Product Portfolio Analysis

 Product Portfolio can be defined as the compilation of products and services offered by the
company to the target market. It comprises of all the set of products offered right from the ones
that were launched and offered during the inception of the brand to the ones that are launched
currently along with ones that are in the pipeline.
 A product portfolio is comprised of all the products which an organization has. A product
portfolio may comprise of different categories of products, different product lines and finally
the individual product itself. Management is needed on all the three levels of a product portfolio.
You need managers for managing individual products, managing product lines and finally the top
level management which manages the complete portfolio.

Breaking-down Product Portfolio and its management :

1. Product Portfolio management is one of the most crucial elements of the entire business strategy as
it helps the company to attain its overall business objectives and plan the future line of products
accordingly.
2. It works as a significant tool for the corporate financial planning of the firm and also for the
investors conducting the equity research analyzing the return on investments.
3. The thorough analysis of the Products Portfolio can provide the management of the company with
crucial information such as stock type, growth prospects of the brand, products that are high
on profit margins, income contribution by each and every product offered to the market, market
share of every product, operational risks, and market leadership.
4. Many a time, there are too many projects underway and there are seldom that is right for the
company to attain the profits. And here is the main role of Product Portfolio management to
analyze which projects are well aligned with the overall strategy and objectives of the business and
will be the cash cows and the ones that don’t feel relevant is taken off from the portfolio.

Advantages of Product Portfolio Analysis :

1) Product Innovation

It is very important to follow the strategy of having a Product Portfolio and analyzing it in the regular
intervals in order to plan and come up with the new and innovative line of products to be offered to
the target market. It helps in defining the types and nature of products that are liked and preferred by the
customers and with the experience and knowledge, launch the new line of products that are not only
innovative and novel in ideation but matches the taste and preferences of the target market.

2) Tax benefits

Managing and analyzing the Product Portfolio on the regular basis helps to structure the investments and
all the other financial elements of the company resulting in the various tax benefits.

3) Aligns projects with the businesses strategy

It is very important that the product offerings and their revenue generations match and align with the
long-term vision of the company and the business strategy. As then only the company will be able to
accomplish its aims and objectives of higher sales, elevated profits, competitive advantage, and increased
market share. Having the proper management of the Product Portfolio helps the management to align the
existing and projects in the pipeline with the overall business strategy and vision of the company.
4) Visualize the entire products-line

Studying and analyzing the operations, revenue generation, and other facets of each and every product on
an individual level offered by the company can be very cumbersome and will not help to draw
comparative study effectively. But with the Product Portfolio in place, all the key members of the
management are able to visualize the entire portfolio of the all the old, existing, and future products
having a broader spectrum.

5) Effective allocation of resources

Having and managing the Products Portfolio helps in allocating the various resources of the firm such as
finances, human resources, and manufacturing plants amongst others in an effective manner. It helps in
figuring out the products that are working as the cash cows for the companies, the products that are
capable for higher market share but require the boost from the management, and the products that are
redundant in nature and needs to be taken off from the market.

6) Data for the key members of the management

It helps providing the crucial and important data to the key members of the management that enlightens
them about the performance of the products in the market, revenue generation by the each product,
market share, customer preferences, and requirement of any sort of tweaking or innovation in any
products amongst others that helps with the planning and execution of the next plans and strategies of the
business.

7) Cash flow

The company requires the regular flow of cash for the day to day business operations such as paying
overheads, staff salaries, and more along with the money required for the investments in the existing and
future line of the products. And with the proper planning and administration of the Products Portfolio, the
cash flow issues of the company are sorted out as it helps to determine the products that bring the
maximum revenues and the company will allocate the maximum resources on the same.

8) Synergy within the internal team

All the products offered by the company and their operations are not managed by the single person, but
they are managed by various departments and individual teams formulated by the management of the
firm. This case is mainly applicable to the large corporate firms that have a huge and varied line of
products in the market. And with the proper Products Portfolio in place, there are various team
meetings and discussions resulting in all the members on the same page and well aware about the overall
business strategy and operations of the firm having a required synergy to attain the long-term business
aims and objectives.

9) Proper selection of the target industry

Products Portfolio helps the management to figure out on why the certain lines of products are performing
extremely well working as the cash cows for the firm whilst some of them not matching the required and
envisioned plans and objectives. And if the later is having the issue of the products not targeted and
promoted to the required target market and audience, the elements, and strategies of the Products
Portfolio helps to iron out this problem.
Techniques of product portfolio Analysis:

Product classification is done on the basis of the BCG matrix and GE9 Cell Matrix.

BCG Matrix:

 The BCG matrix classifies products on the basis of the market share of the product as well as the
growth rate which a product may have. On the basis of this classification, a product manager can
decide what level of investments a particular product might need and what would be the returns
from such a product. As the other goal of products portfolio management is cash flow
management, the BCG matrix propagates balancing the cash flow between all products equally.
In harsh words – no extra revenue should be given to products which cant give the revenue back
to the organization.
 Back in 1968 a clever chap from Boston Consulting Group, Bruce Henderson, created this chart
to help organisations with the task of analysing their product line or portfolio.
 The matrix assess products on two dimensions. The first dimension looks at the products general
level of growth within its market. The second dimension then measures the product’s market
share relative to the largest competitor in the industry. Analysing products in this way provides a
useful insight into the likely opportunities and problems with a particular product.
 Products are classified into four distinct groups, Stars, Cash Cows, Problem Child and Dog. Let's
have a look at what each one means for the product and the decision making process.
  Star products all have rapid growth and dominant market share. This means that star products
can be seen as market leading products. These products will need a lot of investment to retain
their position, to support further growth as well as to maintain its lead over competing products.
This being said, star products will also be generating a lot of income due to the strength they have
in the market. The main problem for product portfolio managers it to judge whether the market is
going to continue to grow or whether it will go down. Star products can become Cash Cows as
the market growth starts to decline if they keep their high market share.
 Cash Cows (high share, low growth): Cash cows don’t need the same level of support as
before. This is due to less competitive pressures with a low growth market and they usually enjoy
a dominant position that has been generated from economies of scale. Cash cows are still
generating a significant level of income but is not costing the organisation much to maintain.
These products can be “milked” to fund Star products.
 Dogs (low share, low growth): Products classified as dogs always have a weak market share in a
low growth market. These products are very likely making a loss or a very low profit at best.
These products can be a big drain on management time and resources. The question for managers
is whether the investment currently being spent on keeping these products alive could be spent on
making something that would be more profitable. The answer to this question is usually yes.
 Question mark / Problem Child (low share, high growth):Also sometime referred to as
Question Marks, these products prove to be tricky ones for product managers. These products are
in a high growth market but do not seem to have a high share of the market. The reason for this
could be that it's a very new product to the market. If this is not the case, then some questions
need to be asked. What is the organisation doing wrong? What are its competitors doing right? It
could be that these products just need more investment behind them to become Stars.

A completed matrix can be used to assess the strength of your organisation and its product portfolio.
Organizations would ideally like to have a good mix of cash cows and stars. There are four assumptions
that underpin the Boston Consulting Group Matrix:
1. If you want to gain market share you will need to invest in a competitive package, especially through
investment in marketing
2. Market share gains have the potential to generate a cash surplus due to the effect of economies of scale.
3. The maturity stage of the product life cycle is where any cash surplus is most likely to be generated
4. The best opportunities to build a strong market position usually occur during a market’s growth period.
GE 9 CELL MATRIX:

 The GE matrix is considered by many to be an extension, and even an improvement of BCG

Matrix. Like the BCG, the GE matrix helps you to determine how to allocate resources but it
allows more flexibility.
 The GE matrix was developed by Mckinsey and Company consultancy group in the 1970s. The
nine cell grid measures business unit strength against industry attractiveness and this is the key
difference. Whereas BCG is limited to products, business units can be products, whole product
lines, a service or even a brand. You can plot these chosen units on the grid and this will help you
to determine which strategy to apply.
  Before you can plot anything on the grid however first you need to decide how you will
determine both industry attractiveness and business unit strength.

Industry Attractiveness:
Factors you could choose to base this on include:
 Market size
 Market growth
 Pestel factors
o Political
o Economical
o Social
o Technological
o Environmental
o Legal
 Porters five forces
o Competitive rivalry
o Buyer power
o Supplier power
o Threat of new entrants
o Threat of substitution
You need to decide which factors you will use as a determining factor as these will be applied to ALL
business units.
Step 1: Decide on determining factors
Step 2: Give each factor a weighting number based on its magnitude (make the total weight of all factors
add up to 1.00 or 10.00 for example)
Step 3: Rate each business unit against each factor on a scale. For example 1 – 5 where 1 is extremely
attractive and 5 is extremely unattractive.
Step 4: Give each business unit a weighted rating on each factor by multiplying its rating by the weight
for that factor.
Step 5: Total up all the weighted ratings for each business unit.

Business Unit Strength:

Factors to determine how strong a unit is compared to others in its industry include:
 Market share
 Growth in market share
 Brand equity
 Profit margins compared to competition
 Distribution channel process – the strength of

Now you have the measurements you can plot your business units on the GE matrix and depending on
where they are plotted will determine your strategy from one of the following:
Grow/Invest:
Units that land in this section of the grid generally have high market share and promise high returns in the
future so should be invested in.
Hold/Selectivity:
Units that land in this section of the grid can be ambiguous and should only be invested in if there is
money left over after investing in the profitable units.
Harvest/Divest:
Poor performing units in an unattractive industry end up in this section of the grid. This should only be
invested in if they can make more money than is put into them. Otherwise they should be liquidated. As
you can see this model is very useful for analysing your business units against multiple factors rather than
the 2 dimensional approach of the BCG.