MARKETING MANAGEMENT

What is a product portfolio analysis?

It is mostly known as the BCG matrix (Boston Consulting Group analysis), is a tool
used in corporate strategy to analyse business units or product lines based on two
variables: relative market share and the market growth rate. By combing these two
variables into a matrix, a corporation can plot their business units accordingly and
determine where to allocate extra (financial) resources, where to cash out and
where to divest. The main purpose of the BCG matrix is therefore to make
investment decisions on a corporate level. Depending on how well an industry the
unit and industry is doing, four different category labels can be attributed to each
unit: Dogs, Question Marks, Cash Cows and Stars (Rowan, 2017). The article will
cover each of these categories and also highlight the different strategies used to
address the portfolio.

Example: Botswana Life’s Product Portfolio

Botswana Life Insurance Limited (BLIL) was formed in 1975 and has a proud 44
years history as Botswana’s oldest and only home-grown insurer. As an icon in
Botswana, the company has become synonymous with life insurance in the country,
having an estimated market share of over 75%. The market share was built over
time through hard work and resilience and keen interest in sustainability. The
company is currently managing a file size of over 300 000 policies and an annual
recurring premium of 1 billion (Nawa, 2015).

Relative Market Share

The creator of the BCG matrix used this variable to actually measure a company’s
competitiveness. The exact measure for Relative Market Share is the focal
company’s share relative to its largest competitor. So if Botswana Life has a 75%
market share as estimated in the insurance industry, its closest competitor 25% that
means Botswana Life is in a relatively strong position, which might be reflected in
above average profits and cash flows. The assumption in this framework is that an
increase in relative market share will result in an increase in the generation of cash,
since the focal company benefits from economies of scales and thus gains a cost
advantage relative to its competitors (Nawa, 2015).

Market Growth Rate

The second variable is the Market Growth Rate, which is used to measure the
market attractiveness. Rapidly growing markets are what organizations usually strive
for, since they are promising for interesting returns on investments in the long term.
The drawback however is that companies in growing markets are likely to be in need
of investments in order to make growth possible. The investments for example
needed to fund marketing campaigns or to increase capacity. High or low growth
rates can vary from industry to industry, but the cut-off point in general is usually
chosen around 10% per annum. This means that if Botswana Life would be
operating in an industry where the market is growing 7% s year on average, the
market growth rate would be considered low (Rowan, 2017).

Question Marks

Ventures or start-ups usually start off as Question Marks. Question Marks (Problem
Children) are businesses operating with low market share in a high growth market.
They have the potential to gain market and become Stars (market leaders)
eventually. If managed well, Question Marks will grow rapidly and thus consume a
large amount of cash investments. If Question Marks do not succeed in becoming a
market leader, they might degenerate into Dogs when market growth declines after
years of cash consumption. Question Marks must therefore be analyzed carefully in
order to determine whether they are worth the investment required to growth
market share (Nawa, 2015). An example of Questions Marks for Botswana Life will
be under a category called Corporate which includes a Group Life Assurance,
Temporary Total Disability, Group Funeral Cover, Dread Disease Cover, Credit Life
and Total permanent Health Insurance. The titles given or premiums given under
such a category may sound promising but without vigorous advertising Batswana will
not be keen to undertake such insurance covers. For example, the Credit Life is a
cover that is specifically tailored for financial institutions or companies, which offer
mortgage or other loan. In the event of death or total and permanent disablement of
a member, Botswana Life will pay the financial institution or company equal to the
outstanding amount (Nawa, 2015). The idea of a mortgage or a loaning institution
receiving compensation for an outstanding amount is great but the question is why
does such a product line that has so much potential to gain market share, why is it
not a star?

Strategy- Product Development

Product development is used to extend the offer proposed to current customers with
the aim of increasing their turnover. These products may be obtained by: investment
in research and development of additional products; acquisition of rights to produce
someone else’s product; buying in the product and “branding” it, joint development
with ownership of another company who need access to the firm’s distribution
channels or brands (Shelton, 2017 ). Botswana Life can use this strategy to obtain a
high market share and move the product line or services from question marks to
stars.

Stars

Stars are business units with a high market share (potential market leaders) in a
fast-growing industry. Stars generate large amounts of cash due to their high
relative market share but also require large investments to fight competitors and
maintain growth rate. Successfully diversified companies should always have some
stars in their portfolio in order to ensure future cash flows in the long term. Apart
from the assurance that stars give for the future, they are also very good to have for
one’s corporate image (Nawa, 2015). An example of Stars for Botswana Life is the
insurance cover of Individuals, which include Mmoloki Family Wealth Protector Plan,
Bosa Premier Hospital Cash Plan, Single Premium and Motlamedi Premier Funeral
Cover. The premiums offered under the individual category for Botswana Life with
prevalent one being Motlamedi Premier Funeral Cover. It is a bundled funeral policy
that provides both cash and convenience, easing the challenges of preparing for a
funeral and allowing one to have a premier funeral for ones loved one. The policy
pays out a benefit of up to P45 000, and through partnership with FSG, provide
funeral services to the value of up to P20 000. The policy does not require you to
undergo any medical tests. It covers one for their whole life, offering a funeral cover
of P15 000, airtime- P200, Petrol- P1 000, Electricity- P500, Grocery- P5 000, car
rental- P3 300, FSG funeral service P20 000 (Nawa, 2015). Life is unpredictable and
death can occur at any time, most of the time we are unprepared but because of
Botswana Life one can be prepared for a funeral that is financially.

Strategy- Market Penetration Strategy

A company uses market penetration strategy when it decides to market existing

products within the same market it has been using. The only way to grow using
existing products and markets is to increase market share. Market share is the
percent of unit and pula sales a company holds within a certain market verses all
other competitors (Shelton, 2017 ). It is never ideal for a company that is doing
great in a certain area to neglect it and focus on the areas of the company to
improve them. There is always room for improvement and Botswana Life should
penetrate its market to reach a larger market than it already has.

Cash Cow

Eventually after years of operating in the industry, market growth might decline and
revenues stagnate. At this stage, your stars are likely to transform into Cash Cows.
Because they still have large relative market share in stagnating