PRODUCT PORTFOLIO ANALYSIS IB BUSINESS & MANAGEMENT A 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. http://www.maxi-pedia.com/web_files/images/BCG_Matrix.png http://blog.firo.it/nss/9323D7B8-BE85-4B24-8583-6E6CA29BCF2D_files/picture_bcg_matrix.png http://krikor.info/wp-content/uploads/2008/11/bcg.png http://www.thestrategist.in/trends+concepts_Images/trends+concepts_1.png 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 MATRIX Cash 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 MATRIX Star • 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 MATRIX Question 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 MATRIX Dog • 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.