Boston Matrix and Investment Strategy

The Boston Matrix was developed in the 1970s by The Boston Consulting Group as a way of helping companies to decide on an appropriate investment strategy for their future.

The diagram shows how different products or parts of a company can be compared in terms of market growth and market share.

Cash Cow Section (High Market Share but Low Growth)
If a product or business unit is a cash cow then it has a large share of a market that is no longer growing. It produces a lot of revenue but most of this can be invested in other areas of the company as further investment in the cash cow would produce little or no extra profit.

Star Section (High Market Share and High Growth)
A star also has a large share of the market but, unlike the cash cow, it is growing quickly. In order to grow further, it requires more investment which it is often able to pay for from its own profits. When it stops growing, a star may become a cash cow.

Problem Child Section (Low Market Share but High Growth)
A problem child or question mark has a small share of a growing market; it needs considerable investment if it is to grow.

Dog Section (Low Market Share and Low Growth)
A dog has a small share of a market that is not growing. A dog is of little value to most companies and a decision must be taken whether to continue investing in it.

Understanding the Market Share and Relation to Market Growth Using Boston Matrix

Market share is the percentage of the total market that is being serviced by company, measured either in revenue unit volume terms. The higher your market share, the higher proportion of the market you control.

The Boston Matrix assumes that if you enjoy a high market share you will normally 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 of whether the company need to use the available resources to invest in the profitable product is highly depends on the product life cycle stage, competition and forces of environment.

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, which should provide the opportunity for businesses to make more money, 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, what will the situation look like in a few months or a few years? This makes low growth markets less attractive.