To understand the Boston Matrix, you need to understand how market share and market growth interrelate.
Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control.
The Boston Matrix assumes that if you enjoy a high market share you will be making money. (This assumption is based on the idea that you will have been in the market long enough to have learned how to be profitable, and will be enjoying scale economies that give you an advantage).
The question it asks is, "Should you be investing additional resources into a particular product line just because it is making you money?" The answer is, "not necessarily."
This is where market growth comes into play. Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable.
By contrast, competition in low growth markets is often bitter, and while you might have high market share now, it may be hard to retain that market share without aggressive discounting. This makes low growth markets less attractive.
Understanding the Matrix
The Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:
These groups are explained below:
Dogs: Low Market Share / Low Market Growth
In these areas, your market presence is weak, so it's going to take a lot of hard work to get noticed. You won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit. And because market growth is low, it's going to take a lot of hard work to improve the situation.
Cash Cows: High Market Share / Low Market Growth
Here, you're well-established, so it's easier to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing, and your opportunities are limited.
Stars: High Market Share / High Market Growth
Here you're well-established, and growth is exciting! There should be some strong opportunities here, and you should work hard to realize them.
Question Marks (Problem Child): Low Market Share / High Market Growth
These are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there.
Question Marks might become Stars and eventual Cash Cows, but they could just as easily absorb effort with little return. These opportunities need serious thought as to whether increased investment is warranted.
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