Transcript PRODUCT PORTFOLIO ANALYSIS IB BUSINESS & MANAGEMENT A Course Companion p204-206

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.
http://www.maxi-pedia.com/web_files/images/BCG_Matrix.png
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http://krikor.info/wp-content/uploads/2008/11/bcg.png
http://www.thestrategist.in/trends+concepts_Images/trends+concepts_1.png
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.