As every industry’s environment is continually shifting, businesses large and small must maintain a rigorous analysis of their products and services. The research needs to dive deep into the strategies, resources, and objectives required to execute a successful product line. By creating a product portfolio, a company can ensure that it is in a healthy position to leverage new business, develop new strategies to grasp a larger market share, and allocate resources in the most efficient manner possible.
Corporations and enterprises accomplish this by creating a portfolio of products. As each product in its line of services carries its own risk/reward investment, a company can gain better insight into its overall standing through product portfolio management. With careful consideration and intricate product portfolio analysis, product managers can grow their company along with the guidelines of its vision.
What is a Product Portfolio
Simply put, a product portfolio is a curation of the various products and services that a company has to offer. When creating a practical product portfolio strategy, you assess your company’s potential for growth, identify the main profit margin drivers, break down the market hold, and minimize risk factors.
Through product portfolio planning, you create a snapshot of your company’s product line’s performance, opportunities, strengths, threats, and weaknesses. This information is critical for both internal investment and external investors as it allows them to make sound decisions.
Product Portfolio Management Definition
While a product portfolio is the collection of the multitude of products and services offered by an enterprise, product portfolio management is the formation and execution of risk-based strategies. A product manager will incorporate every product that has been launched since the company’s creation, as well as those still under development.
Portfolio management for new products and existing ones are categorized along different dimensions. The three base summations are broken down into the overarching category, the various product lines, and ends with the products on an individual basis. The task of managing these three levels is usually allotted to upper management, who will then have product managers handle specific sectors of their product lines.
As far as product portfolio examples, you can think of it as being akin to the organization of the company as a whole. Each department has its own function, but together they share a common goal. This is the same basis for a product portfolio, in which every product has its own use in the attempt to drive a company’s growth through maximizing allocated investment.
A company with a vast range of services or products needs regular management to maintain cohesion. As such, it’s necessary to develop a standardized portfolio of products.
Portfolio Management vs Product Management
Portfolio management and product management each have separate, yet critical, roles in furthering company growth. Portfolio managers generally tend to come from top management as they survey the entirety of a company’s product line. It is their job to understand how the products interconnect, as well as performing product portfolio analysis to determine the company’s standing in the market and how to increase its market share through the implementation of new products.
This role is in contrast to a product manager, whose responsibilities tend to focus on a single product’s attributes in generating income. These attributes can include developing the features of their assigned product, as well as creating go-to-market strategies in line with the company’s goals. However, with the direct relationship that a product manager has to their product, they can overlook key developments such as seeing the decline in its lifecycle.
Benefits of Product Portfolio
The need for product portfolio managers as a company increases the number of services or products on its roster. Just as every product needs a person that understands the intricacies of what it has to offer, the entirety of a company’s portfolio needs someone who specifically focuses on the bigger picture. By hiring product portfolio managers, a corporation can create strategic plans that leverage the total benefit of its varied product line. Utilizing a product portfolio manager, they can formulate areas of market opportunities and drive better resource management.
One of the most crucial benefits that a product portfolio manager brings to the table is the fact that they are disconnected from the individual products. By not trying to maximize a product’s market lifespan, they can better identify when it serves the company better by shifting focus and resources to another product.
A product portfolio is tasked with continually evaluating the market as a whole, as well as managing the product’s performance in relation to one another. This analysis will give them insight into how a company should market its current product line and where gaps exist to serve their target demographics’ needs better.
How to Perform Product Portfolio Analysis
By performing a thorough product portfolio analysis, you can evaluate:
- The demand regarding a specific product line
- Underperforming products that are targeting poor markets
- The allocation of resources and divert said resources to promising new products, when needed
- Products that need to be enhanced or rebranded to target improving markets
- How products are in line with the company’s long-term and short-term goals
A manager performing proper product portfolio management will begin by breaking down their product lines according to the BCG matrix, also known as the Boston Growth Matrix.
The BCG Matrix
The BCG matrix is a simple visualization tool that helps you grasp a large overview of how your products are or are expected to perform in the near future. This technique is formed by constructing a simple box, bisected horizontally and vertically, giving you four squares.
The horizontal axis represents your company’s relative market share, and the vertical axis constitutes the potential market growth. Using the basic algebraic four quadrants, you will label them with (1) being “Stars,” (2) being “Question Marks,” (3) as “Cash Cows,” (4) as “Dogs.”
Stars fill the matrix quadrant that represents “high” relative market share and “high” market growth. These will be your products that drive a business’s profit margins. These will also be the ones that the company invests heavily in, with one of the main product portfolio examples being Apple’s iPhone line. The iPhone represents a product that proved to be a cash generator and cash user. However, the company was easily able to convert it into a cash cow, meaning that it was still a huge income driver but with fewer expenses in development.
Question marks consist of products in “high” growth markets with “low” market share. These are the products that can either become Stars or Dogs, but their future place in the market is uncertain. Products can fall into this category for various reasons, such as having cash flow issues, supplier negotiations, or by being in an oversaturated market. Because you’re not sure if it’s worth heavily investing in your “Question mark” products, their potential ROI is unknowable.
An enterprise’s cash cow is located in the “low” growth markets with a “high” market share quadrant. These products and services will generate more revenue than the expenditures it creates. Cash cows are the steam engines that power a company and provide the cash flow necessary to fund projects in the Question mark section to become Stars or Cash cows themselves. Products in this section don’t foresee a huge potential in growth but draw a consistent income that fuels the corporation, allowing it to provide resources to further research and development, cover company overhead, and pay shareholders.
Dogs are the final lines of products that encompass the “low” growth markets with a “low” market share sector. If a company has a product or service that brings in less than it costs to maintain, then it has a dog on its hands.
You can easily equate this into a business setting, with an example being a partner who was brought in because of their multitude of contacts but refuses to utilize them.
Let’s say that you own a lighting business with steady streams of income from local hotels. You want to expand your business and bring in a higher-tier of products. You will need to obtain distribution rights to these products, but, unfortunately, someone else already owns them in this region. You decide that bringing them in as a partner makes sense. However, while you now have access to the distribution, the new partner refuses to work. Quickly, their salary and partial ownership of the company outweigh the income generated by the distribution rights. You have a Dog on your hands.
There are multiple models that you can use to perform product portfolio analysis. The BCG matrix is one that provides a glance as to what works within a company and what needs to be adjusted if not scrapped altogether.
Once a company has all of its products subsequently categorized, the product portfolio manager can delve deeper into each section. They will need to itemize and establish linking aspects between the products and identify and evaluate the dimensions around each one.
This will allow the product portfolio manager to discern if the products are in the right sector, to begin with, and if certain economic conditions, competition, or the company’s strategies will affect its standing.
Developing and maintaining the practices necessary for product portfolio management can be daunting. You’ll also find that one of the main inhibitors for a Question Mark becoming a Dog instead of a Star is access to market suppliers.
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