by Freddy Tran Nager, Founder of Atomic Tango + Occasional Dog Lover…
When the economy gets rough, many businesses cut their marketing. Now, as a devoted reader of this blog, you know that’s a big mistake. The best time to launch a full-on marketing offensive is when the competition is crying and cowering like Dick Cheney during a terrorist attack.
But, alas, you have no choice. Most of your cash is going to fixed costs, like rent. 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?
To help you make your decision, you can use the classic Boston Consulting Group Matrix, which MBA students have used for decades. The BCG matrix applies the criteria of market growth rate and market share to analyze brand 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 have time and want to impress your boss, you could treat the matrix crossbars 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, 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 sell these to the highest bidder for much needed cash
To illustrate, imagine that you are 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 in Dasani and Full Throttle, while unloading Hi-C to a private equity fund with too much cash on its hands. But before you reallocate your dinero, contemplate these two 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 a hip-hop mogul mixes Hi-C with vodka in his music video, making it a trendy drink overnight? Your dog is now a star…
Caveat #2: One company’s dog is another company’s cash cow (or better).
Some investors have scored big by buying 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 cows because they’re less risky and require less advertising and innovation.
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 can do with the product.
Update 12/4/13: For an example of brand portfolio management, read how surfwear brand Quiksilver is selling off a few of its dogs and question marks to focus on its stars and cash cows.