Product Management

Session 11
IBS – Mumbai (Powai)

Anjan Mukherjee
+91 9920418121
[email protected]
 Syllabus
Introduction

Role & scope of product manager

Understanding the nature of markets and

products

Market planning

New products – The importance of

innovations

Product portfolio analysis

Pricing, distribution and promotion decisions

The product audit

Product Portfolio Analysis
 BCG Matrix
Boston Consulting Group Matrix
•Developed by Bruce Henderson (in 1970’s)

•It is a chart that had been created to help corporations with

analyzing their business units or product lines.

•Helps to evaluate company’s position in terms of its range of

products.

•Helps to make decision regarding which product/service to be

kept, which it should let it go and in which it should invest in
further.
Boston Consulting Group (BCG) Product Portfolio Analysis: Growth-
Share matrix

• High growth & share • High growth, low share

• Profit potential • Build into Stars or phase
• May need heavy out
• Require cash to hold
investment to grow
market share
?
• Low growth, high share
• Established, successful
SBU’s • Low growth & share
•Produce cash • Low profit potential
-

+ -
 QUESTION MARKS:
•High market growth rate

•Low market share

•Low cash generation than cash consumption.

•Analyze carefully the market situation

•Investment into high growth potential market.

•Critical decision making for managers.

 Stars
•High market growth rate

•High market share

•Huge cash generation

•Huge cash consumption

•Huge investment in growing market

•Becomes cash cows when market growth rate declines

 Cash Cows
•Low market growth rate

•High market share

•Huge cash generation than consumption

•Low prospects for future growth-so no new investment in this

category.

•Investment into STARS and QUESTION MARKS.

 Dog
•Low market growth rate

•Low market share

•Neither large cash generation nor consumption.

•Also known as CASH TRAPS.

•Dogs should be sold off or liquidated.

 BCG Matrix contd..
• Natural cycle for most business units start as
question marks then turn to stars.
• Eventually when the market stops growing
they become cash cows.
• Finally at the end of the cycle they become
dogs.
 Strategic
Implicatio
ns of
products
in the BCG
matrix
quadrants
 Benefits of the BCG-Matrix
• The BCG-Matrix is helpful for managers to
evaluate balance in the company’s current
portfolio of Stars, Cash Cows, Question Marks
and Dogs.
• BCG-Matrix is applicable to large companies
that seek volume and experience effects.
• The model is simple and easy to understand.
• It provides a base for management to decide
and prepare for future actions.
• If a company is able to use the experience
curve to its advantage, it should be able to
manufacture and sell new products at a price
that is low enough to get early market share
leadership. Once it becomes a star, it is
destined to be profitable.
 Limitations of BCG Matrix
The BCG Matrix produces a framework for
allocating resources among different business
units and makes it possible to compare many
business units at a glance. But BCG Matrix is
not free from limitations, such as-
• BCG matrix classifies businesses as low and
high, but generally businesses can be medium
also. Thus, the true nature of business may
not be reflected.
• Market is not clearly defined in this model.
• High market share does not always leads to
high profits. There are high costs also involved
with high market share.
• Growth rate and relative market share are not
the only indicators of profitability. This model
ignores and overlooks other indicators of
profitability.
• At times, dogs may help other businesses in
gaining competitive advantage. They can earn
even more than cash cows sometimes.
• This four-celled approach is considered as to
be too simplistic.
 Problems with BCG Matrix approach

• Difficulty in defining SBUs and

measuring market share and growth
• Time consuming
• Expensive
• Focus on current businesses, not
future planning
 GE Multifactor Portfolio Matrix
 A more advanced model developed by General
Electric:
- measuring market attractiveness and business
strength

• Market attractiveness is a composite measure of

the potential for sales and profits in a particular
market segment

• Business strength is the strength of our offering

relative to other companies’ products

GE Matrix is an expansion of the BCG matrix. The dimensions

are more comprehensive and detailed.
• GE matrix, alternately known as General
Electric Model is a business planning matrix
• The model is inspired by traffic lights which are used
to manage traffic at crossings, wherein green light
says go, yellow says caution and red says stop.
 The matrix comprises of nine cells, with two
major dimensions

• business strength

• industry attractiveness
 Business strength is influenced by
• market size, share & growth
• brand image
• profit margins
• customer loyalty
• Strengths/weaknesses
• people
• technological capability and so on
 Industry attractiveness is influenced by drivers
such as
• pricing trends
• economies of scale
• market size
• market growth rate
• segmentation
• distribution structure etc
• When various product lines or business units
are drawn on the matrix, strategic choices can
be made, on the basis of their position in the
matrix.
• Product falling into green section reflects the
business is in the good position, but product
lying into yellow section needs the managerial
decision for making choices and the product in
the red zone, are dangerous as they will lead
the company to losses.
 Advantages
• It uses 9 cells instead of 4 cells of BCG
• It considers many variables and does not lead
to simplistic conclusions
• High/medium/low and strong/average/low
classification enables a finer distinction among
business portfolio
• It uses multiple factors to assess industry
attractiveness and business strength, which
allow users to select criteria appropriate to
their situation
 Limitations
• It can get quite complicated and cumbersome
with the increase in businesses
• Though industry attractiveness and business
strength appear to be objective, they are in
reality subjective judgements that may vary
from one person to another
• It cannot effectively depict the position of new
business units in developing industry
• It only provides broad strategic prescriptions
rather than specifics of business policy
 BCG Vs GE Matrix
Basis for Comparison BCG Matrix GE Matrix
GE Matrix implies
BCG Martrix, is a growth
multifactor portfolio matrix,
share model, representing
that assist firm in making
Meaning growth of business and the
strategic choices for product
market share enjoyed by the
lines based on their position
firm.
in the grid.
Number of cells Four Nine
Market share and Market Industry attractiveness and
Factors
growth Business strengths
To help companies deploy To prioritize investment
Objective their resources among among various business
various business units. units.
Measures used Single measure is used. Multiple measures are used.
Classification Classified into two degrees Classified into three degrees
 The Arthur D. Little Model
• To gain more insight into the competitive
position of organizations, Arthur D. Little
developed the strategic condition matrix,
which is also known as the ADL Matrix. The
ADL Matrix consists of two important
dimensions: the competitive position and
industry maturity (maturity of the product).
• Industry maturity is similar to the Product Life
Cycle (PLC) and is translated into an Industry
life cycle of a product in the ADL Matrix.
 When investigating the concepts of the
competitive position it is important to answer
the following two questions:
• How strong is the organization’s strategic
position?
• At what stage of its lifecycle is the
industry/segment?
 Industrial maturity
There are four categories of industry maturity:
• Embryonic stage
The introduction of the product is
characterized by a rapid growth market, very
little competition and (still) high sales prices.
• Growth stage
The market continues to strengthen and sales
increase, there are few (if any) competitors.
• Maturity stage
The market and market shares are stable, there
is an established customer base and the price
is lowered because of the growing
competition.
• Ageing stage
The demand for the product decreases and
companies are abandoning the market.
Companies stop consolidating or leave the
market.
 Competitive position
Arthur D Little formulated five categories for
the competitive position within the ADL
matrix:
• Dominant
At this stage there is little or no competition
because a brand-new or unknown product is
brought to market.
• Strong
The market share is strong and stable,
regardless of what the competition is doing.
• Favourable
The organization enjoys competitive
advantages in certain segments of the market.
There are many competitors.
• Tenable
The position of the organization in the overall
market is small and market share is based,
among other things, on a niche or some other
form of product differentiation.
• Weak
The organization experiences continual loss of
market share and it business line is too small
to maintain profitability.
 In Brief
• ADL model considers the product passing
from an embryonic stage through growth,
maturity and ageing
• There are five competitive positions and four
stages
• Resulting in 20 strategic decisions which are
recommended in each cell of the matrix
 Benefits
• Flexibility in assessing the attractiveness of the
industry
• Possibility of balancing a portfolio of
production
• Better identification of competition, suppliers,
customers, potential substitutes
• Allows to extract the strengths of the product
 Limitations
Some known limitations of the ADL Matrix are:
• There is no standard life cycle length.
Determining the current industry life cycle
phase is difficult.
• Competitors may influence the length of the
life cycle.
Winning the new product contest
FOCUS ON CORE COMPETENCY
(WHAT YOU DO BEST FOR A COMPETITIVE ADVANTAGE)

PROVIDE GREATEST VALUE TO CUSTOMER

SUCCESSFUL PRODUCT
Thank You