A product portfolio is a snapshot of the complete range of products and services a company offers. Each product on a product portfolio has a different market share and growth rate from the other.
What is a product portfolio?
A product portfolio, in simple words, is all the products and services that a company offers to its customers. It is an all-inclusive ‘menu’ comprising multiple, diversified product lines.
Conducting a product portfolio analysis is significant for investors and analysts alike, who wish to undergo corporate financial planning and equity research.
Benefits of a Product Portfolio
An effective product portfolio is a wonderful tool to improve the business’ resource allocation, whilst maximizing the scope for profit.
The following section discusses some of the key benefits of creating a product portfolio in detail.
Fostering Product Innovation
Creating a product portfolio and then reviewing it periodically allows a corporation to develop innovative and ground-breaking products for the target market. This is useful in unleashing features that were previously ignored in the existing products, which may lead to more tremendous success.
Evaluating previous products also allows companies to identify customer preferences, which may be incorporated into future product designs. Moreover, it is relevant here to know about the minimum viable product because an MVP assists in knowing what consumers are looking for. This will be a great aid in product innovation.
Linking Projects with the Overall Business Strategy
Product portfolios are valuable for portfolio managers to identify whether their projects are closely synchronous with their organizational strategy. This, in turn, ensures that investments are only utilized for products that fulfill the company’s needs and objectives.
In other words, a product portfolio is a valuable guide to remaining on track and keeping close to the big target.
Picturing the Complete Product Line at One Place
When all the products and services of a company are placed together in one place, it becomes easier to visualize the complete product line. The product managers can better picture how each product relates closely to the business strategy. They can also compare the existing products with their previous ones.
Collecting Data for Management Purposes
A product portfolio allows a corporation to collect valuable data and insights with respect to consumer preferences and each product. Once they have gathered all the data together, it serves as a ‘treasure map’ that assists them in crafting strategies for upcoming projects.
The Different Types of Product Portfolios
Most businesses will efficiently use a strategic compass known as the BCG Portfolio that guides businesses by considering their anticipated market growth and relative market share. Using the BCG model, businesses can segregate their products into four distinctive categories: stars, cash cows, question marks, and dogs.
The Boston Consulting Group Model (BCG)
The widely adopted BCG framework was created by the Boston Consulting Group and features a vertical axis demonstrating industry growth, whether high or low. On the other hand, there is the horizontal axis which represents the relative market shares spread between the high and low ranges.
The market share can be explained as the proportion of the market that is served by the product, and the market growth determines the growth rate for the market.
As product managers and business leaders rely on the BCG matrix, they chart the course and plot their product portfolios on the quadrant. This provides a comprehensive outlook of their product profile, deciding where to focus investments for a higher impact.
Stars
When a new product is launched in a swiftly growing market, the products within the ‘star’ segment can win the much-needed dominance for the business. The star products provide the edge by generating great revenue, but may also be expensive overall. The purpose is to seize a suitable size of the market share and shift towards the cash cow status.
Cash Cows
The products within this segment target a decent spot. Cash cows tend to have a dominant market share in industries that are not growing much anymore. This, in turn, means greater revenue for smaller investments. These products grow towards the next quadrants: question marks and dogs. Ultimately, they become the future winners.
Question Marks
In this quadrant, there are products that have good potential. However, these products do not necessarily have a considerable market share. Hence, the ‘question mark’ products do not quite bring impressive revenues. When these are placed in growing markets, they have the potential to turn into cash cows and stars. If things don't pan out, they could end up as dogs.
Dogs
The products within the fourth quadrant ‘dogs’ have a limited market share in industries with little growth. These products consume resources and cash. Businesses might want to sell these products or make further investments for a product revamp.
Product Portfolios for mature companies
Established or mature companies have a long business history, which means they have multiple products within the ‘stars’ and ‘cash cows’ quadrants. In this manner, they have the opportunity to locate regions where they can launch new products and expand businesses. Additionally, they are better able to develop synergies and respond to evolving customer demands. Moreover, these companies are also good at product positioning. With the help of product positioning, these companies create distinct identities for each product.
As a result, the product portfolios for mature companies can be used to evaluate and streamline the range of products and increase revenues.
Product Portfolios for growth companies
There are distinct challenges for new businesses that are in the early stages of growth.
It becomes tricky to manage a product scope while balancing the art of new product development and maximizing revenue generation. Business managers have to decide whether investing in innovation is more critical than reserving the most significant share of investment for top-line products.
Startup companies in their growth stage can benefit from tracking their product performance using product portfolios. This reduces their uncertainty regarding how the products will fare in the market.
While startup companies have some uncertainties as to how their products will perform once they hit the market, companies in the growth stage have product portfolios that can be evaluated. They likely have a smaller range of offerings than mature companies. They may not have as many products that have reached star or cash cow status.
What is product portfolio management and analysis?
Managing a product portfolio refers to gaining visibility and insights into the complete product portfolio of a business. This allows you to better comprehend and administer the interplay among products, and their present and future states. Going further, if there is any irregularity with the product, the product portfolio helps in catering to that through the product backlog. Through the product backlog, the product is further enhanced with the necessary measures. Also, the product backlog helps to build a product portfolio by helping to make product prioritization more efficient by organizing features for multiple products while synchronizing them with strategic objectives.
The process of product portfolio management leads to the evaluation of product performance within the business. A detailed analysis, in turn, provides opportunities for strategy planning and new product development. Some of the ways in which you can utilize a product portfolio analysis are:
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deciding where to allocate investment,
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learning how to target new product prospects, and
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understanding which products in the portfolio are ripened for retirement.
The Bottom Line
In short, the complete product range of a business defines its product portfolio. There are noteworthy advantages of conducting portfolio management and analysis for investors. Using the right technique, you can evaluate the growth potential and strengths of each product along with its investment risks.
As it was discussed above, there are striking differences between the product portfolios of start-up companies and mature businesses.
Frequently Asked Questions
What is an example of a product portfolio?
A product portfolio is a collection of related products offered by a company. For example, Apple's product portfolio includes the iPhone, iPad, MacBooks, and Apple Watch. Each product caters to different market segments but aligns with Apple's brand and ecosystem. This diversification helps mitigate risks and maximize revenue streams.
What should a product portfolio include?
A product portfolio should include a range of products that cater to diverse customer needs and align with a company's goals. It typically includes core products, complementary offerings, and innovations to maintain competitiveness. An ideal portfolio balances market leaders, cash cows, and emerging products to ensure long-term sustainability and growth.
What is a strategic product portfolio?
A strategic product portfolio refers to a curated collection of products and services carefully chosen to achieve a company's overarching business objectives. It involves selecting, managing, and optimizing products to align with market demands, competitive positioning, and growth strategies while considering risk, profitability, and market share.
What is the role of a product portfolio?
The role of a product portfolio is to provide a structured approach for a company to manage its range of products. It helps in balancing risk and rewards, aligning with market needs, and achieving business goals. By diversifying offerings and optimizing resource allocation, a product portfolio supports sustained growth and competitiveness.
Learn more about product portfolios with our informative content. Harvestr is your all-in-one management platform, fostering collaboration and innovation for your teams to deliver a more impactful end product.