PRODUCT PORTFOLIO ANALYSIS IB BUSINESS & MANAGEMENT A Course Companion p

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.

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.