What it means
The growth-share matrix sorts a company's products into four groups by two measures: how fast the market is growing and how large the company's share is compared with its rivals. A problem child sits in the high-growth, low-share corner, which is why it is both promising and worrying.
High market growth means the product needs money to keep up, for example for new capacity, advertising and product development. Low market share means the product earns little profit because it lacks the scale and brand strength of the leaders, so it consumes more cash than it generates.
The matrix suggests two choices. Management can invest heavily to push the product towards a leading position, at which point it becomes a star, or it can sell, harvest or close the product before it drains too many resources.
The money to fund problem children usually comes from cash cows, which are mature products with high share in slow-growing markets and plentiful free cash. A well-balanced portfolio uses the cash from the old products to build the next generation of winners.
Problem children need clear milestones and a deadline. If market share does not rise within an agreed period, or the cost of winning share keeps growing, the evidence suggests that the investment will not pay off, and holding on out of hope becomes expensive.
The model is a simplification. It ignores factors such as profit margins, synergies between products and the fact that market boundaries can be drawn in different ways, so it should be used as a prompt for discussion, not as a final answer.
In practice
Real-world examples.
Example
A beverage company launches an energy drink in a fast-growing category. It spends heavily on promotions but holds only 3% of the market against a leader with 40%. Management sets a two-year target to reach 10% share or withdraw.
Example
A bank develops a mobile payments app in a rapidly expanding sector. The app has few users compared with the leading apps and loses money each month. The bank funds it from its profitable lending division while it tests whether it can win market share.
Example
A software firm runs a small artificial intelligence tools division inside a larger business. The market is growing quickly, but the division has a small customer base. The board reviews its progress every quarter and asks whether to invest more or sell it.
Formula
Calculation
Relative market share = company's market share (or sales) / market share (or sales) of the largest competitor
Suppose a company sells a new smart thermostat that generates $4,000,000 in annual sales in a market growing at 25% a year. The largest competitor sells $20,000,000.
Relative market share = 4,000,000 / 20,000,000 = 0.2.
Any value below 1.0 means the company is not the market leader. With a market growing at 25% and a relative share of 0.2, the thermostat fits the problem child quadrant.
If the company invested $3,000,000 to lift sales to $12,000,000 while the leader reached $24,000,000, the relative share would become 12,000,000 / 24,000,000 = 0.5, a clear improvement.Case study
Seen in the real world.
Sunrise Appliances is an illustrative, fictional manufacturer with a profitable line of kettles and toasters in a slow-growing market. It also launched a range of smart kitchen devices in a market growing at 30% a year, where it held a 4% share.
The finance director calculated that the smart range lost $2,000,000 a year while the kettle range produced $9,000,000 in free cash. She proposed to invest a further $5,000,000 over two years, with a target of reaching 12% market share by the end of the second year.
In this illustrative story the share reached only 6% after the first year, and rivals cut prices. The board decided to sell the smart range to a larger competitor for $6,000,000 rather than continue to spend, and used the money to improve its core kitchen products.
Watch out
Common mistakes.
- Treating a problem child as a failure, when in a fast-growing market a low share is normal for a new entrant and may still become a star.
- Funding every problem child equally, instead of choosing the few with the best chance of winning and dropping the rest.
- Leaving a product in the category indefinitely, when it should either gain share or be sold or closed.
Questions
People also ask.
What is the difference between a problem child and a star?
A star has a high share in a fast-growing market and usually pays its own way, while a problem child has a low share and needs cash to grow.
Is a problem child the same as a question mark?
Yes, the two names describe the same quadrant of the growth-share matrix, which is the label most common in textbooks.
How is the cash for problem children found?
It usually comes from cash cows, which are profitable products in mature markets that produce more cash than they need.
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