Boston matrix - QUESTION MARK
Question mark products:
Have low market share
Are in a high growth market
Question mark products have lots of potential to become stars if they are managed correctly
Question marks will need lots of investment in marketing and promotion – if they are to succeed
Boston matrix - CASH COW
Cash cow products:
Have high market share
Are in a low growth market
Cash cow products are good sellers and need little or no new investment
The product just need to be ‘milked’ for cash (hence the term)
Cash cows need monitoring in case they become dogs
Boston matrix - DOG
Dog products:
Have a low market share
Are in a low growth market
Dog products require no investment as they are in the decline phase of their lifecycle
The product may have become obsolete or replaced
The business may consider discontinuing or withdrawing the product
Uses of the BOSTON MATRIX
The Boston matrix is a good starting point when reviewing an existing product line to decide future strategy and budgets
The conclusions drawn from such an analysis are to transfer the surplus cash from cash cows to the stars and the question marks, and to close down or sell off the dogs
In the end, question marks reveal themselves as either dogs or stars, and cash cows become so drained of finance that they turn into dogs
Limitations of BOSTON MATRIX
Products may not be low or high market share they could be medium
High market share does not always lead to high profits, there are high costs also involved with high market share
Many people argue this matrix is too simple
Advantages of COST-PLUS PRICING
Makes sure the business covers all their costs
Helps the business to calculate its break-even and margin of safety
Very flexible can be adjusted to cover the rise in the cost of a raw materials
Disadvantages of COST-PLUS PRICING
The business may have been able to charge a higher price and does not take other factors into account such as level of demand (was it sold too cheaply?)
Difficult to be accurate with all costs
Advantages of PENETRATION PRICING
A good way for a business to establish a product or a brand as a market leader
Word-of-mouth recommendations quickly spread
Prices can be slowly raised after the launch or promotion is over
Disadvantages of PENETRATION PRICING
Low profit margins
No way to tell if customers would have bought the product at a higher price anyway
Advantages of COMPETITIVE PRICING
Matches the prices that the competitors charge reducing the number of customers switching to alternative brands
Prevents price wars
Customers can compare brands if the prices are the same
Disadvantages of COMPETITIVE PRICING
A higher price may have been possible
Does not take into account the demand
Rising costs will have to be absorbed by the business and cannot be passed on to the customer
Causes shrinkflation (reduced product size but the price stays the same e.g. toblerone)
Advantages of SKIMMING PRICING
Very profitable pricing method
Price suggests quality will help to support the brand
Helps to recoup expensive R&D costs of games design or technology development
Disadvantages of SKIMMING PRICING
Early customers may delay purchase due to the high price at launch
High prices may put customers off
Advantages of PROMOTIONAL PRICING
Will increase sales volume
Can be useful when stock is old or out of season and needs to be sold
Appeals to price sensitive customers
Disadvantages of PROMOTIONAL PRICING
Lower prices do not communicate quality to the customer
Reduces profit margins
Customers may not buy once the product returns to normal prices
Disadvantages of BEING A RETAILER
Retailers are only open during the day and customers may be too busy with work or family
Customers may have to wait in a queue or carry heavy bags of shopping
Customers may find it embarrassing to buy some personal items
May charge higher prices than the e-tailers
Advantages of BEING A RETAILER
Going shopping is an enjoyable experience that customers can do with their friends or family
Customers can have the product as soon as they have bought it – instant satisfaction
Customers needs to see, touch, try or test a product first will help the business gain trust and loyalty
For more expansive items like a caravan or jewellery a customer will want the help of a sales person
