Table of Contents
- Why is the market share low
- What does high market growth mean
- How the company builds a more robust market position
What’s it: Question mark is a product or business unit with a low market share but in a high growth market. The product has an opportunity to increase market share and dominate the market.
The question mark is one of the four categories of the BCG matrix. The other three are Cash Cow, Star, Dog.
Why is the market share low
The question mark may be the company’s new product. The company launches it in a high growth market. The launch is part of a long term growth strategy.
Low market share can also occur due to a lack of competitiveness. The company has been launching it for a while, but still hasn’t been able to dominate the market. In this case, the causes may come from:
- Unattractive product features, for example, due to weak research and development.
- Prices are more expensive than competitors due to low economies of scale.
- Low product quality, for instance, due to poor quality control.
- Poor support service, for example, the company does not have customer complaint service.
- Switching costs are high, and customers are more loyal to competing products.
What does high market growth mean
At the growth stage, product penetration is still low. Many consumers have not bought and used the product.
In this situation, the primary source of growth came from the acquisition of new customers. Some also come from repeat purchases. Hence, the growth rate and sales volume in the market will be high.
It contrasts with the mature stage. Market growth is low because most consumers have bought the product. Sales come mostly from repeat purchases.
Furthermore, high growth is synonymous with intense competition. Many companies try to enter the market, hoping to make a potential profit.
New players assume that high growth will ultimately result in greater profits. They can sell high volumes and earn a lot of income. And to operate more profitably, they will keep costs low, for example, through economies of scale.
How the company builds a more robust market position
Strengthening the market position drains more resources than the Star category. A low market share indicates that it is more challenging to dominate the market.
Companies have to think hard to design an effective marketing strategy. They should stimulate volume sales through options such as:
- Greater advertising spending. It creates a higher awareness of the company’s products and reaches more new customers.
- Setting low prices, for example, through penetration pricing. The company expects more price-conscious consumers to buy the product.
- Build a broader and more effective distribution network.
- Increase loyalty from existing customers. That way, the company could maintain its current sales level.
- Improve product features. Consumer tastes and preferences are dynamic, prompting companies to adapt their offerings.
- Provide support services. It can add value to the company’s offering beyond the variables of price and quality.
- Improve product quality. Quality is essential to attract consumers to buy.
If successful, the company can build a stronger market position. They can increase sales and market share, higher than competitors do.
Where are the sources of funding
The investment in strengthening the question mark is significant. As I said before, the market position of this category is not strong enough. Therefore, the company must design a better strategy than its competitors. And, it often consumes substantial resources (including financial resources).
In general, funding for investment comes from two sources:
- External sources, for example, through debt or equity. Companies can issue bonds or shares in the capital market.
- Internal sources. The company uses retained earnings to strengthen the question mark.
All right, I will only discuss internal funding.
Retained earnings come from the company’s net income, which is not distributed as dividends to shareholders. Profits come from various company products, especially cash cows.
Cash cows generate a sizable cash inflow. The company recorded high sales because it had a large market share. At the same time, investment in this category is relatively low.
In addition to question marks, companies can also use the cash to invest in the star product category. The latter requires less investment than the question mark. It is only for keeping current market dominance.
In general, the company should have a balanced product portfolio. Some are cash cows; others are stars or question marks. Star or question mark will eventually become the next cash cow when the market reaches a mature stage. That way, the company’s growth, and cash flow are solid for the long term.
What are the implications of success and failure in establishing the question mark position
Not all strategies are successful. Success not only depends on internal resources and capabilities but also on other aspects beyond its control.
Suppose the company succeeds in growing question mark sales faster than other competing products. In that case, the product will move to the star category. The company gets a larger market share in high growth markets.
When the market reaches maturity and successfully maintains dominance, the product will become the next cash cow.
Meanwhile, strategy failure left the product stuck in the Dog category. The company lost sales and market share. When the market has matured, the question mark will eventually burden the company’s finances. The rational options are to stop or divest the product.