Product Portfolios PDF

CH 5 Product portfolios  The concept of the product portfolio Product portfolios The BCG growth–share matrix Shell’s directional policy matrix The concept of the product portfolio A product portfolio is the collection of all t...

CH 5 Product portfolios  The concept of the product portfolio Product portfolios The BCG growth–share matrix Shell’s directional policy matrix The concept of the product portfolio A product portfolio is the collection of all the products or services offered by a company. The idea of the product portfolio is, naturally, borrowed from investment management, where the investor search for a choice of stocks and shares which will meet his requests. Usually these needs will embrace a wish for current income balanced capital growth. It helps the company to achieve its overall business objectives and plan the future line of products for that reason. It works as a significant tool for the corporate financial planning of the firm and also for the investors conducting the equity research analyzing the return on investments  1) Product Innovation In order to plan and come up with Importance of the new and innovative line of Products Portfolio products to be offered to the target market. It helps in defining the types to businesses : and nature of products that are liked and preferred by the customers and with the experience and knowledge, launch the new line of products  2) Aligns projects with the businesses strategy It is very important that the product offerings and their revenue generations match and align Importance of with the long-term vision of the company and the business strategy. As then only the Products Portfolio company will be able to accomplish its aims to businesses : and objectives of higher sales, elevated profits, competitive advantage, and increased market share. Having the proper management of the Product Portfolio helps the management to align the existing and projects in the pipeline with the overall business strategy and vision of the company.  3) Visualize the entire products-line Studying and analyzing the operations, Importance of revenue generation, and other facets of each and every product on an individual Products level offered by the company can be very Portfolio to cumbersome and will not help to draw comparative study effectively. But with the businesses : Product Portfolio in place, all the key members of the management are able to visualize the entire portfolio of the all the old, existing, and future products having a broader spectrum.  4) Effective allocation of resources Having and managing the Products Portfolio helps in Importance of allocating the various resources of the firm such as finances, Products human resources, and manufacturing plants amongst others in an effective manner. It helps in figuring out the products Portfolio to that are working as the cash cows for the companies, the businesses : products that are capable for higher market share but require the increase from the management, and the products that are redundant in nature and needs to be taken off from the market.  5) Data for the key members of the management It helps providing the crucial and important data to the key members of the Importance of management that enlightens them about Products Portfolio the performance of the products in the market, revenue generation by the each to businesses : product, market share, customer preferences, and requirement of any sort of tweaking or innovation in any products amongst others that helps with the planning and execution of the next plans and strategies of the business.  Factors influencing the product portfolio 1- Profitability: Every business unit tries to maximize its profits. It makes certain changes in its product mix in a way to realize positive impact on profitability. Company prefers to introduce more product lines or product items in existing product lines to improve its profitability. Product mix is constantly adjusted to realize more profits. 2. Objectives and Policy of Company: Company frames its product mix to achieve its objective. Product mix is prepared, modified, or changed in light of objectives. Therefore, addition, subtraction, or replacement of product lines or product items is based on what a company wants to achieve. Product mix is prepared and modified according to a company’s policy.  Factors influencing the product portfolio 3. Production Capacity: Marketing mix decisions, to a greater extent, depend on plant or production capacity of company. Company will design its product mix in a way that optimum production capacity can be utilized. 4. Product mix decisions are taken with reference to demand. Marketer should study consumer behavior to find the popularity of products. Changes in consumers’ preference, fashion, interest, habits, etc., must be reflected in product mix of company. Company, naturally, priories those products which have more demand. In case of falling demand, company must drop poor products gradually. Thus, product mix is constantly adjusted to meet consumer needs and wants.  Factors influencing the product portfolio 5. Production Costs: Product mix is widened or narrowed depending upon production costs. Company will prefer those products, which can be produced within budgeted limit. Sometimes, for any reason, the manufacturing costs for existing products rise, the company decides to drop such products to reduce their production costs. It tries to balance selling price, profit margin, and production costs. 6. Government Rules and Restriction: Every company produces such products, which are not restricted or banned by the governments. Even, sometimes, company has to stop certain products or varieties when it is declared as illegal. In same way, social and religious protests also play a vital role in this regard. Contemporary legal framework has direct impact on size and composition of product mix.  Factors influencing the product portfolio 7. Demand Fluctuation Apart from consumer behavior, demand is also fluctuated due to many reasons. Especially, demand is affected due to seasonal effect, non-availability of substitutes, increase in population, war, draught, flood, or any other reason. In order to meet with the changed demand of certain products, the company has to adjust its product mix. 8. Competition: It is one of the powerful factors affecting product mix. A company formulates its product mix in such a way that competitors can be strongly responded. Product mix strategy adopted by the close competitors has direct impact on company’s product mix.  Factors influencing the product portfolio 9. Impact of Other Elements of Marketing Mix: Over and above these factors, other elements of marketing mix such as price, promotion, and distribution are also equally important in designing product mix. Company tries to maintain consistency among these all elements to carry out marketing activities effectively and efficiently. 10. Overall Business Condition or Condition of Economy: Domestic as well as global economic conditions are also important considerations. Because of liberalization and globalization, no business can dare underestimate macro picture of the world economy. A company should keep in mind health of domestic economy with reference to the world economy. This is more relevant when a company is involved in international trade  The growth share matrix is a portfolio management framework that helps companies decide how to prioritize their different businesses. It is a table, split into four quadrants, each with its own unique symbol that represents a certain degree of The BCG profitability: question marks, stars, pets (often represented by a dog), and cash cows. growth–share By assigning each business to one of these four categories, executives could then decide where to focus their matrix resources and capital to generate the most value, as well as where to cut their losses. Used internally by management to assess the current state of value of a firm's units or product lines. Helps the company in deciding which products or units to either keep, sell, or invest more How Does the Growth Share Matrix Work?.Each of the four quadrants represents a specific combination of relative market share, and growth: Low Growth, High Share. Companies should milk these “cash cows” for cash to reinvest. High Growth, High Share. Companies should significantly invest in these “stars” as they have high future potential. High Growth, Low Share. Companies should invest in or discard these “question marks,” depending on their chances of becoming stars. Low Share, Low Growth. Companies should liquidate, divest, or reposition these “pets.” SHELL’S DIRECTIONAL POLICY MATRIX A way of categorizing and prioritizing opportunities. It can be customized to unique content and made relevant to the individual strategic position of the company in its marketplace. Shell’s DPM is based upon two key parameters – Company’s Competitive Capabilities and the Prospects for Sector Profitability – each of which is divided into three categories as shown in Figure 5.3. The basic matrix may be used to plan the position of products in the company’s portfolio, or it could be used for competitor analysis by planning the position of all competitors in a particular business sector.  Leader where major resources are focused on the SBU.( Strategic Business Unit’) Try harder might be weak over longer periods of time, but OK now. Double or quit gamble on potential SBUs for the future. Growth grow the market by focusing some resources here. Custodial like a cash cow, milk it and do not commit more resources. Cash generation milk for expansion elsewhere. Phased withdrawal move cash to SBUs with greater potential. Divest liquidate or move these assets on as fast as possible.