Product Portfolio Planning
Product Portfolio Planning
The logical first step in marketing strategy is selection of markets in which to compete. This requires - Appraisal of companys ability to meet a potential markets requirements
Market Selection and Direction
Market selection cant be separated from broad corporate strategy issue of what business the company should be in.
Ex: Automotive supply business and shock absorber original equipment market
Choice of Market direction- Should a company build, hold or shrink its position in a given market
Analyzing the Current Marketing Management Business Portfolio
Build
Increase market share Works well for question marks
Harvest
Increases short-term cash flow Good for weak cash cows, question marks and dogs
Hold
Preserve market share Good for cash cow
Divest
Sell or liquidate Good for dogs and question marks
Portfolio planning
Designed to help a company make a decision on market selection and direction in an integrated manner for all its business. ( What about a business?) Decision on resource allocation
Ansoffs Matrix
Product Market Market Penetration Product Development Present New
Present
New
Market Development
Diversification
Portfolio planning for multiproduct companies
Particularly complex problem Some divide the organization into profit centers, independent planning unit BCG describes this suboptimizing ???
Words of wisdom
A multidivision company without an overall strategy is not even as good as the sum of its parts. It is merely a portfolio of nonliquid, nontradeable investments which has added overhead and constraints. Such closed-end investments properly sell at a discount from the sum of the parts. ( Henderson, BCG)
Portfolio planning approach
A multi divisional, multi product company can channelise resources to most productive units, an option not available to undiversified companies. An integrated planning at corporate level
Slow growth of paperboard division and invest more in minicomputers ( example)
May impair the performance of a particular division
BCG approach
Differs in its method of assigning roles to products, divisions and integrating these roles into a portfolio strategy Roles based on cash flow potential and growth relative to competition
General Assumptions
Key characteristics on which products and markets can be meaningfully compared- for example, a 15 % share of one market can be weighed against a 10 % share of another market
The key characteristics are systematically related to performance measures such as profitability and cash flow. Thus there are certain laws of market place.
Assumptions ( Contd..)
It is necessary to invest in a product to achieve these desirable characteristics Companies are limited in the amount they can invest, because both financial and managerial resources are finite The portfolio can be internally subsidized Portfolio planning leads to better overall performance than if investment decisions on each product were made independently.
Specific assumptions for BCG matrix
If the company is market leader, it can fix the prices and other competitors follow it If the company has higher cumulative production, the cost of production goes down Technological superiority or advantage may reduce the cost of production
Two Dimensions for BCG Matrix
Market (Industry) Growth ( higher/less than 10 %) Relative Market Share (higher/less than 1)
Fig: A Typical Product Portfolio Chart of a Comparatively Strong and Diversified Company
20%
Product Market Growth Rate
10%
4.0
2.0
1.0
0.5
0.25
Relative Market Share
Relative Market Share (RMS)
Competitor A B C Market Share 50% 25 10 Relative Share 2.0 0.5 0.2
Fig : Categories in the Product Portfolio Chart
High
Modest Positive or Negative Cash Flow
Large Negative Cash Flow
Cash Use (Growth Rate)
Low $
Large Positive Cash Flow
Modest Positive or Negative Cash Flow DOG
High
Cash Generation (Market Share)
Low
A Hypothetical Case
Investment Possible Movements
PDT
MKT SHARE 20% 10% 30% 5%
A B C D
MKT SHARE OF LARGEST COMPETITOR 10% 20% 10% 20%
IND. GROWTH 20% 15% 6% 4%
RMS.
2 .5 3 .25
BCG (GROWTH SHARE ) MATRIX
> 10%
IND GROWTH
STAR (HI, HP) A
QUESTION MARKS (HI, LP) B
< 10%
(LI, HP) C CASH COW >1
RMS
(LP, LI) D DOG <1
Product Dynamics in the Portfolio Chart
BCG (GROWTH SHARE ) MATRIX
> 10%
IND GROWTH
STAR (HI, HP) A Amul Butter Amul Butter (LI, HP) C CASH COW >1
QUESTION MARKS (HI, LP) B
< 10%
(LP, LI) D DOG <1
RMS
BCG (GROWTH SHARE ) MATRIX
> 10%
IND GROWTH
STAR (HI, HP) A
QUESTION MARKS (HI, LP) B Amul Frozen Pizza (LP, LI) D DOG Frozen Pizza <1
RMS
< 10%
(LI, HP) C CASH COW >1
BCG (GROWTH SHARE ) MATRIX
> 10%
IND GROWTH
STAR (HI, HP) A
QUESTION MARKS (HI, LP) B
< 10%
(LI, HP) C CASH COW >1
RMS
(LP, LI) Dettol DOG <1
General principles (BCG)
1. Margins and cash generated depend on the market share. Experience curve effects link high margins with high market share." 2. Product sales growth requires cash input to finance added capacity, working capital, and other needs. Thus, participation in a growing market requires cash input if market share is to be maintained.
General principles (BCG)
3. An increase in market share requires cash input to finance increased advertising expenditures, additional plant, and costreducing equipment. 4. Growth in each market will ultimately slow as the product approaches maturity. Cash generated as growth slows must be reinvested in other, still-growing products.
Limitations of BCG Matrix
Static or Dynamic Framework ? Cash Flow/generation as a criteria! Any better criteria available? Reliance on two single factors ! ???
Growth-Gain Matrix
Any better!
Two Dimensions for GrowthGain Matrix
Industry Growth Company Growth What do you say?
Hypothetical Case for Growth Gain Matrix
IND GROWTH 5% 5% 5% COMPANY GROWTH 5% ( ON DIAGONAL) 6% (BELOW DIAGONAL) 4% (ABOVE DIAGONAL)
GROWTH GAIN MATRIX
STAR STAR IND GROWTH 10 6 5 4
CASH COW DOG (5,5)
CASH COW DOG
10
GROWTH OF COMPANY (PDT / BRAND)
Competitive Analysis of the Product Portfolio
1. 2. 3. 4. 5. Internal balance Trends. Competitive evaluation. Industry position. Financial balance
GE / McKinsey Business Assessment Array
INDUSTRY ATTRACTIVENESS High Medium Low Invest/grow High Selectivity / earning Harvest/divest Medium
Size Growth Share Position
NUSINESS STRENGTHS
Profitability Margins Technology position Strength/weaknesses Image Pollution People
Size Market growth, pricing Market diversity Competitive structure
Low
Industry profitability Technical role Social Environment Legal Human
This is more flexible and comprehensive
Problems in application: 1. For each business, the various factors that contribute to industry attractiveness and business strength must be identified. 2. The direction and form of each of these relationships has to be determined 3. Some scheme, whether explicit or implicit, has to be used to weight the contributing factors in each composite dimension. One issue is whether the same weights are used for different businesses (or products) within the same company.
Portfolio Strategy and Maximum Sustainable Growth
Some Application Considerations
