Posted in Marketing and Strategy Terms, Total Reads: 551
Definition: Product Portfolio
The different items that form the product line of a company, taken as a whole, is known as the portfolio of the company. The total collection of the products that a company has to offer forms its portfolio. Now these products vary in reference to the contribution they make to a company’s profits. Some products cost more to produce, some have huge investments and less returns, some have a high growth prospect, some have greater advertising expenses etc.
Owning a large portfolio could lead to lesser revenues, if the funds are not allocated properly to each individual product. Boston consulting group has formed a unique BCG matrix to analyse these different products, based on two factors:
a. Market share- What is the total share of the product? Is it high or low?
b. Market growth- Does the market have some growth? Are the no. of customers increasing with time?
The Boston matrix is constructed by making the following assumptions:
a. Market share can be increased by investing in advertising/marketing the product.
b. The gain in market share generates cash surplus.
c. In a product cycle, the market share generates cash surpluses when the product is in the maturity stage.
d. Growth phase is the best stage to build a product’s position in the market.
The products are classified as:
a. Stars: The products that have high growth and also, a high market share are known as stars. These require a huge initial investment. They also require investment to sustain growth. If their growth slows down, they become Cash cows, the market share remaining high.
Example: For CocaCola Company, Maaza, Kinley and Thums Up are its stars.
b. Cash cows: The products that have reached their maturity stage and require very less investment to maintain their market share, are known as the Cash cows. The cash cows constantly supply money, which can be used by the company for its stars.
Example: For CocaCola Company, Coca Cola and Limca are its cash cows.
c. Question marks: These are the products that have low market share, but have a high growth rate. A company needs to decide which question marks to invest in and which to not. Question marks generally require some investment to increase their market share.
Example: For CocaCola Company, Sprite and Fanta are the question marks.
d. Dogs: The products which have low market share and also low growth rate are known as dogs. These products might reach the break-even but investing in them does not really help. A company may just stop their production.
Example: For CocaCola Company, Diet Coke and Minute Maid are its dogs.
Generally, BCG matrix is used at a very early stage, since it does not take various factors into consideration like environmental factors, future product advancements etc. A company should have all the products to maintain a balanced portfolio.