PORTFOLIO ANALYSIS

Portfolio Analysis

Portfolio Analysis

This is a method of analysing the product portfolio of a business (that is, the number and range of different products which a business produces at a particular point in time). This model was developed by a group of management consultants called the Boston Consulting Group, and it divides the products that are produced by a business into 4 categories, according to their market share and the level of market growth. The 4 categories are:

Problem Child

(Sometimes referred to as Question Marks or Wild Cats). This is a product which has a low market share in a high growth industry. These products have often been launched quite recently and have not had the necessary time to establish themselves in the market. They will require a significant amount of money to be spent on their promotion in order to achieve a healthy market share. They are at the 'Introduction' stage of the product life-cycle.

Stars

These products have a high market share in a high growth market. They are very successful products which create a large amount of revenue for the business. They still require a large amount of money to be spent on their promotion, in order to keep ahead of the rival products in the marketplace. They are at the 'Growth' stage of the product life-cycle.

Cash Cows

These products have a very high market share in a stable market (i.e. market growth is low). These products are at the 'Maturity' and 'Saturation' stages of their product life-cycle and produce a very large amount of revenue for the business. This money is often used to promote the 'Problem Child' products and to develop new products.

Dogs

These products have a very low market share in a low growth market. They produce very little revenue for the business and are at the 'Decline' stage of the product life-cycle. The business has to decide whether to try and extend the life-cycle and boost sales revenue, or whether to delete the product from the portfolio.

Benefits & limitations

The Boston Consulting Group (BCG) help to show the potential market share of a product. In the case of the new 'hybrid' bicycle soon to be launched, it can be described as a potential Star product, meaning a bicycle that can compete rapidly in this high-growing market but needing a large amount of investment to develop satisfactory. If everything goes well, the new bike could generate plenty of surplus cash from its sales. At the same time, it could develop into a problematic product, needing a great amount of cash resources putting the company into a weak position due to poor profit margins.

These different categories can be represented in a Boston Matrix, as illustrated below:

 

As you can see from the above diagram, this business has five products in its portfolio. The size of each circle is proportional to the amount of revenue which each product generates. Some important points to note from the diagram :

Product 1 is a 'Dog' and is clearly in decline - ...