Exhibit 104

Matrix Quadrants

Relative Market Share




Question Marks

Product Sales Growth Rate

Cash Cows


Cash Cows


The ultimate value of any product or service is reflected in the stream of cash it generates net of its own reinvestment. For a star, this stream of cash lies in the future—sometimes in the distant future. To obtain real value, the stream of cash must be discounted back to the present at a rate equal to the return on alternative opportunities. It is the future payoff of the star that counts, not the present reported profit. For GE, the plastics business is a star in which it keeps investing. As a matter of fact, the company even acquired Thomson's plastics operations (a French company) to further strengthen its position in the business.

Cash Cows. Cash cows are characterized by low growth and high market share. They are net providers of cash. Their high earnings, coupled with their depreciation, represent high cash inflows, and they need very little in the way of reinvestment. Thus, these businesses generate large cash surpluses that help to pay dividends and interest, provide debt capacity, supply funds for research and development, meet overheads, and also make cash available for investment in other products. Thus, cash cows are the foundation on which everything else depends. These products must be protected. Technically speaking, a cash cow has a return on assets that exceeds its growth rate. Only if this is true will the cash cow generate more cash than it uses. For NCR Company, the mechanical cash register business is a cash cow. The company still maintains a dominant share of this business even though growth has slowed down since the introduction of electronic cash registers. The company uses the surplus cash from its mechanical cash registers to develop electronic machines with a view to creating a new star. Likewise, the tire business can be categorized as a cash cow for Goodyear Tire and Rubber Company. The tire industry is characterized by slow market growth, and Goodyear has a major share of the market.

Question Marks. Products in a growth market with a low share are categorized as question marks. Because of growth, these products require more cash than they are able to generate on their own. If nothing is done to increase market share, a question mark will simply absorb large amounts of cash in the short run and later, as the growth slows down, become a dog. Thus, unless something is done to change its perspective, a question mark remains a cash loser throughout its existence and ultimately becomes a cash trap.

What can be done to make a question mark more viable? One alternative is to gain share increases for it. Because the business is growing, it can be funded to dominance. It may then become a star and later, when growth slows down, a cash cow. This strategy is a costly one in the short run. An abundance of cash must be poured into a question mark in order for it to win a major share of the market, but in the long run, this strategy is the only way to develop a sound business from the question mark stage. Another strategy is to divest the business. Outright sale is the most desirable alternative. But if this does not work out, a firm decision must be made not to invest further in the business. The business must simply be allowed to generate whatever cash it can while none is reinvested.

When Joseph E. Seagram and Sons bought Tropicana from Beatrice Co. in 1988, it was a question mark. The product had been trailing behind Coke's Minute Maid and was losing ground to Procter & Gamble's new entry in the field, Citrus

Strategy Implications

Hill. Since then, Seagram has invested heavily in Tropicana to develop it into a star product. After just two years, Tropicana has emerged as a leader in the not-from-concentrate orange juice market, far ahead of Minute Maid, and has been trying to make inroads into other segments.7

Dogs. Products with low market share positioned in low-growth situations are called dogs. Their poor competitive position condemns them to poor profits. Because growth is low, dogs have little potential for gaining sufficient share to achieve viable cost positions. Usually they are net users of cash. Their earnings are low, and the reinvestment required just to keep the business together eats cash inflow. The business, therefore, becomes a cash trap that is likely to regularly absorb cash unless further investment is rigorously avoided. An alternative is to convert dogs into cash, if there is an opportunity to do so. GE's consumer electronics business had been in the dog category, maintaining only a small percentage of the available market in a period of slow growth, when the company decided to unload the business (including the RCA brand acquired in late 1985) to Thomson, France's state-owned, leading electronics manufacturer.

Exhibit 10-5 summarizes the investment, earning, and cash flow characteristics of stars, cash cows, question marks, and dogs. Also shown are viable strategy alternatives for products in each category.

In a typical company, products could be scattered in all four quadrants of the portfolio matrix. The appropriate strategy for products in each cell is given briefly in Exhibit 10-5. The first goal of a company should be to secure a position with

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