Product Portfolio Analysis

Product Portfolio Analysis

Product Life Cycles and the Boston Matrix

n  Product Life Cycle – shows the stages that products go through from development to withdrawal from the market

n  Product Portfolio – the range of products a company has in development or available for consumers at any one time

n  Managing product portfolio is important for cash flow

n  Product Life Cycle (PLC):

n  Each product may have a different life cycle

n  PLC determines revenue earned

n  Contributes to strategic marketing planning

n  May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal, etc.

n  May help in new product development planning

n  May help in forecasting and managing cash flow

n  The Stages of the Product Life Cycle:

n  Development

n  Introduction/Launch

n  Growth

n  Maturity

n  Saturation

n  Decline

n  Withdrawal

n  The Development Stage:

n  Initial Ideas – possibly large number

n  May come from any of the following –

n  Market research – identifies gaps in the market

n  Monitoring competitors

n  Planned research and development (R&D)

n  Luck or intuition – stumble across ideas?

n  Creative thinking – inventions, hunches?

n  Futures thinking – what will people be using/wanting/needing 5,10,20 years hence?

n  Product Development: Stages

n  Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at?

n  Product Development and refinement

n  Test Marketing – possibly local/regional

n  Analysis of test marketing results and amendment of product/production process

n  Preparations for launch – publicity, marketing campaign

n  Introduction/Launch:

n  Advertising and promotion campaigns

n  Target campaign at specific audience?

n  Monitor initial sales

n  Maximise publicity

n  High cost/low sales

n  Length of time – type of product

n  Growth:

n  Increased consumer awareness

n  Sales rise

n  Revenues increase

n  Costs - fixed costs/variable costs, profits may be made

n  Monitor market – competitors reaction?

n  Maturity:

n  Sales reach peak

n  Cost of supporting the product declines

n  Ratio of revenue to cost high

n  Sales growth likely to be low

n  Market share may be high

n  Competition likely to be greater

n  Price elasticity of demand?

n  Monitor market – changes/amendments/new strategies?

n  Saturation:

n  New entrants likely to mean market is ‘flooded’

n  Necessity to develop new strategies becomes more pressing:

n  Searching out new markets:

n  Linking to changing fashions

n  Seeking new or exploiting market segments

n  Linking to joint ventures – media/music, etc.

n  Developing new uses

n  Focus on adapting the product

n  Re-packaging or format

n  Improving the standard or quality

n  Developing the product range

n  Decline and Withdrawal:

n  Product outlives/outgrows its usefulness/value

n  Fashions change

n  Technology changes

n  Sales decline

n  Cost of supporting starts to rise too far

n  Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

The Boston Matrix

n  The Boston Matrix:

n  A means of analysing the product portfolio and informing decision making about possible marketing strategies

n  Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

n  Links growth rate, market share and cash flow

n  Classifies Products into four simple categories:

n  Stars – products in markets experiencing high growth rates with a high or increasing share of the market

n  - Potential for high revenue growth

n  Cash Cows:

n  High market share

n  Low growth markets – maturity stage of PLC

n  Low cost support

n  High cash revenue – positive cash flows

n  Dogs:

n  Products in a low growth market

n  Have low or declining market share (decline stage of PLC)

n  Associated with negative cash flow

n  May require large sums of money to support

n  Problem Child:

n  Products having a low market share in a high growth market

n  Need money spent to develop them

n  May produce negative cash flow

n  Potential for the future?

n  Implications:

n  Dogs:

n  Are they worth persevering with?

n  How much are they costing?

n  Could they be revived in some way?

n  How much would it cost to continue to support such products?

n  How much would it cost to remove from the market?

n  Implications:

n  Problem Children:

n  What are the chances of these products securing a hold in the market?

n  How much will it cost to promote them to a stronger position?

n  Is it worth it?

n  Implications:

n  Stars:

n  Huge potential

n  May have been expensive to develop

n  Worth spending money to promote

n  Consider the extent of their product life cycle in decision making

n  Implications:

n  Cash Cows:

n  Cheap to promote

n  Generate large amounts of cash – use for further R&D?

n  Costs of developing and promoting have largely gone

n  Need to monitor their performance – the long term?

n  At the maturity stage of the PLC?

CASE STUDY :