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A product portfolio is a series of different products that you sell to the market. For example, your company sells television products, cameras, and computers.
Its benefits and costs
Ideally, you need to have a balanced composition of various products. Some are mature, still in the growth stage, and others are in the development stage.
Diverse products allow you to spread risk between markets. And, a variety of products are also to meet the needs of different consumers. By doing this, you can continue to make money if one of your products is at the end of its life cycle.
It also makes it easier for you when you want to launch a new product. You can exploit an existing brand.
A strong brand makes it easy to launch a new product because consumers already know it. If they like your existing brand, they will be excited to also buy your new product.
But, having a large number of products is often burdensome. Cost is the first.
A diverse portfolio means higher costs. You have to spend more on marketing, research and development, and publicity.
The complexity in managing is the second problem. Having a variety of products requires more significant resources. You must know how to allocate the resources you have.
How to evaluate product portfolio
I will discuss one tool, the BCG matrix.
The BCG matrix helps you to analyze and evaluate product portfolios – and actually applies to business portfolios. The matrix gives you essential insights about what you need to decide about your products.
To make it, you need two variables, namely market share and market growth. Your next task is to map the position of each product into four groups. They include:
- Star – products have a significant market share in a fast-growing market. This product requires a certain amount of cash to maintain market share. If not, competitors have the potential to overtake you.
- Cash cow – the product has a high market share in a low-growth market. The market is saturated, and therefore, the product has a strong market position. The product is a source of money for your company.
- Question mark – this product has a low market share in a fast-growing market. You need a substantial investment to increase your position and market share. Growth prospects are still bright, it’s just that, your product is currently unable to compete. The question is, do you want to invest?
- Dog – this product has a low market share in a low growth market. The market is saturated. Maintaining the product will only “bite” you. The market has matured, and your product cannot compete. Keeping it will only cost a lot of money. The rational choice is to eliminate the product.