prefer to source from local suppliers, especially those that have been suppliers for a long period. The business will need to assess the competitive chances politically as much as commercially.
PRODUCT MANAGEMENT AND THE BOSTON MATRIX
The strictly growth business must have a number of product lines if it is to remain in permanent growth. The Boston Matrix is, arguably, the most powerful product marketing tool available. This, together with the Product Life Cycle, provides the basis for managing the product range.
Classical economics is the science of demand and supply. These two marketing tools provide a means to manage demand and supply.
The Boston Matrix has four categories for products , or indeed entire businesses. It analyses these in terms of the market growth rate and the relative market share.
The Problem child where market growth is high but market share is low.
These may well have been new products which either failed to take off or were beaten to the market by competition. Market failures should be scrapped very quickly. Products beaten by competition at the early stages might remain for redevelopment and relaunch, but only if the business believes it is either an absolute essential or the odds on succeeding and catching up the successful competitor are high.
The Rising Star where market growth is high and market share is growing fast.
These successful new products must be supported extremely strongly in order to establish and retain a market lead and provide long term benefits from establishing the “first-in” position. These are likely to need strategic investment in the early stages using all the cash generated or even ahead of generation by using cash generated by other products in the portfolio.
The Cash Cow where market growth is low but market share high.
These are the rising stars of previous times and the business will wish to extend their life as long as possible through product development, branding and promotion. Investment needs to be strong but, in this case, always from cash generated.
Finally Dogs where both market growth and market share are low.
These could be a failed problem child or simply products which failed to win the competitive game. Dogs should be avoided if at all possible by early divestment, possibly to the winning businesses, or subjected to managed decline minimising the final impact on cash flow. A third approach is to build a “kennel” of dogs by acquiring other competitive products and thereby increasing market share to become a cash cow. The dream scenario would be to build on the skill base and reinvent the product line into an entirely new market opportunity and become a rising star.
I like to add a fifth category of test tube baby, which is products still in development.
The strictly growth business should have a number of these ready on the shelf for launch when market conditions are right. These may include second generation products used to extend the life of cash cows or entirely new products waiting for the right market conditions prior to launch.
BUILDING THE PORTFOLIO
There are many ways of building the product portfolio over time The chart above shows how this might be accomplished. The four quadrants of the Boston Matrix are expanded to provide space for the possible activities and the way in which products can be moved through, and between the different stages.
Rising Stars should be fed to fuel their growth. The finest possible result for a product is for an in-house invention to move immediately into rising star status.These require strong investment in capacity, marketing and product development. Unit costs need to be steadily reduced and as much added value built in as possible. The relationship with the customer base has to be developed and secured.
Rising stars that stall in their growth can be returned to problem child status for further consideration.
Another means of initiating a rising star is through acquisition.
Steady growth as a rising star will inevitably result in the product moving into the cash cow category.
The Problem child needs to be nursed along.This implies a limited amount of attention and cost. When it is deemed that the chance of life is minimal the product should simply be ditched. Products with potential have to be further developed to initiate growth and movement into the rising star category.
Cash cows are milked to generate cash for development of products in the other categories. The product life has to be extended as long as possible and the competitive position continually secured through steady investment. Selective reductions in some resources might be made to increase the margin. Cash cows can be converted back into rising stars through development of added value.
Acquisition to improve market share is also a viable approach for cash cows.
Aging cash cows will move towards dog status as the market declines.
Dogs have to be starved.There are a variety of ways dogs can be removed from the business. As a last resort they are simply closed down, but this often has heavy closure costs. Acquisition is a viable approach to increase the overall market share and thereby convert the dog into a cash cow. Divestment is the reverse of acquisition as another business improves market share of their product range.
Finally a dog can sometimes be re-invented and moved into rising star status by using the existing resources for an entirely new product venture.
REVIEWING THE STRATEGY AND THE PRODUCT LIFE CYCLE
The Product Life Cycle identifies four stages in the life of any successful product.
Early users or experimenters are the consumers prepared to take the risk of trying the product soon after it is launched. The growth stage occurs after demand takes off with many users and repeat purchase. The maturity stage kicks in when demand depends solely on repeat purchase and finally decline as the product loses its appeal as other new products starting up.
Typically products which began as test tube babies are launched and might become a problem child if not successful, or transform into rising stars before being cash cows. In practice they can move into almost any category at any time.
If products are unsuccessful they might simply die soon after launch or become low volume lines dependent upon repeat purchase by the early users or a succession of experimenters, who never repeat purchase.
The vital issues to get right are the change points in the Product Life Cycle when there are paradigm shifts in the pattern of demand. The business needs to react fast to these and take appropriate action ahead of competition.
The Chairman and CEO
