Product portfolio
A product portfolio is the collection of all the products or services offered by a company.
It encompasses various product lines and individual products within those lines, ranging from newly launched items to those in the maturity or decline stages of their life cycle.
The portfolio's composition reflects the company's strategic choices about its market focus, diversification, and resource allocation.
Product portfolio analysis
Product portfolio analysis is a strategic tool used by businesses to evaluate the range of products or services they offer.
It helps companies make decisions about where to focus their resources, how to allocate investment, and which products should be developed, maintained, repositioned, or discontinued.
The goal is to balance the portfolio for optimal performance and risk management.
Two of the most popular models used in product portfolio analysis are:
A. BCG Matrix (Boston Consulting Group Matrix)
This model categorizes products into four quadrants based on market growth and market share:
Stars: High growth and high market share products. They require investment to maintain their position but have the potential to generate significant revenue.
Question Marks: High growth but low market share products. They need substantial investment to increase market share but could become stars or fail.
Cash Cows: Low growth but high market share products. They generate more cash than they consume and fund other products.
Dogs: Low growth and low market share products. They typically generate just enough cash to maintain themselves but may not be worth further investment.
B. GE/McKinsey Matrix
This model is more complex than the BCG Matrix, considering market attractiveness and business unit strength as factors.
It results in a nine-box matrix that offers a more nuanced view of where products stand in terms of competitive strength and market attractiveness, providing more detailed strategies for investment or divestment.
Purpose and Use
Product portfolio analysis enables companies to:
Identify Opportunities for Growth: By focusing on high-growth potential products.
Optimize Resource Allocation: By identifying where investments will yield the most return.
Manage Risk: By maintaining a balanced portfolio of products at different life cycle stages.
Make Strategic Decisions: Regarding product development, marketing, and discontinuation.
In essence, product portfolio analysis is about maximizing the value and balance of the portfolio to ensure the company's long-term success and sustainability.