PRODUCT PORTFOLIO ANALYSIS

IB BUSINESS & MANAGEMENTA Course Companion

p204-206

PRODUCT PORTFOLIO ANALYSIS

• Product portfolio analysis is looking at the range of products a business offers.

• Its purpose is to ensure that it has products that are performing well and generating a profit, in addition to new products in the pipeline to replace existing products once they reach the decline phase of the product life cycle.

THE BOSTON CONSULTING GROUP (BCG) MATRIX

• The BCG Matrix is the most common tool for business to analyze their product portfolios.

• It was developed by the Boston Consulting Group in the 1970s to help businesses decide where to best devote their scare resources of time and money.

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Requirements of the BCG Matrix

• The BCG matrix requires two pieces of information – how much market share a product has and how quickly the whole market is growing.

• Based on this, a product can be classified into one of four categories.

Cash Cow Star Question Mark or Problem Child Dog

BCG MATRIXCash Cow

• A cash cow is a product with a high market share and low market growth.

• Cash cows are to be milked. • The fact that the market share is high means that the product

is strong in that market and the business may be able to charge a high price for it.

• A cash cow reputation allows it to get by on relatively little marketing expenditure as the market is not growing (mature).

• This means that increased market share is hard to come by as it can’t be gained from new customers, but must be taken from competitors.

• Cash cows are very profitable to have in the portfolio.

BCG MATRIXStar

• A star has a high market share and high market growth.

• Stars are the dominant product in a market, but they must work much harder to retain that lead in market share.

• This is because the market is growing quickly and rival businesses can gain share by attracting the new customers who are entering the market.

• As a result, rising stars require high levels of marketing expenditure to retain their status.

• If they manage to do so, the benefits will come as they will be the cash cows once the market matures.

BCG MATRIXQuestion Mark or Problem Child

• This of product has low market share and high market growth.• Question marks pose a problem for businesses. • Although many will fail to break through and earn high profits,

the potential exists for them to become the stars of the future. • This is because market growth is rapid, offering a business the

possibility of growing its market share through new customers, which is far easier than trying to tempt them from a rival.

• If a business wants to develop a question mark, it will need to spend very large sums on marketing and even then it may not succeed.

• Businesses should selectively choose which `question marks` to develop, spending on the ones with the best chances.

BCM MATRIXDog

• A product classified as a dog has low market share and low market growth.

• Very few businesses want dogs in their product portfolios.

• Not only do these products not have much market share, the chances of them gaining a greater market share are very limited as the market itself is not growing.

• Businesses tend to get rid of dogs (divest) unless the products have secondary benefits, such as being a necessary party of product line that is profitable overall.