Product portfolio analysis — common mistakes

In exam answers, link the cash generated by 'Cash Cows' to the investment needs of 'Stars' and 'Question Marks'. This demonstrates a strategic understanding of portfolio balance and internal financing.

For evaluation marks, always critique the model. Discuss how its simplicity is both a strength (easy to use) and a weakness (lacks detail). Use phrases like 'While the model suggests..., in reality...' to show a balanced perspective.

Yes. The matrix is a simplification. A 'Dog' might be kept for strategic reasons, such as completing a product range to satisfy key distributors, or if it was a founding product with sentimental value. It might also be used as a 'loss leader' to attract customers to more profitable products (synergy). The cost of divestment could also be higher than the small loss it makes.

Not necessarily. High market share (like a Star or Cash Cow) is generally desirable as it can lead to economies of scale and market power. However, it might have been achieved through costly price wars, reducing profitability. Conversely, a low market share product (a Dog or Question Mark) could be operating profitably in a small, niche market. The matrix doesn't show profitability, which is a major limitation.

This is a key weakness of the model as there is no universal standard. 'High' relative market share is often defined as being greater than 1.0 (i.e., having a larger share than the next biggest competitor). 'High' market growth is often benchmarked against the economy's GDP growth rate, with anything significantly above (e.g., >10% per annum) considered high. However, these are just guidelines, and the divisions are arbitrary, which can lead to different classifications for the same product.