Product portfolio definition
/What is a Product Portfolio?
A product portfolio is the collection of every product and service that a business sells. A detailed analysis of this portfolio can provide insights into the sources of company sales and profits, and growth prospects. The portfolio may be viewed as a group of product lines, as well as a group of individual products. This portfolio is commonly classified within a matrix format that was first promulgated by the Boston Consulting Group.
The use of portfolio analysis is most important in larger organizations that have a diverse range of products. By applying this portfolio analysis to them, management can gain a greater understanding of whether the business has a sufficient number of robust products being introduced, or whether its product line is becoming stale or irrelevant. This can lead to actions to change the situation, such as a greater investment in new products or an acquisition targeted at another business that has the needed products.
The product portfolio matrix has four quadrants, which are described next.
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High Relative Market Share | High Industry Growth Rate
Classified as stars, these products have captured a large amount of market share and are growing at a rapid rate, which is likely consuming cash. These are highly valuable products, and can be expected to eventually become cash cows, as noted next.
High Relative Market Share | Low Industry Growth Rate
Classified as cash cows, these products have a large market share in markets that are no longer growing. They may spin off large amounts of cash, which can then be used to fund the growth of products classified as stars. Competitors may attack these products in an effort to dry up the cash flows of the company.
Low Relative Market Share | High Industry Growth Rate
Classified as question marks, these products are positioned in high-growth markets and have the potential to gain market share and thereby be eventually classified as stars. Alternatively, they could continue to consume cash and yet experience declining market share, in which case they descend into the dog category (as noted next). Products in this category should attract outsized attention from management, to improve their positioning.
Low Relative Market Share | Low Industry Growth Rate
Classified as dogs, these products have low market share in low-growth industries and may consume cash. They should either be disposed of or shifted into a different quadrant. In the latter case, this may involve product redesigns and/or altered branding, which will likely require a substantial investment. Before engaging in a product redesign or altered branding, estimate whether the cost of doing so will trigger sufficient improvements to be worth the invested funds. It is frequently better to drop these products and focus your resources elsewhere.