Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
Contents
1. Portfolio Models .............................................................................................................................. 2
1.1 Boston Matrix .................................................................................................................... 2
1.2 Implications ....................................................................................................................... 2
1.3 Strengths and Weakness of the Boston Matrix .................................................................. 3
1.4 Product lifecycle models.................................................................................................... 4
2. Portfolio mix at TMN Media ........................................................................................................... 5
2.1.1 Does market share = profitability? ...................................................................................... 6
2.1.2 Are labels positive? ............................................................................................................. 6
2.1.3 How do divisions interact? .................................................................................................. 6
3. Recommendations ............................................................................................................................ 6
3.1 Recommendation 1: Use the GE Matrix .................................................................................... 7
3.1.1 Market attractiveness vs market growth ............................................................................. 7
3.1.2 Competitive strength vs market share ................................................................................. 7
3.2 Recommendation 2: Net Present Value and Opportunity Cost .................................................. 7
3.3 Recommendation 3: Product lifecycle analysis ......................................................................... 8
References ............................................................................................................................................ 9
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
1.Portfolio Models
There are various portfolio models available to marketing managers to assist in the management of
a company’s product mix. There are numerous portfolio models available, including:
o Ansoff Matrix
o GE Matrix
o Boston Matrix
For the purposes of this report however the Boston Matrix will be used.
1.1 Boston Matrix
The Boston Matrix was created by the Boston Consulting Group in 1970, Hannagan (xxxx), to aid
clients in managing their product/service portfolios. It consists of four elements.
o Stars – high market share and high growth rate
o Problem child – low market share but high growth
o Cash cow – high market share but low growth
o Dog – low market share and low growth
An ideal product portfolio would consist of products/services in a range of sectors. This would
allow managers to invest money from cash cows into stars to further develop those products, or
indeed be invested in problem children to help turn them into stars. GE under Jack Welch (xxxx)
famously sold off divisions that weren’t in the top 2 of their sector (dogs) and such cutthroat
management of a product portfolio is one of the distinct advantages of portfolio modelling.
1.2 Implications
1.2.1 Stars
o Huge potential
o May have been expensive to develop
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Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
o Worth spending money to promote
o Consider the extent of their product life cycle in decision-making
1.2.2 Problem child
o What are the chances of these products securing a hold in the market?
o How much will it cost to promote them to a stronger position?
o Is it worth it?
1.2.3 Cash cow
o Cheap to promote
o Generate large amounts of cash – use for further research and development?
o Costs of developing and promoting have largely gone
o Need to monitor their performance – the long term?
o At the maturity stage of the product life cycle?
1.2.4 Dogs
o Are they worth persevering with?
o How much are they costing?
o Could they be revived in some way?
o How much would it cost to continue to support such products?
o How much would it cost to remove from the market?
1.3 Strengths and Weakness of the Boston Matrix
The Boston Matrix has a number of issues that limit its effectiveness as a portfolio management
tool. For instance it is important to remember the various stages a product is at in the product
lifecycle. Start-up ventures typically cost money in their initial stages, and so whilst they may have
strong market share they may also have high costs.
Likewise market share should not be regarded as the sole determinant of success for a product.
Many products thrive in a niche environment and remain profitable. Finally the size of the market
also needs to be taken into account. For instance a car company may have low market share, in a
low growth industry (and thus be termed a dog), yet still have a healthy profit margin. This relative
simplicity in analysing the market has led to GE creating its own variation of the Boston Matrix,
which is included below for reference.
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
As with many things in life, the weaknesses of the Boston Matrix can also be regarded as a strength.
For instance the simplicity in its creation might lead to overly simplistic results on occasion but also
creates very low barriers to creation, allowing a wide range of people to compile and utilise the tool
to measure competitive position.
1.4 Product lifecycle models
Whilst product portfolio models allow you to analyse the range of products sold by a company, it is
also important to analyse the lifecycle of each individual product. By using the product matrix
alongside the product lifecycle it’s possible to map not only the position of individual products but
an entire product range and gain an understanding of how products influence one another within the
company. The basic product lifecycle model is shown below.
This model has been taken and adapted, much as the original Boston Matrix, and has produced
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Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
models such as Roger’s Innovation Adoption Curve, shown below.
2.Portfolio mix at TMN Media
As befitting most companies, TMN Media has a range of websites (products) that exist at various
stages of the product lifecycle/portfolio. The model below provides a graphical representation of
some of the main websites operated by TMN Media and their relative positions.
Select Your
Magazine
PlumPrizes
Survey
Central
MutualPoint
s
This model has been used to plan the strategy for each of the four websites at TMN Media.
MutualPoints for instance has been highlighted as a cash cow as the cashback market is regarded as
one of low growth and highly competitive, with the relative strength of the website to compete in
this market also low.
2.1 Does the model help or hinder planning?
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
The previous chapter outlined a number of limitations of the BCG Matrix and it is important to
consider these limitations in the context of the models use in the planning process. These will be
covered in turn below with their implications for the TMN Media business.
2.1.1 Does market share = profitability?
The BCG matrix assumes a causal relationship between market share and profitability. Wensley
(1981) argues that there is little empirical evidence to support a causal relationship between market
growth and profits.
One practical difficulty in this assumption is in measuring market share in the first place.
Competitive analysis tools such as Hitwise allow the company to analyse the market share of
various website in terms of website traffic, but this doesn't reflect profitability and doesn't measure
the entire market. Wind et al. (1983) demonstrated that decisions based on the BCG matrix are
sensitive to choice of the methods of measuring market share and growth rates and this certainly
seems to apply in this instance.
2.1.2 Are labels positive?
One of the main attractions of using matrix models is the labels that they attach to the various
segments of the model, and thereby to the various products or divisions that find themselves in
those segments. Tversky and Kahneman (1981) highlight some problems with this 'mental
accounting' and suggests that the labels used in the BCG Matrix could lead to difficulties for the
divisions within them. For instance cash cow divisions may find that money is siphoned off from
them due to their label. Those with a dog label may find that they are regarded as not worthy of any
money (or indeed pride and attention) at all. Who would want to work on a website labelled a dog
after all? Do staff working on a cash cow (MutualPoints) feel they have little future on the project
and therefore show little care and attention towards things such as customer service?
This emphasis on labels to provide a form of executive summary also can lend too much weight to
the outcome rather than the processes behind the labels themselves. For instance if managers use
the model as the basis of their decision making without knowing or understanding the workings
behind the model, can they make accurate decisions on the product portfolio? This is often the case
at TMN Media, despite all managers having access to accurate revenue statistics and growth rates,
the propensity is to rely heavily on the model to form opinions.
2.1.3 How do divisions interact?
A final major flaw of the BCG Matrix is its failure to take account of how divisions interact within a
company. At TMN Media it is common for websites to market within the company network,
therefore sharing customer databases and cross selling products within the network. This network
value isn't taken into consideration in the BCG Matrix, so the value of a large customer database on
a slow growth website to the other websites in the network is not communicated via the model.
3.Recommendations
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
Whilst the use of the BCG Matrix model does have its limitations it is important to appreciate the
importance of taking a rational approach to portfolio planning. Without such structured thinking it
is possible for managers to use unstructured judgement that may be inconsistent with maximising
profit. For instance Arkes and Bulmer (1985) argued that many managers used emotional factors
such as the existing investment in a project to determine its future rather than a rational evaluation
of its current and future profitability.
So use of portfolio management tools such as the BCG Matrix can lead to managers making
decisions that are more rational, but are they as rational as is possible? The original developers of
the BCG matrix have heeded warnings about misuse of this matrix as a decision making tool.
(Morrison and Wensley, 1991). It is arguably these limitations that led to groups such as GE to
develop their own enhanced version of the BCG Matrix. So the first recommendation is to use a
more developed matrix tool such as the GE Matrix.
3.1 Recommendation 1: Use the GE Matrix
The GE Matrix offers a more complete planning tool because it uses a wider range of variables and
assigns each variable a weighting in order to create positions inside the matrix for each product or
division.
3.1.1 Market attractiveness vs market growth
By utilising the market attractiveness metric the GE Matrix allows TMN Media to utilise more
traditional marketing analysis such as Porters Five Forces (Porter, 2004) to determine the
attractiveness of the marketplace, rather than relying upon market growth rates, which are often
difficult to attain, especially for niche markets. It also allows the company to incorporate PEST
analysis into the portfolio planning process.
3.1.2 Competitive strength vs market share
The GE competitive strength segment provides far richer understanding and analysis of the
company’s strengths and weaknesses. As it incorporates the basic elements of SWOT analysis, plus
a good deal more, such analysis will also prove useful in doing a company audit, the first stage in
any planning process.
3.2 Recommendation 2: Net Present Value and Opportunity Cost
Economic theory says that you should select the investment that produces the highest long-term
return on investment. Therefore in any such discussion the use of net present value is a crucial
undertaking. The basic BCG Matrix typically excludes the use of net present value in its
calculations, which if the company is using credit for investment decisions is an important
omission.
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
Opportunity cost is another important consideration to have when making economic decisions. It is
basically defined as the cost forgone by choosing one option over another. With portfolio planning
essentially doing just that it is a crucial element of the decision making process. The BCG Matrix
fails to accurately take this into account because each unit is regarded as independent of each other
unit.
3.3 Recommendation 3: Product lifecycle analysis
The third and final recommendation is for the use of lifecycle analysis. The various stages of a
products lifecycle require different treatment and understanding, both of which are largely neglected
by the BCG matrix. Whilst it is worth remembering that life cycle maps aren’t set in stone either
they remain an important tool to help position products and units in their lifecycle.
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Marketing Management
Candidate Number CIM Professional Diploma in Marketing Task Number
12115954 Marketing Management Four
References
Arkes, H.R. and C. Bulmer (1985), “The psychology of sunk costs,” Organizational Behavior and
Human Performance 35,124-140.
Morrison, A. and R. Wensley (1991), “Boxing up or boxed in? A short history of the Boston
Consulting Group share/growth matrix,” Journal of Marketing Management, 7, 105-129.
Porter, M (2004), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free
Press.
Tversky, A. and D. Kahneman (1981), “The framing of decisions and the psychology of choice,”
Science 211,453-458.
Wensley, R. (1981), “Strategic marketing: Betas, boxes, or basics?” Journal of Marketing 45, 173-
181.
Wind, Y., V. Mahajan and D.J. Swire (1983,) “An empirical comparison of standardized portfolio
models,” Journal of Marketing 47, (Spring), 89-99.
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