which are complementary to or competitive with the organisation's existing activities.
Vertical integration refers to the development of activities, which involve the preceding or succeeding stages in the organisation's production process. Backward or upstream vertical integration takes place when the organisation engages in an activity related to the proceeding stage in its production process.
Forward or downstream vertical integration takes place when the organisation engages in an activity related to a succeeding stage its production process.
Conglomerate diversification refers to the situation where at face value the new activity of the organisation seems to bear little or no relation to its existing products or markets.
The advantages of diversification include:
- Cost savings due to the effects of synergy (where the combined effect exceeds the sum of the individual effects)
- Spreading of risk
- Control of supplies (mainly related to vertical integration)
- Control of markets (mainly related to vertical integration)
- Improved access to information
- Escape from declining markets
- Exploitation of under-utilised assets
- Possible disadvantages of diversification include:
- Inefficiency due to loss of synergy
- Inefficiency due to loss of managerial control
Cadbury and the Ansoff Matrix
Cadburys use Market Penetration when they re-launch, advertise or use special offers to increase sales. Examples of this is recently when Cadbury extended dairy milk by adding a king size and special offers would be 25% extra free. Cadbury also sponsors Coronation Street to gain customers from advertising.
Cadbury have used Product Development with their new product such as Boost, Mye and Snow flake, which Cadbury have launched to widen their product range.
Cadbury use Market Development when they use their chocolate for different segments such as seasonal products, such as Easter eggs or selection boxes.
Cadbury used Diversification when the company joined with Schweppes to become Cadburys Schweppes, selling drinks as well as confectionary products. Another form of Cadbury using Diversification would be Cadbury moving from chocolate bars to ice cream, cakes and biscuits.
My product will be in the product expansion category because there is already an existing market for children’s chocolate and it will be a new product entering an existing market. In the future, my product may be able to expand into a new market, moving the product to the market expansion segment on the matrix.
Some of Cadbury’s competitor’ products fit into the models as follows:
This shows that Cadbury’s main competitors have cash cows, which shows their products are doing well. Smarties for example are aimed at children and are in the market expansion and market penetration section of the Ansoff Matrix. This is because the product has been relaunched and advertised in a different way. The product also uses market expansion because Nestle have tried to target a new market in the relaunch of the product. This has shown to be effective, and may affect my product in a negative way. This is because the product has shown to be popular with children and now has an audience of adults aswel. Although this may make it difficult for my product at first, I believe with the right marketing strategy and promotion, it shouldn’t be a problem. The Kit Kat is a cash cow for Nestle and fits into the product expansion because it has been developed for existing markets including the Kit Kat chunky bar. This was also a success for Nestle. My product should be able to fit into the market and consumers should be interested in it. I think because Cadbury hold more of a market share than both Nestle and Mars, the brand name alone will influence consumers to buy my product.
Evaluation of the reliability of the models
I think that Boston Matrix is reliable as it consists of basic information, which gives a simple outline of market share and growth of a product. A company can determine how well their product is doing by basing it on this strategy. It also helps the company to see if they are doing well in the market by referring to the matrix such as stars, cash cows etc. For example Question marks are products that find it hard to begin to make profit and financially need a lot of help to make it a success. This can be proved because many products cannot become a cash cow immediately and only a few products are able to go straight to the top. The matrix helps firms to base their marketing strategies because they are able to look at the strengths and weaknesses, which allows them to come up with a strategy to improve on these areas. However, the model suggests that dog products are a bad thing. This is not always true, as they can keep competitors out and expand a company’s product range. A product may not go through all the stages, as a question mark might not become a star and could become a dog straight away. There are problems with using the Boston Matrix to plot a product. There is an assumption that higher rates of profit are directly related to high rates of market share, which may not always be the case. It also oversimplifies a complex set of decision and therefore, this model should only be used as a planning tool. The Boston Matrix allowed me to see where the current range of products are in the Matrix and where the product would be expected to go.
The Boston Matrix was good at analysing where the current range of products are and which products could require more investment to increase profits in the long run and the products that could need to be removed from the product range.
I think the Ansoff Matrix is also quite reliable as it shows what opportunities and developments can be made to a product. The Ansoff matrix told me what sort of extra marketing may be required if the products are to increase and grow. It is true that market development can lead to many things. For example the same product can be used to increase the market share by advertising differently or promoting in a different way. This model is very simplistic as only shows areas which products can go into or what they can do. It does not include anything about business finance or other external factors and its not always the same for all markets. This model is useful if it is used with the Boston matrix and the Product Life Cycle. The Ansoff Matrix is useful if Cadbury know what they want to out of it. For example, If Cadbury's had an existing product in an existing market and wants to increase sales they would use market penetration.
Using the SWOT analysis was good for identifying the strengths, weaknesses, opportunities and threats. The SWOT analysis was very helpful in deciding whether it would be worthwhile for Cadbury's to launch a breakfast cereal.
The PEST analysis this was useful in identifying the following:
- The problems new laws could bring
- The changing social attitudes and the fall in sales if the breakfast cereal wasn't made to be healthy
- The problems a change in the economy could bring although currently the economy is at a stage where launching a breakfast would be very feasible
The PEST analysis was effective at showing the possible problems that may arise if changes in the laws and social habits were to occur.
The three models can be linked together. Each stage of the product life cycle can be linked to each category in Boston’s matrix.
This can be explained because when a product is first introduced to a market, it has a low share of a high market growth, making it a question mark. A dog is a product with a low share of a low growth market and is therefore in the decline stage.
Ansoff’s market expansion is same as the extension strategy in the Product Life Cycle because it is an existing product in a new market. This can also be linked with Boston’s question mark or star because the product being re-launched must be a product that is successful and either in the introduction or growth stage in the product life cycle.
At the growth stage in the Product Life Cycle, a company should expand market share by trying to get new people to try the product and existing customers to buy more. The company should therefore use market expansion. In the decline stage, the company should try to re-launch the product, which would be using product or market expansion. Market penetration could be used if a successful product was being re-launched to increase the company’s market share, but this would not work if the product were a dog.
The marketing models can be influenced other factors and research. Cadbury’s competitors may affect the company’s use of the Ansoff Matrix. The model is used to analyse the strategic direction of a product, and if a product was placed in the market expansion, which has medium risk strategy, and competitors also released a similar product in this section, there will be a higher risk strategy, which will affect the product’s performance and position in both the Boston matrix and the product life cycle.
My questionnaire told me there was a gap in the market for my product, and my SWOT analysis reinforced this. This then tells me that my product should do well as a question mark, in the introduction stage of the product life cycle and as product expansion.
