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Surely you have noticed that most companies offer more than just one product. Although they might start out with only one product, over time they typically expand and develop new products. This expansion is known as their product portfolio. Let's take a look at this concept in more detail.
Usually, businesses produce and sell more than just one product or service. They offer several products or services that match the needs of different customers.
A product portfolio is a collection of all the products or services offered by a business.
For instance, technology companies typically produce and sell more than just one product. For example, Samsung offers a range of products such as computers, laptops, TVs, printers, fridges, cookers, etc.
There are many advantages of having more than one product or service:
Higher profits - Producing and selling more than one product can increase the profits of a company. If there are more products, there will probably be more customers, and hence more units will be sold.
Risk spread - When a firm produces and sells more than one product, the risk is automatically spread over all of the products. The reason behind this is if the manufacture of one product is declining, there will still be other products on offer.
Different market segments - If a business offers a range of products, they can be sold to different segments of the market. People have different needs that are hard to fully satisfy with just one product option.
When a business has a portfolio of products, it might face issues with its management. It might have a problem regarding how to allocate investments (product development, promotion, etc.) across the portfolio and what products to focus on. Thus the product portfolio of a company should be analysed in terms of how all the products are doing and whether anything needs to be changed.
Product portfolio analysis refers to the act of looking at a business’s collection of products in order to decide what to do next.
A common method of analysing a business’s product portfolio is the Boston Matrix.
The Boston Matrix is a model that helps businesses analyse their product portfolios. It is a method that analyses products in terms of their market share and market growth.
The Boston Matrix categorises products into one of four areas based on:
Market share - does a product have a low or high market share?
Market growth - is demand for a product on the market low or high?
Market share is a percentage of total sales in a market that a business makes up. For example, if the market share of a company is 40%, it means that 40% of products sold in the market were sold by the company.
The Boston Matrix
The four types of products in the Boston Matrix are:
Stars
Cash cows
Question marks
Dogs
Stars are products that have a high market share and high market growth. These are products that are doing well in an attractive market. However, attractive markets are very competitive, and therefore businesses need to invest heavily in stars to keep them in the market and turn them into cash cows in the future.
Netflix’s streaming service dominates the global market for streaming services. However, since the market grows fast and there are many competitors, the company has to continuously invest to improve its service.
Cash cows are products that have a high market share and low market growth. These are products that are doing well in a slowly growing market. Cash cows require relatively little investment, but they still need to be managed to stay successful in the market.
Heinz baked beans dominate the market for baked beans. As they have a strong and stable position in a market that is not growing very fast, they do not require a large investment. However, the product still has to be managed effectively.
Question marks are products that have a low market share and a high market growth. These are products that have the potential to grow in an attractive market. That is why they require investment to beat the competition and gain market share.
Just Eat’s food order and delivery service has little market share but has the potential to grow in the highly competitive food order and delivery industry. However, in order to do so, it needs investment to beat its competitors such as Uber Eats and Deliveroo.
Dogs are products that have a low market share and low market growth. These are products that are not doing too very well in a slowly growing market. Dogs typically do not bring any profits and are not worth investing in. Their production is typically discontinued.
McDonald’s apple pie dessert has a low market share in a market that is not growing. It does not bring much profit to the company and is not expected to do so in the future. Therefore the apple pie could eventually be discontinued.
All companies want to have a portfolio of products that are balanced. It means that they would like to have a mix of different types of products that can bring different benefits.
Typically businesses aim to have stars, cash cows, and question marks. The only products they do not want are dogs, which do not bring much profit and are not expected to do so in the future.
Cash cows seem to be the most deserved products. They bring profit and do not require much investment to keep them in the market. However, having too many cash cows can also be a problem.
If a business has cash cows only, it does not have any products in markets that are growing. For example, although stars require investment, they bring high profits and have the potential to bring high returns on investment. Stars might, therefore, provide value to a company.
Question marks are also products a firm can benefit from. Even though they typically do not bring profits, they can be invested in, which can result in high profits in the future.
Apple has a balanced product portfolio. It has the most desired cash cows on the market, such as MacBook and iMac. It also has stars such as the iPhone, iPad, and the Apple Watch, and question marks such as Apple TV. However, it also has useless dogs such as the iPod.
Although developing new products may bring many benefits, there are also many risks involved in it.
Developing new products is a huge opportunity for a business. It is an opportunity not only to increase profits but also to improve competitiveness. If a new product is successful, a business earns money that allows its further development.
Moreover, when a product is successful, it means that it has brought customers' attention and strengthened a company's brand name. These factors make a company stand out from the competition and improve its competitiveness.
Unfortunately, developing new products is also a risky process, as it requires investment, and if a new product is not successful, it might make a firm lose a lot of money. This is particularly important, as typically products with the biggest potential and highest returns require the largest investments.
Further, an unsuccessful product can deteriorate the image of a company. A big failure may ruin the reputation of a firm for a long time. This can be tough to repair.
Most businesses have a complete portfolio of products. Some of these products are more successful, bringing large profits, while some may be unsuccessful and not bring any profits at all. Nevertheless, a balanced portfolio typically consists of various types of products that complement one another.
Gather data on all the products, and allocate resources based on the products' performances.
The alignment of products with the objectives of a business is called portfolio strategy.
A good product portfolio gives a comprehensive view of the value of the product in the market
Higher profits, risk aversion, and multiple market segments are some of the benefits of a product portfolio.
A product portfolio is managed through the allocation of resources to optimize return on investments. It also includes areas of improvement.
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