Regional College of Management Autonomous

Bhubaneswar

A
Study
On
“Product portfolio analysis”

Guided by: Submitted by:

Mr. Mukesh Mishra Vikas Kumar Singh
Regd.No. -0906247110
 TABLE OF CONTENTS

CHAPTER 1:-
 INTRODUCTION
 IMPORTANCE OF TOPIC

CHAPTER 2:-
 METHODOLOGY
 CONCLUSION
 REFRANCE
 INTRODUCTION

The COMPETE Product Portfolio Analysis (PPA) package is a pc-based marketing decision support
tool that facilitates strategic market planning. This package enables competing participant teams in the
marketing simulation COMPETE to use Product Portfolio Analysis developed by the Boston
Consulting Group in strategic market planning (Palia 1991, Palia 1994).

The primary purpose of this paper is to demonstrate the use of the revised COMPETE PPA package
(Version 4.00) in static, comparative static and dynamic analyses of the firm’s product portfolio. The
COMPETE PPA package is designed for use by competing participant teams in the COMPETE
marketing simulation. This graphics application package has been tested and integrated successfully
into the marketing curriculum at the University of Hawaii since the spring 1995 semester.
 Importance of topic
There are two major importance of product portfolio analysis. That’s the reason that companies using
this analysis in different methods.

They divided the importance of portfolio analysis in two parameters:-

Market attractiveness: - determining the market attractiveness companies find out the attractiveness
and it’s most important of product portfolio analysis.

 Market growth
 Market size
 Market profitability
 Intensity of competition in the market
 Pricing trends
 Segmentation
 The risks involved in returns in industry
 The distribution structure; that is, wholesale, retail or direct
 Available opportunities for differentiating between products and services

Competitive strength: - this is another important factor of product portfolio analysis. Any companies
find out the market strength of the product against their competitors product.

 Market share
 Relative brand strength
 Distribution strength
 Loyalties of customers
 The extent of the company's access to investment and financial opportunities
 Relative cost position
 Records of technological innovations
 PRODUCT PORTFOLIO ANALYSIS

A product portfolio is the range of the products a firm produces. A single

Product firm is vulnerable to external forces, because all risks are centered on a single product & if that
product fails to succeed in the competitive environment, then not only the product vanishes from the
market; the company is too subject to die. Therefore there must be a range of products, so that risks are
spread over various products & the company can withstand if it faces any tough competition. So those
products need to be developed & firms need to have a sensible portfolio of products, which are at
varying stages at the product life cycle.

Product portfolio analysis means a systematic evaluation or assessment of a

Company’s product. There are two variables which are frequently used in systematic
Assessment of a company’s product, those are:

 MARKET ATTRACTIVENESS: (INCLUDES MARKET GROWTH RATE)

 BUSINESS STRENGTH: (INCLUDES RELATIVE MARKET SHARE)

 METHODOLOGY

METHODS OF PRODUCT PORTFOLIO ANALYSIS:-

 BCG matrix (BOSTON CONSULTING GROUP)

 Ansoff matrix
 SWOT analysis
 GE matrix
BOSTAN CONSULTING GROUP (BCG MATRIX):-

The BCG MATRIX is a portfolio planning model developed by Bruce

Henderson of the BOSTON CONSULTING GROUP in the early 1970s. The BCG
MATRIX method is based on the product life cycle theory that can be used to
Determine what priorities should be given in the product portfolio of a business unit.
It provides a graphical representation for n organization to examine different
Business units in its portfolio, on the basis of their relative market share & industry
Growth rate. To ensure long term value creation, a company should have a portfolio
Of products that contains both high-growth products in need of cash inputs and low growth products
that generate a lot of cash. It has 2 dimensions: market share &
Market growth. The basic idea behind it is that the bigger the market share a
Product has or the faster the product’s market grows the better it is for the
Company.
It is based on the observation that, a company’s business units (SBU’S) can
be classified under 4 categories based on the combinations of market share &
Market growth relative to the largest competitor. Hence it is also called the
GROWTH-SHARE MATRIX.

Here in the above diagram the market share serves as a proxy for
Competitive advantage, while the market growth serves as a proxy for industry
Attractiveness. The growth-share matrix thus maps the business unit positions
Within these two important determinants of profitability.

The framework assumes that, an increase in the relative market share will
Result in an increase in the generation of cash, which will help in the cost advantage
Of the firm. A second assumption is that, growing market requires investment in
Assets to increase capacity & therefore results in the consumption of cash.
The BCG matrix intend to say that, the cash required by the growing business
Units could be obtained from the firm’s other business units, that were at a more
Mature stage & generating sufficient cash.
The four cell of the BCG matrix have been termed as:-

 STARS
 CASH-COWS
 QUESTION MARKS
 DOGS
 STARS (HIGH GROWTH+HIGH MARKET SHARE):-

STARS are high growth high market share businesses, which may be or may
Not be self sufficient in terms of cash flow. They generate large amount of cash
Because of their strong relative market share, but at the same time they require
Large amounts of cash too, because of their high growth rate.
If a STAR can maintain its large market share, it will become a cash-cow as
Soon as its market growth rate declines. A diversified company should always have
STARS in its portfolio that will become the next cash-cow & ensure future cash
Generation.

 CASH – COWS (LOW GROWTH+ HIGH MARKET SHARE):-

CASH-COWS are businesses which generate large amounts of cash, but their
Growth rate is slow. In terms of PRODUCT LIFE CYCLE (PLC), these are generally
Mature businesses which are reaping the benefits.
The cash generated by the CASH-COWS are re-invested in STARS &
QUESTION MARKS. It provides cash to cover the administrative costs of the
Company, to fund R&D, to service the corporate debt & to pay the dividends to its
Share holders.

 QUESTION MARKS(HIGH GROWTH + LOW MARKET SHARE):-

Businesses with high growth rate but low market share for a company are
Termed as “QUESTION MARKS” or “PROBLEM CHILDREN”. They require a large amount of
cash to maintain or grow market share. QUESTION MARKS are usually new products or services
which have a good commercial potential.
If the QUESTION MARKS don’t succeed in becoming the market leader, then
Perhaps after years of cash consumption it will degenerate into a DOG as soon as its
Market growth starts declining. Again the QUESTION MARKS have the potential to
Gain market & become a STAR & eventually a CASH-COW, when the market growth becomes slow.

The QUESTION MARKS therefore should be & must be analyzed carefully in

Order to determine whether they are worthy for investment, which is required to
Gain market share.
 DOGS(LOW GROWTH + LOW MARKET SHARES):-

Those businesses which are related to slow growth industries & where the
Company has a low relative market share are termed as DOGS. They neither
Generate cash, nor require large amount of cash. In terms of the PLC as shown
Above, the DOGS are usually products in late maturity or at declining stages.
Therefore companies should try to avoid & minimize the number of DOGS in
Company, beware of expensive “turn around plans” & deliver cash, otherwise they
Should liquidate. Here investments are just like throwing stones in darkness in a
Hope that it will hit the target.

STRATEGIES FOR DIFFERENT POSITIONS IN THE BCG MATRIX:

POSITION STRATEGY

STARS: HOLD:- TO KEEP THE ORGANISATION

IN ITS PRESENT POSITION.

CASH-COWS: HARVEST:- REDUCING INVESTMENT &

MAXIMIZING CASHFLOWS

QUESTION MARKS: INVEST / BUILD SHARE:- TO INVEST

MORE IN ORDER TO INCREASE
MARKET SHARE.

DOGS: DIVEST:- TO AVOID ANY FURHER

INVESTMENT & IF POSSIBLE TO
LIQUIDATE.
ANSOFFS MATRIX:

In order to find out alternative corporate growth strategies, Igor Ansoff

Presented a matrix that focused on the firm’s present and potential products and
Markets (customers). By considering ways to grow via existing products and new
Products, and in existing markets and new markets, there are four possible product market
combinations.

The Ansoff growth matrix is a tool that helps businesses decides their product
& market growth strategy.
Ansoff’s matrix provides four different growth strategies:

 Market Penetration – the firm seeks to achieve growth with existing products
In their current market segments, aiming to increase its market share.
 Market Development – the firm seeks growth by targeting its existing
Products to new market segments.
 Product Development – the firms develops new products targeted to its
Existing market segments.
 Diversification – the firm grows by diversifying into new businesses by
Developing new products for new markets.

Market Penetration :-

It has 4 main objectives:

 To, increase market share.

 To, secure dominance in growth market.
 To, restructure a mature market by driving out competitors.
 To, increase usage by existing consumers.

Market Development:-

It is needed when there are certain conditions as:

 It’s a new geographical market.
 It’s a new distribution channel.
 There are new product dimensions or packaging.
 There are different pricing policies to attract different customers.
Product Development:-
 This strategy requires the business to develop modified products in existing market.

PRODUCT DIVERSIFICATION:-

 This involves more risk as here is a new market where there is a little or no
Experience, so to adopt this strategy, the firm must have a clear idea about
what it expects to gain from strategy as well as an honest assessment of risks.

S.W.O.T ANALYSIS

A scan of the internal and external environment is an important part of the strategic planning process.
Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W),
and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of
the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and
capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy
formulation and selection. The following diagram shows how a SWOT analysis fits into an
environmental scan:

Strengths:-

A firm's strengths are its resources and capabilities that can be used as a basis for developing a
competitive advantage. Examples of such strengths include:

 patents
 strong brand names
 good reputation among customers
 cost advantages from proprietary know-how
 exclusive access to high grade natural resources
  favorable access to distribution networks

Weaknesses:-

The absence of certain strengths may be viewed as a weakness. For example, each of the following may
be considered weaknesses:

 lack of patent protection

 a weak brand name
 poor reputation among customers
 high cost structure
 lack of access to the best natural resources
 lack of access to key distribution channels

In some cases, a weakness may be the flip side of strength. Take the case in which a firm has a large
amount of manufacturing capacity. While this capacity may be considered a strength that competitors
do not share, it also may be a considered a weakness if the large investment in manufacturing capacity
prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities:-

The external environmental analysis may reveal certain new opportunities for profit and growth. Some
examples of such opportunities include:

 an unfulfilled customer need

 arrival of new technologies
 loosening of regulations
 removal of international trade barriers
Threats:-

Changes in the external environmental also may present threats to the firm. Some examples of such
threats include:

 shifts in consumer tastes away from the firm's products

 emergence of substitute products
 new regulations
 increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a
better chance at developing a competitive advantage by identifying a fit between the firm's
strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in
order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be
constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT / TOWS Matrix

  Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

  S-O strategies: - pursue opportunities that are a good fit to the company's strengths.

 W-O strategies: - overcome weaknesses to pursue opportunities.

 S-T strategies: - identify ways that the firm can use its strengths to reduce its vulnerability to
external threats.

 W-T strategies: - establish a defensive plan to prevent the firm's weaknesses from making it
highly susceptible to external threats.

GE / McKinsey Matrix

In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a
nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU).
This business screen became known as the GE/McKinsey Matrix and is shown below:

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic
business units on a grid of the industry and the SBU's position in the industry. The GE matrix however,
attempts to improve upon the BCG matrix in the following two ways:

 The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength"
whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and
relative market share as a proxy for the strength of the business unit.
  The GE matrix has nine cells vs. four cells in the BCG matrix.

Industry attractiveness and business unit strength are calculated by first identifying criteria for each,
determining the value of each parameter in the criteria, and multiplying that value by a weighting
factor. The result is a quantitative measure of industry attractiveness and the business unit's relative
performance in that industry.

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors
such as the following:

 Market growth rate

 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macro environmental factors (PEST)

Each factor is assigned a weighting that is appropriate for the industry. The industry attractiveness then
is calculated as follows:

Industry attractiveness    =     factor value1   x   factor weighting1

   +  factor value2   x   factor weighting2
   
   +  factor value   x   factor weighting

Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some factors that
can be used to determine business unit strength include:

 Market share
 Growth in market share
  Brand equity
 Distribution channel access
 Production capacity
 Profit margins relative to competitors

The business unit strength index can be calculated by multiplying the estimated value of each factor by
the factor's weighting, as done for industry attractiveness.

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as
follows:

 Market size is represented by the size of the circle.

 Market share is shown by using the circle as a pie chart.
 The expected future position of the circle is portrayed by means of an arrow.

The following is an example of such a representation:

The shading of the above circle indicates a 38% market share for the strategic business unit. The arrow
in the upward left direction indicates that the business unit is projected to gain strength relative to
competitors, and that the business unit is in an industry that is projected to become more attractive. The
tip of the arrow indicates the future position of the center point of the circle.

Strategic Implications

Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit
based on its position on the matrix as follows:

 Grow strong business units in attractive industries, average business units in attractive
industries, and strong business units in average industries.
 Hold average businesses in average industries, strong businesses in weak industries, and weak
business in attractive industies.
 Harvest weak business units in unattractive industries, average business units in unattractive
industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest group the firm
would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it
might perform a phased harvest of an average business unit in the same industry.

While the GE business screen represents an improvement over the simpler BCG growth-share matrix, it
still presents a somewhat limited view by not considering interactions among the business units and by
neglecting to address the core competencies leading to value creation. Rather than serving as the
primary tool for resource allocation, portfolio matrices are better suited to displaying a quick synopsis
of the strategic business units.

Conclusion
The Product Portfolio Analysis package is a simple yet powerful pc-based decision support system that
may be used in strategic market planning. It is used by competing participant teams to analyze, plan,
implement and control their respective marketing programs. It directly Involves the decision-maker in
the analysis and evaluation process, and thereby facilitates organizational communication, acceptance
and implementation of the resulting decisions. Further, it encourages rational decision making through
the analysis of dynamic and complex relationships and the evaluation of alternative courses of action.
This package enables participant teams to perform a higher level of marketing analysis with a lower
level of effort. Specifically, the teams will spend less time in entering the data and generating the GSM
and GGM displays, and more time in analyzing the data and formulating informed marketing strategy.
However, this decision support tool is designed to assist the marketing manager in the decision-making
process and is not a substitute for it. In the final analysis, a successful marketing program is the result
of a well-conceived marketing strategy, a balanced marketing mix directed toward a target group of
consumers, and the careful implementation of pricing, promotion, distribution, and production policies.

Reference

Philips kotlar: - marketing management

www.google.com
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www.springerlink.com

www.ehow.com