The product portfolio refers to a collection of products or services offered by a company or a business unit.
It involves managing a range of products across their respective life cycles, aiming to maximize overall performance, market share, and profitability.
Product Portfolio Management involves:
- Assessment and Analysis: Evaluating each product/service in the portfolio based on factors like market growth, market share, profitability, and potential risks.
- Resource Allocation: Distributing resources (such as finances, human capital, and marketing efforts) effectively among different products/services to optimize performance.
- Strategic Planning: Developing strategies for each product/service within the portfolio, which might involve product development, diversification, market penetration, or divestment.
BCG-Growth Share Matrix:
The BCG (Boston Consulting Group) Growth-Share Matrix is a strategic tool that helps businesses analyze and manage their product portfolio. It classifies products into four categories based on two dimensions: market growth rate and relative market share.
- Stars: High-growth, high-share products. They typically require heavy investment to maintain and increase market share but have the potential to become cash cows when market growth slows down.
- Cash Cows: Low-growth, high-share products. These products generate significant cash flow due to their established market share. Companies often milk these products by reducing investment while maximizing profits.
- Question Marks (Problem Children): High-growth, low-share products. They require substantial investment to increase market share and become stars, but they might not always succeed. They have the potential to become stars or be divested if growth doesn’t materialize.
- Dogs: Low-growth, low-share products. They neither generate much cash nor require significant investment. These products are usually candidates for divestment unless they serve a strategic purpose like complementing other offerings or fulfilling specific customer needs.
The matrix helps businesses allocate resources and formulate strategies for each category. For instance, it might suggest investing in stars for future growth, harvesting cash from cash cows, carefully evaluating and deciding on question marks, and either divesting or strategically maintaining dogs.
This model, while a useful framework, does have limitations, such as oversimplification of complex market dynamics and reliance on market growth and share as sole indicators. Yet, it remains a foundational tool for strategic product portfolio management and decision-making in many businesses.