Boston Matrix - Cash Cows
Successful products or services in mature markets are referred to as Cash Cows. Some well-known examples are:
• Ford Transit Vans and Pickup Trucks
• Kellogg's Corn Flakes
• Coca-Cola
These products and services consistently generate substantial revenues that can be used to invest in markets that offer higher growth rates. Products that are described as Cash Cows will typically be market leaders and be able to provide a return on assets (ROA) that exceeds the market growth rate.
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This market leadership enables a Cash Cow to earn profits that easily exceed any funding or investment required to produce or sustain them. This factor combined with few growth opportunities in this type of market allow organizations to divert or 'milk' the majority of the revenue generated to invest in faster-growing markets.
In fact, one problem with the classification of products as Cash Cows is that it can encourage people to think in terms of 'milking' the Cash Cow, something that may turn out to be short-sighted.
The Boston Matrix assumes that by the time a product dominates a mature market it will have recouped its initial investment several times over and that its marketing expenditure will be relatively low. This implies that diverting funds to other growth areas will not have adverse implications for the Cash Cow. Such an assumption is rarely true as there is nearly always an ongoing need to invest in maintaining and enhancing the Cash Cow's brand value and associated customer loyalty.
Having said that, new entrants into the mature market are rare because the slow growth rate offers a poor return on any investment a new competitor would be required to make in order to cover its entry and marketing costs.
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These marketing costs can be considerable, as the new entrant needs to achieve sufficient brand and image awareness if they are to take a significant share of the market away from the existing suppliers.
The speed of technological change is continually shortening the time markets can be seen as 'emerging' and/or 'mature.' This impacts the ability of a product to pay off its investment costs and become a Cash Cow.
This issue is one that must be discussed when deciding how to position your product or service within the Boston Matrix. Organizations need to be mindful when using the process that the length of time a product has to recoup any investment is shortening as technological advances are occurring at an ever-faster rate.
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You may also be interested in: Introduction to the Boston Matrix, Classifying Products and Business Units, Stars, Question Marks, Cash Cows, Dogs, Using the Boston Matrix at Brand Level, A Balanced Portfolio and Advantages and Disadvantages.
