The Boston Matrix - A Level Business
The Boston Matrix is a tricky A Level Business model to get your head around. Check out this quick article to solidify your understanding.
Understanding The Boston Matrix
The Boston Matrix is a strategic management tool developed by the Boston Consulting Group (BCG) in the 1970s. Its purpose is to aid companies in evaluating the performance of their products or services in relation to their market growth rate and market share. The matrix classifies products into four categories:
1. Stars
These are products with high market growth and high market share. They have the potential to become cash cows in the future if their success continues.
2. Question Marks (AKA: Problem Children)
These products have high market growth but low market share. They require careful consideration and investment to determine if they will become stars or eventually fade away.
3. Cash Cows
Cash cows have low market growth but high market share. They generate steady profits and are valuable assets that can fund other ventures.
4. Dogs
Dogs exhibit low market growth and low market share. They may not be lucrative and might need to be phased out if they can't be turned around.
The circles represent the products. The size of the circle is proportional to the sales revenue. The larger the circle, the higher the sales revenue.
Analysing Product Portfolios
The Boston Matrix helps businesses assess the potential of their products or services and strategically allocate resources. Here’s how you can use the matrix for portfolio analysis:
1. Resource Allocation
By categorising products, businesses can allocate resources more effectively. Stars might need substantial investment to maintain growth, while cash cows can provide funds for other ventures.
2. Risk Management
Question marks can represent potential opportunities or threats. Businesses must decide whether to invest further or divest in these products based on their growth prospects.
3. Strategic Direction
The matrix guides the development of a balanced portfolio. Businesses can aim for a mix of stars, cash cows, and potentially question marks to ensure long-term stability.
4. Innovation and Substitutes
Businesses can invest in innovation to devise products or services that are less vulnerable to substitution. A lucid understanding of substitutes can also direct product development strategies.
5. Competitive Positioning
Discerning the intensity of rivalry can influence pricing strategies, advertising endeavours, and the pursuit of niche markets where competition is less cutthroat.
Edexcel A Level Business Video Library
How to access the sample tutorials:
(1) Click the button below.
(2) A trial version of the learning portal video will open where you can view one sample tutorial from each theme.
(3) Use the menu bar on the left hand side of the screen to navigate to the next sample tutorial.
(4) If you are using a mobile device, tap the top left-hand corner of the screen to open the menu.