Portfolio management
Product portfolios needs maintenance in order for sales to develop in a positive way. To develop the market there are four main ways:
- Product development – New products to existing markets
- Market penetration – More of existing products to existing markets
- Market expansion – Existing products to new markets
- Diversification – New products to new markets
When you work with technically complicated products and systems, the stakes for developing existing and new very high and risky, why market penetration and market expansion are the primary ways for increasing the sales.
Length
The length of the portfolio describes how many different trademarks each portfolio contains. Selling similar products under different trademarks is a common way of increasing the market penetration in many industries, such as chemical technical products.
Depth
The depth measures how many variants of the product the portfolio holds. For example most car models come in variants from a fuel conserving cheap model to high performance sport variants.
Breath
The product portfolio breadth defines how many different product lines the portfolio contains. For instance a portfolio can contain different lines directed towards different customer segments.
Consistency
The product portfolio consistency is defined by how close to each other the products are. Since this is based on subjective judgments, the result varies with the judges. For instance a portfolio with only consumer products may by on judge be described as consistent, while a different judge defines it as inconsistent since it contains products for different applications (e.g., detergents and potato chips.)
Portfolio analysis
An appreciated tool for portfolio analysis is the Boston matrix. It has two axes; market growth and the products relative market share. The four fields are:
- Cash cows - product with relative high market share but low growth. Often well-established products in stable market segments, with relatively low demands on investments. Hence products in this field generate sound profit.
- Stars - products with high relative market share and a high growth. These call for additional investments in order to keep the pace with competition. When stars fall in the matrix, the expectation is that they shall transform to cash cows.
- Cats - these products have relative small market share but a high growth pace. It is here we find products that are fighting more established competitors. The challenge here is that the products cannot yet cover their own development investment cost. The difficulty is to decide which products that will deliver pay-back and become stars.
- Lazy dogs - products with relative low market and low growth. These are problem products, and they often cost more than they generate. They are candidates for liquidation.
Even if the Boston matrix is a very popular and good tool, it is not without shortcomings. It is a good for pointing out candidates for development or liquidation. Short comings are that it does not take the market growth into consideration, and that relative market share only measures one products success. Further one should be aware that products that qualify as "Lazy dogs" can generate profits, or be key components in the selling of other products, that very well may be “cash cows.” As example the new car sales is necessary for driving the automotive aftermarket.
Fact 21
We love to help you with analysis and action plans for managing the product portfolio. We can also help you, hands on, with the implementation and management of the action plan. We have genuine experience of managing product portfolios, cutting tails, evaluate future promises, expand the offer, etc. Please contact us to learn more on how we can assist you: info@fact21.se.
