Problem Child

Definition

In strategic business management, the term “Problem Child” refers to a product, brand, or business unit within the Boston Consulting Group (BCG) Matrix that operates in a high-growth market but has a relatively low market share. This categorization suggests an uncertain future, as the unit needs substantial investments to scale up and enhance market share but lacks the certainty of achieving success.

Examples

Technology Startups: A new tech startup with an innovative product in a rapidly growing industry, such as artificial intelligence or electric vehicles, but with fierce competition and currently low market penetration.
Pharmaceutical Products: A pharmaceutical company developing a groundbreaking new drug in a booming but highly competitive health sector. The drug might be in its early stages with potential but currently captures a very small market share.
Consumer Electronics: A new gadget launched by an emerging company entering a dynamic market filled with major established players like Apple and Samsung. Despite the growth potential, the new entrant struggles to gain significant market share initially.

Frequently Asked Questions (FAQs)

What is the BCG Matrix?

The Boston Consulting Group (BCG) Matrix evaluates business units or product lines based on two axes: market growth rate and relative market share. It categorizes them into four quadrants: Stars, Cash Cows, Question Marks (Problem Children), and Dogs.

Why are they called “Problem Children”?

They require attention and resources to determine whether they can be converted into “Stars” (high market share, high growth) or need to be divested as “Dogs” (low market share, low growth).

What should a company do with a Problem Child?

A company might invest in marketing, innovation, and improvements to increase market share or decide to divest if the investment does not justify the expected returns.

How do you identify a Problem Child in your portfolio?

Utilize market analysis to gauge growth rates and enroll in competitive intelligence to derive relative market share. The unit or product that falls into a high-growth market but with minor market share fits the Problem Child category.

What are the potential risks of investing in a Problem Child?

The main risks include the loss of capital if the unit fails to achieve a significant market share and the possible drain on resources from more profitable units or products.

BCG Matrix: A strategic tool used to analyze a company’s product portfolio in terms of growth and market share.
Stars: Business units with high market share in high-growth industries.
Cash Cows: Units with high market share in a low-growth market; they generate consistent cash flow.
Dogs: Units with low market share in low-growth markets, often candidates for divestiture.
Market Share: The portion of a market controlled by a particular company or product.
Market Growth Rate: The rate at which the overall market size for a product or service is expanding.

Online Resources

Suggested Books

Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter
The Boston Consulting Group on Strategy: Classic Concepts and New Perspectives by Carl W. Stern and Michael S. Deimler
Strategic Management: Concepts and Cases by Fred R. David and Forest R. David

Accounting Basics: “Problem Child” Fundamentals Quiz

### In the Boston Consulting Group (BCG) Matrix, what is another name for 'Problem Child'? - [x] Question Marks - [ ] Stars - [ ] Cash Cows - [ ] Dogs > **Explanation:** In the BCG Matrix, 'Problem Child' is also known as 'Question Marks.' These are units with low market share in high-growth markets. ### What primary challenge do Problem Children face? - [ ] Lack of product innovation - [x] Low market share in a high-growth market - [ ] Excess cash flow - [ ] Saturated market > **Explanation:** Problem Children face the primary challenge of having a low market share within a high-growth market, necessitating significant investment to improve their position. ### Which quadrant in the BCG Matrix represents units with high market share and high growth? - [ ] Dogs - [x] Stars - [ ] Cash Cows - [ ] Problem Child > **Explanation:** 'Stars' represent business units that have a high market share in high-growth markets. ### What should a company ideally do with a Problem Child if it has potential? - [ ] Divest it immediately - [ ] Ignore it - [x] Invest in it to increase market share - [ ] Treat it as a Cash Cow > **Explanation:** If a Problem Child has potential, a company should invest in it to increase its market share and possibly convert it into a Star. ### Which of the following is NOT a characteristic of a Problem Child? - [x] High market share - [ ] Significant investment needed - [ ] High-growth market - [ ] Low market share > **Explanation:** A Problem Child does not have a high market share; it operates in a high-growth market with a low market share and requires substantial investment to improve its position. ### What risk does a company face when investing in a Problem Child? - [ ] Decreased competition - [x] Potential loss of capital - [ ] Increase in immediate revenue - [ ] Market monopoly > **Explanation:** Investing in a Problem Child holds the risk of potential loss of capital if the unit does not achieve a significant market share. ### How can a company identify a Problem Child in its portfolio? - [ ] By low levels of competition - [ ] By high market share - [x] By analyzing market growth rate and relative market share - [ ] By its profitability > **Explanation:** A company can identify a Problem Child through market analysis that assesses the market growth rate and relative market share of the unit or product. ### Why is the category named "Problem Child" in the BCG Matrix? - [ ] They are easy to maintain - [ ] They are always technological products - [x] They pose a dilemma due to potential and required investment - [ ] They generate consistent cash flow > **Explanation:** The category is named "Problem Child" because these units or products pose a challenge and dilemma as they require significant investment but have uncertain outcomes. ### Which of the following is a key objective when managing a Problem Child? - [ ] Minimize cost immediately - [x] Achieve significant market share - [ ] Maintain status quo - [ ] Avoid further investments > **Explanation:** The key objective when managing a Problem Child is to achieve a significant market share to potentially convert it into a Star. ### What outcome would indicate successful management of a Problem Child? - [ ] It becomes a Dog - [ ] No change in its market position - [x] It transitions to a Star - [ ] Reduced market operations > **Explanation:** Successful management of a Problem Child would lead to its transition to a Star, signifying high market share in a high-growth market.

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