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PRODUCT PORTFOLIO ANALYSIS. IB BUSINESS & MANAGEMENT A Course Companion p204-206. PRODUCT PORTFOLIO ANALYSIS. Product portfolio analysis is looking at the range of products a business offers.
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PRODUCT PORTFOLIO ANALYSIS IB BUSINESS & MANAGEMENT A Course Companion p204-206
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.
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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 MATRIXCash 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 MATRIXStar • 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 MATRIXQuestion 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 MATRIXDog • 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.
Applying Circles to the BCG Matrix • In order to represent different products on a BCG matrix, we can draw circles of different sizes to indicate the relative importance of the product to group sales. • Therefore the largest circle on our diagram, will be the leading products in respect to overall group sales. • The smallest circle on the diagram will be a product that is of least importance to group sales.
The BCG Matrix with circles to reflect the relevant importance of the product to group sales. Product B is the most important and Product E is the least important.
In this example, product B clearly is the most important for the company, in regards to sales. It is actually between a cash cow and dog. The position of the circle on the diagram is important.
Activity: Applying the BCG Matrix to Procter & Gamble Business. • Refer to the Case Study provided in class.