by Freddy J. Nager, Founder & Fusion Director, Atomic Tango LLC
The stock market these days is looking about as appetizing as a plate of warmed-over head cheese. At the same time, the real estate market is making the head cheese look good. So as a result, many businesses are cutting their expenses, particularly in marketing.
Yes, as a devoted reader of this blog, you know they’re making a mistake… With the competition scampering and cowering like Dick Cheney during a terrorist attack, now would be a strategically killer time to invest in a full-on marketing offensive.
But, alas, you have no choice. Most of your cash is going to gas-up your SUV, and the car dealership guys break into hysterics whenever you ask about trading it in.
So a cutting we go — but where? Do you use your handful of ad dollars to hype your best selling products? Or do you try to rescue products that just aren’t moving?
This question crossed my mind the other day when I saw a big, expensive ad in the L.A. Times offering a great deal on a Hummer. Considering that consumers are now clamoring for small cars, is GM being smart or have they completely lost it? Of course, you know I’ve got an opinion, but let’s have some fun and apply a little methodology…
One framework you can use here is the classic Boston Consulting Group Matrix, which has been taught to flocks of MBA students everywhere for over 30 years, but you get to learn it here free. (Is this blog a bargain or what?) The BCG matrix uses the criteria of market growth rate and market share to analyze product portfolios and allocate financial resources. It consists of a 2×2 matrix with four categories apparently named by a 3-year-old:
- Question Marks: products with low share of a high-growth market
- Stars: products with high share of a high-growth market
- Cash Cows: products with high share of a low-growth market
- Dogs: products with low share of a low-growth market
Theoretically, most products pass through all four stages as they mature, starting out as question marks and ending up as dogs. Some products can also sit right on a border between categories. (Note: I use “products” here, but you can also use the matrix to analyze brands or entire businesses.)
Now, if you’ve got time on your hands and really want to impress your boss, you can treat the crossbars of the matrix as an X axis and a Y axis, with your products relatively positioned within each box. However, doing so could lead to a marathon discussion over whether a product should be positioned a little bit higher or lower and possibly to the right a bit… in other words, the dreaded paralysis by analysis. So unless you’re getting paid by the hour, I recommend sticking to a simple 2×2 matrix.
Once you put all of your company’s products into their respective categories, you then consider these rules:
- Stars: invest your marketing dollars in these since they could become dominant market leaders
- Cash Cows: milk these to provide the cash to invest in your stars and a few question marks
- Question Marks: invest in the most promising of these as well — but only a few
- Dogs: cut the leash and let these go to the highest bidder for some much needed cash
To illustrate, imagine that you’re Coca-Cola. Your portfolio might look something like this:
- Question Mark: your energy drink brand (Full Throttle)
- Star: your bottled water (Dasani)
- Cash Cow: your namesake soft drink (Coca-Cola)
- Dog: your sweetened juice drink (Hi-C)
As Coca-Cola’s CMO, you would use income from Coke to invest primarily in Dasani and Full Throttle, while looking to sell off Hi-C to some private equity fund with too much cash on its hands.
But before you rush off and start reallocating your dinero, consider these caveats…
Caveat #1: Markets change with the economy and other conditions — sometimes very quickly. What if consumers make a massive shift from bottled water to tap water, as many municipal governments are doing? Dasani is doomed. Or what if Tiki Bar TV uses Hi-C as a drink mixer, making it a hip and trendy drink amongst geeks overnight? Your dog is now a star…
Caveat #2: One company’s dog is another company’s cash cow (or better). Some investors have struck gold by buying another company’s dogs. In 2003, Nike bought troubled Converse for only $305 million (less than what the movie “Iron Man” earned in two months). Nike then marketed Converse through retailers (such as Target) where it would not allow its own brand to be sold. In 2007, Converse earned $550 million. With Nike’s resources and marketing ingenuity, this old dog learned a few tricks.
What matters most is what makes sense for your business. For example, some companies might prefer to have cows over stars, because cows require less advertising and innovation. They’re also less risky. So don’t just rely on the BCG Matrix alone to make your decision — it’s just a start. Keep an eye on market trends, and consult a marketing expert about what you might be able do with the product.
Back to GM. As we all know, SUV’s were stars just a couple of years ago, while small cars were dogs; now, because of evil gas prices, SUV’s are barking while small cars are shining. So by advertising the Hummer, GM put their money into a dog. According to the BCG Matrix, that’s not the best possible use of their limited resources. But of course, without bad decisions, GM wouldn’t be GM now, would it?
To have the BCG Matrix professionally applied to your business, with strategies on how to maximize your portfolio, contact Atomic Tango…
Like that? Click this for more: Hey There Mighty Brontosaurus: Marketing Myopia Lives On
head cheese: Methyl Lives, Creative Commons
BCG Matrix: Netmba.com, Creative Commons