The market share matrix as
a strategic planning tool has made a significant contribution to strategic
management and continues to be an important strategic tool used by companies
today. The matrix provides a composite picture of the strategic position of
each separate business within a company so that the management can determine
the strengths and the needs of all sectors of the firm. The development of the
matrix requires the assessment of a business portfolio, which includes an
organization’s autonomous divisions (activities, or profit centers).
a strategic planning tool has made a significant contribution to strategic
management and continues to be an important strategic tool used by companies
today. The matrix provides a composite picture of the strategic position of
each separate business within a company so that the management can determine
the strengths and the needs of all sectors of the firm. The development of the
matrix requires the assessment of a business portfolio, which includes an
organization’s autonomous divisions (activities, or profit centers).
The market share matrix
presents graphically the differences among these business units in terms of
relative market share and industry growth rate. The vertical axis represents in
a linear scale the growth rate of the market in which the business exists (as
shown in the diagram above). This is generally viewed as the expected growth
rate for the next five years of the market in which a particular business
competes. The values of the vertical axis are the relevant market growth rates
(i.e., 5 percent, 10 percent, 15 percent, 20 percent, etc.). Usually a 10
percent cut-off level is selected in order to distinguish high from low market
growth rate (a 10 percent value corresponds to doubling current experience in
the next five to seven years).
presents graphically the differences among these business units in terms of
relative market share and industry growth rate. The vertical axis represents in
a linear scale the growth rate of the market in which the business exists (as
shown in the diagram above). This is generally viewed as the expected growth
rate for the next five years of the market in which a particular business
competes. The values of the vertical axis are the relevant market growth rates
(i.e., 5 percent, 10 percent, 15 percent, 20 percent, etc.). Usually a 10
percent cut-off level is selected in order to distinguish high from low market
growth rate (a 10 percent value corresponds to doubling current experience in
the next five to seven years).
The horizontal axis
represents in a logarithmic scale the market share of a business within a firm
relative to the market share of the largest competitor in the market. For
example, Company A may have a 10 percent market share and Company B, the
leading competitor, holds 40 percent of the market. Company A’s market share
relative to Company B’s market share is 25 percent, or .25×. If Company A has a
40 percent share and Company B has a 10 percent share, Company A’s market share
is 400 percent, or 4.0×.
represents in a logarithmic scale the market share of a business within a firm
relative to the market share of the largest competitor in the market. For
example, Company A may have a 10 percent market share and Company B, the
leading competitor, holds 40 percent of the market. Company A’s market share
relative to Company B’s market share is 25 percent, or .25×. If Company A has a
40 percent share and Company B has a 10 percent share, Company A’s market share
is 400 percent, or 4.0×.
Relative market share is an
indicator of organizations competitive position within the industry, and
underlies the concept of experience curve. Thus, business organizations with
high relative market share tend to have a cost leadership position.
indicator of organizations competitive position within the industry, and
underlies the concept of experience curve. Thus, business organizations with
high relative market share tend to have a cost leadership position.
Each of a company’s
products or business units is plotted on the matrix and classified as one of
four types: question marks, stars, cash cows, and dogs. Question marks, located
in the upper-right quadrant, have low relative market share in a high-growth
market. These businesses are appropriately called question marks because it is
often uncertain what will happen to them.
products or business units is plotted on the matrix and classified as one of
four types: question marks, stars, cash cows, and dogs. Question marks, located
in the upper-right quadrant, have low relative market share in a high-growth
market. These businesses are appropriately called question marks because it is
often uncertain what will happen to them.
Careful examination by
management can help determine how many resources (if any) should be invested in
these businesses. If significant change can increase relative market share for
a question mark, it can become a star and eventually gain cash-cow status. If
relative market share cannot be increased, the question mark becomes a dog.
management can help determine how many resources (if any) should be invested in
these businesses. If significant change can increase relative market share for
a question mark, it can become a star and eventually gain cash-cow status. If
relative market share cannot be increased, the question mark becomes a dog.
The upper-left quadrant
contains stars, businesses with high relative market share in high-growth
markets. These businesses are very important to the company because they
generate a high level of sales and are quite profitable. However, because they
are in a high growth market that is very attractive to competitors, they
require a lot of resources and investments to maintain a high market share.
Often the cash generated by stars must be reinvested in the products in order
to maintain market share.
contains stars, businesses with high relative market share in high-growth
markets. These businesses are very important to the company because they
generate a high level of sales and are quite profitable. However, because they
are in a high growth market that is very attractive to competitors, they
require a lot of resources and investments to maintain a high market share.
Often the cash generated by stars must be reinvested in the products in order
to maintain market share.
When the market growth
slows down, stars can take different paths, depending on their abilities to
hold (or gain) market share or to lose market share. If a star holds or gains
market share when the growth rate slows, stars become more valuable over time,
or cash cows. However, if a star loses market share, it becomes a dog and has
significantly less value (if any) to the company.
slows down, stars can take different paths, depending on their abilities to
hold (or gain) market share or to lose market share. If a star holds or gains
market share when the growth rate slows, stars become more valuable over time,
or cash cows. However, if a star loses market share, it becomes a dog and has
significantly less value (if any) to the company.
The lower-left quadrant
contains businesses that have high relative market share in low-growth markets.
These businesses are called cash cows and are highly profitable leaders in
their industries. The funds received from cash cows are often used to help other
businesses within the company, to allow the company to purchase other
businesses, or to return dividends to stockholders.
contains businesses that have high relative market share in low-growth markets.
These businesses are called cash cows and are highly profitable leaders in
their industries. The funds received from cash cows are often used to help other
businesses within the company, to allow the company to purchase other
businesses, or to return dividends to stockholders.
Dogs generate low relative
market share in a low-growth market. They generate little cash and frequently
result in losses. Management should carefully consider their reasons for
maintaining dogs. If there is a loyal consumer group to which these businesses
appeal, and if the businesses yield relatively consistent cash that can cover
their expenses, management may choose to continue their existence. However, if
a dog consumes more resources than it’s worth, it will likely be deleted or
divested.
market share in a low-growth market. They generate little cash and frequently
result in losses. Management should carefully consider their reasons for
maintaining dogs. If there is a loyal consumer group to which these businesses
appeal, and if the businesses yield relatively consistent cash that can cover
their expenses, management may choose to continue their existence. However, if
a dog consumes more resources than it’s worth, it will likely be deleted or
divested.
Strategic business units,
which are often used to describe the products grouping or activities, are
represented with a circle in the market share matrix. The size of the circle
indicates the relative significance of each business unit to the organization
in terms of revenue generated (or assets used).
which are often used to describe the products grouping or activities, are
represented with a circle in the market share matrix. The size of the circle
indicates the relative significance of each business unit to the organization
in terms of revenue generated (or assets used).
One big advantage of the
matrix is its ability to provide a comprehensive snapshot of the positions of a
company’s various business concerns. Furthermore, an important benefit of the
market share matrix is that is draws attention to the cash flow, investment
characteristics, and needs of an organization’s business units, helping
organizations to maintain a balanced portfolio.
matrix is its ability to provide a comprehensive snapshot of the positions of a
company’s various business concerns. Furthermore, an important benefit of the
market share matrix is that is draws attention to the cash flow, investment
characteristics, and needs of an organization’s business units, helping
organizations to maintain a balanced portfolio.
Unfortunately, the market
share matrix, like all analytical techniques, also has some important
limitations. It has been criticized for being too simplistic in its use of
growth rate and market share. Market growth rate is only one variable in market
attractiveness and market share is only one variable in a business’s
competitive position. Furthermore, viewing every business as a star, cash flow,
dog, or question mark is not always realistic. A four-cell matrix is too simple
because strategic competitive positions are more complicated than
“high” and “low”.
share matrix, like all analytical techniques, also has some important
limitations. It has been criticized for being too simplistic in its use of
growth rate and market share. Market growth rate is only one variable in market
attractiveness and market share is only one variable in a business’s
competitive position. Furthermore, viewing every business as a star, cash flow,
dog, or question mark is not always realistic. A four-cell matrix is too simple
because strategic competitive positions are more complicated than
“high” and “low”.
Another disadvantage of
using the market share matrix is that it is often difficult for a company to
sufficiently divide its business units or product lines. Consequently, it is
difficult to determine market share for the various units of concern.
using the market share matrix is that it is often difficult for a company to
sufficiently divide its business units or product lines. Consequently, it is
difficult to determine market share for the various units of concern.
