Product Portfolios Twenty good ideas for teaching year 10 Economics and business

What is a product portfolio?

The product portfolio of a business is the range of products sold by the firm.

Why does the product portfolio have to be assessed on a regular basis?

Market conditions are subject to constant change, for example, because of changes in:

  1. the level of consumer incomes
  2. changes in tastes and fashion
  3. changes in technology (waves of creative destruction)
  4. changes made by competitors

What is a product life cycle?

  1. The product life cycle is an important concept in marketing
  2. It shows how the level of sales varies typically over time
  3. It can be applied to:
  • a general product category (e.g. smartphones),
  • a specific brand (e.g. iPhone)
  • a specific model (e.g. iPhone7)

Development stage: the product is conceived, designed and tested

Introduction stage: the product is placed on the market and some initial sales are made

Growth stage: sales growth increases and the market expands

Maturity stage: sales are high, but sales growth slows as the market becomes saturated

Decline stage: sales decline as consumer switch to competitors or to other products

The life cycle for a specific product

How long a product will spend in each life-cycle stage and, therefore, how long its overall lifespan will be, depends on many factors such as:

  • the nature of product (e.g. is it a staple or a fashion product?)
  • changes in market forces (e.g. is it a standard or up-market product?)
  • technological change (e.g. has new technology changed the attractiveness of the product)
  • changes in competition (e.g. have new firms entered the market?

For example, sales of some products rise and fall quickly (e.g. some computer games) while sales of other products stay strong for years (e.g. baked beans).

Extension strategies

Extension strategies extend the life of the product and avoids or delays the decline stage. Examples of extension strategies are:

  • Advertising – try to gain a new audience or remind the current audience
  • Price reduction – more attractive to customers
  • Adding value – add new features to the current product, e.g. improving the specifications on a smartphone
  • Exploring new markets – selling the product into new geographical areas or creating a version targeted at different segments
  • New packaging – brightening up old packaging or subtle changes

The Boston Matrix

The Boston Matrix is another tool for product portfolio analysis. It complements the Product Life Cycle model. It provides a snapshot of the current position of the product portfolio.

The Boston Matrix categorises products using the following two dimensions:

  1. Relative market share: This reflects the relative competitive strength of the product in the market. For example, if the product is a market leader it will enjoy a high market share.
  2. Rate of growth in sales in the market: Sales growth increases during the growth stage of the life cycle and the total level of sales rises. Sales grow more slowly in mature markets, but the level of sales may still be strong.

Rising Stars

Rising Stars are products with a high market share in a high growth market. They are products with a competitive advantage.

Rising Stars need the support of a big marketing effort e.g. to build barriers to entry, develop brand recognition and build customer loyalty.

Therefore, it may take a while before Rising Stars generate a positive cash flow and return a profit to the business.

After time, assuming they keep their market share, Rising Stars become Cash Cows as the market matures.

Cash Cows

Cash Cows are products with a high market share in a market that has reached maturity.

These are mature, successful products with relatively little need for further investment.

They need to be managed in a way that milks or harvests the market for continued positive cash flow and profit.

The life of a cash cow can be extended by product development as long as this doesn’t absorb too many of the firm’s resources.

The firm needs cash cow revenue to provide support for problem children and rising stars and much profit as possible for the owners.

Problem Child

A problem child (or question mark) is a product with a low market share in a high growth market.

It is a product with potential that may need substantial investment to make them more competitive.

The marketing mix of a problem child has to be changed e.g. by modifying the product or aiming for a different target group.

A problem child can prosper and become a rising star and, later, a cash cow, or they can drift into dog status.

Dogs

Dogs are products that have a low market share in unattractive, low-growth markets.

Dogs have failed in the marketplace and come to end of their useful life.

For a while dogs may generate enough cash to break-even, but they are rarely, if ever, worthy of further resource investment.

Dogs should be phased out or sold off.

What is an ideal product portfolio?

Firms would like to have a mix of rising stars and cash cows so they have products in both the growth and mature stages of their life cycle.

Problem children are acceptable if the business believes that a change in the marketing mix will make a positive difference to sales.

A firm doesn’t want any dogs (or products in the decline stage) and will look to stop their production.

It will focus it’s marketing effort on making problem children become rising stars and rising stars become cash cows.

Are these models useful?

They provide simple but useful tools to help firms judge their product portfolios.

However, they have little or no predictive value (e.g. when a cash cow will become a dog).

They do not include all the market forces a firm needs to consider when assessing its product portfolio.

Product life cycles vary from product to product and market to market.

They are based on a number of assumptions such as market share can be gained by investment in marketing, market share gains generate cash surpluses, cash surpluses will be highest when the product is in the maturity stage of the life cycle and the best opportunity to build a dominant market position is during the growth phase.

End of presentation

Created By
Andrew Tibbitt
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