Product portfolio analysis

Question 1

What are the key analytical tools for performing portfolio analysis?

Answer 1

 Product life cycle

 Boston Consulting Group (BCG) Matrix.

Question 2

What is the product life cycle?

Answer 2

Application of life cycle theory to product or services

Question 3

What are the 5 stages of the product life cycle?

Answer 3

• Development
• Introduction
• Growth
• Maturity
• Decline

Question 4

What are the features of development?

Answer 4

 Negative cash flows – heavy investment in R&D and initial marketing
 Market research – will be key to ensuring the overall success of the product

Question 5

What are the features of introduction?

Answer 5

 Continued cash outflow – high marketing costs can outweigh initial sales
 Initial demand – will determine pricing policy (price skimming vs penetration)

Question 6

What are the features of growth?

Answer 6

 New competition – quality improvements may be needed to compete
 Economies of scale – may begin to emerge through mass production

Question 7

What are the features of maturity?

Answer 7

 Critical mass – should be achieved leading to cost efficiencies
 Positive cash flow – maximum sales with minimum marketing and investment

Question 8

What are the features of decline?

Answer 8

 Heavy price discounting – to utilise spare capacity and cover overheads
 Brand loyalty – may be key to retaining remaining customers

Question 9

What is the overall objective of the product life cycle?

Answer 9

 The overall objective is to achieve a balanced portfolio.

 Too many products in any one phase can lead to problems (e.g. cash flow and product succession).

Question 10

What are the two axes of the BCG matrix?

Answer 10

• market growth

- market share

Question 11

What is a product with high market growth and share?

Answer 11

Star

• Dominant position in an attractive market.
• High threat of new entrants requires the company to continue to invest to defend market share.
• Should the company consolidate its current position or invest further to seek additional growth?

Question 12

What is a product with low market growth and high share?

Answer 12

Cash cow
- Dominant position in a low growth market.
- Competitors will decide not to attack our market share as the market does not warrant the investment.
- Large positive cash flow can be achieved.
- Should the company ‘milk the cow’ and enjoy positive
cash flows from minimum investment, accepting that market share may eventually fall?

Question 13

What is a product with low market growth and low share?

Answer 13

Dog

• Low share of unattractive market
• Product may lack economies of scale but the market is not attractive enough to seek growth
• When should the company ‘put the dog down’?

Question 14

What is a product with high market growth and low share?

Answer 14

Problem child

• Attractive market but firm does not have the share to be competitive
• Lack of economies of scale limit cash flow
• Should the company invest further?