PRODUCT PORTFOLIO
Product portfolio analysis evaluates the current products of the firm on a number of key dimensions ( profitability, growth, risk) and provides the input to management decisions on addition of products, modification of existing products, or deletion of product and allocation of resources among the various products and markets.
The selection of the relative market share metric was based upon :
Product Portfolio' The collection of different items a company sells. Within the product portfolio, each item typically makes different contributions to the company's bottom line.
Some products cost more to produce, some are increasing their market share (or losing market share) at a faster rate, some bring in more revenue and some have greater marketing expenses.
Managing a product portfolio entails analyzing consumer behaviour to determine how to expand with new products and how to improve profitability by removing under performing or money-losing products.
A broader product portfolio offers consumers more choices and gives a company more opportunities to capture consumers with different needs and tastes.
Example
Coca-Cola’s product portfolio consists of regular, low- and no-calorie beverages including sodas (e.g., Coca-Cola and Coke Zero), energy drinks, still and sparkling waters (e.g., Dasani), juices and juice drinks, sports drinks (e.g., vitaminwater) and bottled teas.
PRODUCT PORTFOLIO ANALYSIS :
PRODUCT PORTFOLIO ANALYSIS :
Product portfolio analysis evaluates the current products of the firm on a number of key dimensions ( profitability, growth, risk) and provides the input to management decisions on addition of products, modification of existing products, or deletion of product and allocation of resources among the various products and markets.
DIMENSIONS OF PRODUCT PORTFOLIO:
- —Level of Business Analysis.
- —Level of Market.
- —Time Dimensions of variables.
- —Sales.
- —Competitive Strength.
- —Profitability.
- —Risk.
- —Demand on resources.
- —Utilization of resources.
APPROACHES TO PRODUCT PORTFOLIO :
Standardized approaches to Product
Portfolio analysis are :
—
1. BCG Growth Matrix.
2. —AD Little Business Profile Matrix.
3. —The Shell International directional Policy Matrix.
4. —The McKinsey/GE Business Assessment Array.
1. BCG MATRIX :
Boston Consultancy group matrix also known as growth- share matrix is a chart that was created by Bruce D. Henderson for the Boston Consulting Group in 1970 to help corporations to analyze their business units, that is, their product lines.
This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. Analysis of market performance by firms using its principles has recently called its usefulness into question.
Relative market share
--This indicates likely cash generation, because the higher the share the more cash will be generated.
--Market share is the percentage of the total market that is being
serviced by your company, measured either in revenue terms or unit volume
terms.
--The higher your market share, the higher proportion of the market company control.
RMS = Business unit sales this year
Leading rival sales this year
--As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it is assumed that these earnings will grow faster the higher the share.
--The exact measure is the brand's share relative to its largest competitor. Thus, if the brand had a share of 20 percent, and the largest competitor had the same, the ratio would be 1:1. If the largest competitor had a share of 60 percent; however, the ratio would be 1:3, implying that the organization's brand was in a relatively weak position.
1. Its relationship to the experience curve. The market leader would have greater experience curve benefits, which delivers a cost leadership advantage.
2. Another reason for choosing relative market share, rather than just profits, is that it carries more information than just cash flow. It shows where the brand is positioned against its main competitors, and indicates where it might be likely to go in the future. It can also show what type of marketing activities might be expected to be effective.
Market growth rate
- —Market growth is used as a measure of a market’s attractiveness.The market growth rate says more about the brand position than just its cash flow.
- It is a good indicator of that market's strength, of its future potential (of its 'maturity' in terms of the market life-cycle), and also of its attractiveness to future competitors.
- It can also be used in growth analysis.
- Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we have seen, the penalty is that they are usually net cash users – they require investment.
- The reason for this is often because the growth is being 'bought' by the high investment, in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits.
- The theory behind the matrix assumes, therefore, that a higher growth rate is indicative of accompanying demands on investment.
- The cut-off point is usually chosen as 10 per cent per annum.
MGR = Individual
sales this year- individual sales last year
Individual sales last
year
—Markets experiencing
high growth are ones where the total market share available is expanding, and
there’s plenty of opportunity for everyone to make money.
—
CATEGORIES :BCG MATRIX
To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.
Cash cows
- is where a company has high market share in a slow-growing industry.
- These units typically generate cash in excess of the amount of cash needed to maintain the business.
- They are regarded as staid and boring, in a "mature" market, yet corporations value owning them due to their cash generating qualities.
- They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth.
Dogs
- More charitably called pets, are units with low market share in a mature, slow-growing industry.
- These units typically "break even", generating barely enough cash to maintain the business's market share.
- Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company.
- They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed.
- Dogs, it is thought, should be sold off.
Question marks
- Also known as problem children) are business operating in a high market growth, but having a low market share. They are a starting point for most businesses. Question marks have a potential to gain market share and become stars, and eventually cash cows when market growth slows. If question marks do not succeed in becoming a market leader, then after perhaps years of cash consumption, they will degenerate into dogs when market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.
Stars
- These are units with a high market share in a fast-growing industry.
- They are graduated question marks with a market or niche leading trajectory,
- Stars require high funding to fight competitions and maintain a growth rate.
- When industry growth slows, if they remain a niche leader or are amongst market leaders they have been able to maintain their category leadership stars become cash cows, else they become dogs due to low relative market share.
ADVANTAGES : BCG MATRIX
1. —BCG MATRIX is simple and easy
to understand.
2. —It helps to quickly and simply screen the
opportunities open to a business, and helps think about how to make the most
of them.
3. It is used to identify how corporate cash resources can
best be used to maximize a company’s future growth and profitability.
CRITICISM : BCG MATRIX
1. The matrix ranks only market share and industry growth rate, and only implies actual profitability, the purpose of any business. It is certainly possible that a particular dog can be profitable without cash infusions required, and therefore should be retained and not sold.
2. The matrix also overlooks other elements of industry. With this or any other such analytical tool, ranking business units has a subjective element involving guesswork about the future, particularly with respect to growth rates.
2. AD LITTLE BUSINESS PROFILE MATRIX
This is based on two dimensions: —Market position and Industry maturity.
The stages of product maturity is just like the stages of PLC, so that it has four steps beginning with embryonic and ending with aging.
The competitive position has been broken down into five stages ranging from weak to dominant. The data used in this scheme are primarily historical and no explicit analysis like BCG matrix .
3.THE SHELL INTERNATIONAL DIRECTIONAL POLICY MATRIX
The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company’s competitive capability.
As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions.
- Double or quit – gamble on potential major SBU’s for the future.
- Growth – grow the market by focusing just enough resources here.
- Custodial – just like a cash cow, milk it and do not commit any more resources.
- Cash Generator – Even more like a cash cow, milk here for expansion elsewhere.
- Phased withdrawal – move cash to SBU’s with greater potential.
- Divest – liquidate or move these assets on a fast as can.
- Leader – major resources are focused upon the SBU.
- Try harder – could be vulnerable over a longer period of time, but fine for now.
4.THE McKINSEY / GE BUSINESS ASSESSMENT ARRAY
The GENERAL ELECTRIC business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.
The company
must:
(1) Analyze
its current business portfolio and decide which businesses should receive more
or less investment, and
(2) Develop
growth strategies for adding new products and businesses to the portfolio,
whilst at the same time deciding when products and businesses should no longer
be retained.
The McKinsey/GE Matrix overcomes a number of
the disadvantages of the BCG Box.
Firstly, market attractiveness replaces market
growth as the dimension of
industry attractiveness, and includes a broader range of factors other than
just the market growth rate.
Secondly, competitive strength replaces market
share as the dimension by
which the competitive position of each SBU is assessed.
BRAND PORTFOLIO
When large businesses operate under multiple different brands, services and companies, a brand portfolio is used to encompass all these entities under one umbrella.
Often, each of these brands has its own separate trademarks and operates as an individual business entity.
The total collection of trademarks that a company applies to its products or services.
Each make or brand within a business' brand portfolio might be registered under applicable trademark laws and can represent a valuable asset to a company that is often actively promoted to potential customers.
Each make or brand within a business' brand portfolio might be registered under applicable trademark laws and can represent a valuable asset to a company that is often actively promoted to potential customers.
Brand portfolio management begins with brand administration structures and schedules. There must be a person or a group of people in charge of brand management. Within product markets, there must be a joint brand planning schedule at the level of all the other brands and for each brand in particular.
BRAND PORTFOLIO STRATEGY:
The effective creation, deployment and management of brand assets in support of simultaneous top and bottom-line growth.
Brands tie a company to its customers – the brand strategy must inform and be informed by the business strategy .
It guides how the company should invest its resources.
It directs the critical trade-offs required with each strategic business decision.
It optimizes your marketing spend and maximizes portfolio value.
It is :
- The strategic structure for all master brands and related brand architectures in a company’s portfolio.
- The external representation of a portfolio of brands based on the end-customer’s point-of-view.
- The intersection of business strategy and brand strategy.
Sample Question: • Is this not only the right brand, but the right category in which to grow revenues by 15%?
Primary Objective: • Maximize portfolio value by strategically growing, leveraging, and protecting brands in a portfolio .
Scope of Activities:
• Comprehensive fact base (customer and brand data – qualitative/quantitative.)
• Portfolio mapping
• Business case development .
APPROACH TO BRAND PORTFOLIO
STEP 1 :Renovation & Rationalization:
- Focus and clarify portfolio to ensure efficient allocation of resources .
- Determine scope, roles and relationships of brands in the portfolio (brand architecture).
STEP 2: Identification of growth opportunities :
- Expand brand and business frame of reference.
- Leverage brand(s) into new markets or customer segments.
- Make strategic brand acquisitions.
BRAND PORTFOLIO STRATEGIES :
- Optimize portfolio to increase share of purchases.
- Develop branded differentiators to defend against commoditization.
- Select where and where NOT to reach for operating synergies Extend into new products and profitable growth opportunities.
