AGBS-PBM Note 2_Product Management Process

8/8/2019 AGBS-PBM Note 2_Product Management Process

http://slidepdf.com/reader/full/agbs-pbm-note-2product-management-process 1/26

Product and Brand Management (MGBMK 20301) / Note 2 /

NOTE 2: The Product Management Process [Module I]

The Product Management Function

Product management is an organizational lifecycle function within a company dealing with the

planning or marketing of a product or products at all stages of the Product Life Cycle (PLC). Whileinvolved with the entire PLC, product management's main focus is on driving new productdevelopment. According to the Product Development and Management Association (PDMA), product

management deals with proper management of superior and differentiated new products, which will

deliver unique benefits and superior value to the customer, thus acting as prime driver of success and

product profitability. (Source: Kahn, Kenneth B. (Editor), The PDMA Handbook of New Product

Development, Second Edition, Hoboken, NJ: John Wiley & Sons, 2005). The role of product

management spans many activities from strategic to tactical and varies based on the organizationalstructure of the company. Product management can be a function separate on its own or a member of

marketing or engineering. Depending on the company size and history, product management has a

variety of functions and roles. Sometimes there is a product manager, and sometimes the role of product manager is held by others. Frequently there is Profit and Loss (P&L) responsibility as a keymetric for evaluating product manager performance. In some companies, the product management

function is the hub of many other activities around the product. In others, it is one of many things thatneed to happen to bring a product to market.

The major aspects of product management functions are:

Product planning

Defining new products

Gathering market requirements

Building product roadmaps, particularly Technology roadmaps

Product Life Cycle considerations

Product differentiation

Product management vs. product marketing

Product Management (inbound focused) and Product Marketing (outbound focused) are different yetcomplementary efforts with the objective of maximizing sales revenues, market share, and profit

margins.

Product marketing deals with the first of the "4P"'s of marketing, which are Product, Pricing, Place,

and Promotion. Product marketing, as opposed to product management, deals with more outbound

marketing tasks. For example, product management deals with the nuts and bolts of product

development within a firm, whereas product marketing deals with marketing the product to prospects,

customers, and others. Product marketing, as a job function within a firm, also differs from othermarketing jobs such as Marcom or marketing communications, online marketing, advertising,

marketing strategy, etc. A Product Market is something that is referred to when pitching a new

product to the general public. The people you are trying to make your product appeal to is your

consumer market. For example: If you were pitching a new video game console game to the public,your consumer market would probably be the adult male Video Game market (depending on the type

of game). Thus you would carry out market research to find out how best to release the game.Likewise, a massage chair would probably not appeal to younger children, so you would market your

product to an older generation.




Role of product marketingAccording to S. Wheelright and K. Clark, product marketing in a business addresses five important

strategic questions:

What products will be offered (i.e., the breadth and depth of the product line)?

Who will be the target customers (i.e., the boundaries of the market segments to be served)?

How will the products reach those (i.e., the distribution channel)?

How much should the products be priced at?

How to introduce the products (i.e., the way to promote the products)?

The aspects of Product marketing are:

Product positioning and outbound messaging

Promoting the product externally with press, customers, and partners

Bringing new products to market

Monitoring the competition

Product marketing frequently differs from product management in high-tech companies. Whereas theproduct manager is required to take a product's requirements from the sales and marketing personnel

and create a product requirements document (PRD), which will be used by the engineering team to

build the product, the product marketing manager can be engaged in the task of creating a marketingrequirements document (MRD), which is used as source for the product management to develop the

PRD.

In other companies the product manager creates both the MRDs and the PRDs, while the product

marketing manager does outbound tasks like giving product demonstrations in trade shows, creatingmarketing collateral like hot-sheets, beat-sheets, cheat sheets, data sheets, and white papers. This

requires the product marketing manager to be skilled not only in competitor analysis, market research,and technical writing, but also in more business oriented activities like conducting ROI and NPV

analyses on technology investments, strategizing how the decision criteria of the prospects or

customers can be changed so that they buy the company's product vis-à-vis the competitor's product,

etc.

In smaller high-tech firms or start-ups, product marketing and product management functions can beblurred, and both tasks may be borne by one individual. However, as the company grows someone

needs to focus on creating good requirements documents for the engineering team, whereas someone

else needs to focus on how to analyze the market, influence the "analysts", press, etc. When such clear

demarcation becomes visible, the former falls under the domain of product management and the lattercomes under product marketing. In Silicon Valley, in particular, product marketing professionals have

considerable domain experience in a particular market or technology or both. Some Silicon Valley

firms have titles such as Product Marketing Engineer, who tend to be promoted to managers in duecourse. The trend that is emerging in Silicon Valley is for companies to hire a team of a product

marketing manager with a technical marketing manager. The Technical Marketing role is becomingmore valuable as companies become more competitive and seek to reduce costs and time to market.

The need for a Product Management System

Product Management is “messenger of the market,” delivering market and product information to thedepartments that need facts to make decisions.

• Product Management is needed if one wants low-risk, repeatable, market-driven products and

services

• Product Management makes it vastly easier to identify market problems




• Product Management identifies a market problem, quantifies the opportunity to make sure it’s

big enough to generate profit, and then articulates the problem to the rest of the company

• Product Management supports the sales effort by defining a sales process supported by the

requisite sales tools so that the customer can choose the right products and options

• Product Management communicates the market opportunity to the executive team with

business rationale for pursuing the opportunity including financial forecasts and risk

assessment.

• Product Management communicates the problem to Research & Development department inthe form of market requirements

• Product Management communicates to Marketing Communications department using

positioning documents, one for each type of buyer

Product Manager’s Management System – Scope, Responsibility and

Authority

Product Manager is one whose primary responsibility is a product or a closely related product line.

Two broad responsibilities of a Product Manager are:

Product Manager is responsible for the planning activities related to the product or product

line

Product Manager must get the organization to support the marketing programs recommended

in the plan.

Traits

• Guiding a team that is charged with a product line contribution as a business unit• Increasing the profitability of existing products to developing new products for the company

• Building products from existing ideas, and helping to develop new ideas based on ownindustry experience and contact with customers and prospects

• Possession of a unique blend of business and technical finesse with a big-picture vision, and

the drive to make that vision a reality• Must enjoy spending time in the market to understand their problems, and find innovative

solutions for the broader market

• Communicating to all areas of the company• Working with the engineering counterpart to define product release requirements

• Working with marketing communications to define the go-to-market strategy, helping themunderstand the product positioning, key benefits, and target customer

• Serving as the internal and external evangelist for the final product offering• Working occasionally with the sales channel and key customers




Difference between Product Manager and Marketing Manager

Heads Product Manager Marketing Manager

Scope of responsibility Narrow: Single product or product line Broad: Portfolio of products

Nature of decision making Mainly Tactical Mainly strategic

Time horizon Short Run, often annual or shorter Long Run

The description of different types of product managers is given below:

1. Product Line Manager

Traits• Has a business-orientation and is responsible for the development and implementation of the

product plan for a specific product family

• Maintains close relationship with the customer/prospect for awareness of customer needs and

perspectives• Identification of appropriate markets and development of effective marketing strategies and

tactics• Being involved through all stages of a product family's lifecycle

Duties

• Seeking new market opportunities within the company's distinctive competence

•

Initiating market research and sizing markets• Documenting market problems (both existing customers and future customers)

• Analyzing product performance and sales success

• Documenting product profitability and operational metrics

• Creating and maintaining the business case

• Product pricing

• Determining buy/build/partner decisions• Serving as the solution expert when dealing with thought leaders, analysts, and press

• Positioning the product for all markets and all buyers

• Documenting the ideal sales process




• Providing high-level market and cross-product requirements

• Maintaining the product family roadmap

• Approving final marketing and go-to-market plans

2. Technical Product Manager

Traits

• Responsible for defining market requirements and packaging the features into product

releases

• Involving close interaction with development leads, product architects, and key customers• Strong technical background

• Gathering requirements from prospects, evaluators and customers, writing marketingrequirements documents, and monitoring the implementation of a product project

Duties

• Technology Assessment

• Competitive Analysis

•

Win/Loss Analysis• Monitoring industry innovations

• Defining user personas for individual products

• Product Contract with development teams• Writing business requirements

• Monitoring the implementation of the product projects

3. Product Marketing Manager

Traits

• Provides product line support for program strategy, sales readiness and channel support

• Requires close interaction with marketing communications and sales management

•

Strong communication skills

Duties

• Converting technical positioning into key market messages and launching the products intomarket

• Defining buyer personas and determining market messages

• Maintaining product launch plans• Identifying best opportunities for lead generation

• Creating standard presentations and demo scripts• Documenting competitive threats and related industry news

• Facilitating direct sales and channel training• Supporting trade shows and other company-sponsored events

• Limited onsite channel support and phone assistance

Advantages of Product Management System

• Locus of responsibility is clear as one person is responsible for the success or failure of a

product or product line.

• Product managers training and experience are invaluable.

• The organization knows whom to turn to for any information about any product.




Disadvantages of Product Management System

• The focus might be narrowed to one product and hence the manager fails to have a holisticview of customer needs.

• A very centralized structure

• Product managers are too myopic as they have profit targets for the short term.

Product Management Decisions

Product Mix

It is the set of all the products that an organization offers to its customers. Product mix has a certain

characteristic features like product width, length, depth and consistency.

Width: This refers to how many different product lines the company carries.

Depth: This refers to how many variants, shades, models, pack sizes etc. are offered of eachproduct in the line

Length: This refers to the total number of items in the mix.

Consistency: This refers to how closely the various product lines are related in end use, production

requirements, distribution channels or some other way.

Let us take example of partial product assortment of HUL in its Home and Personal Care (HPC)

division:

Partial product assortment of HUL

So you see that there are three product lines of detergent, bathing soaps and shampoos in our example.

The list is illustrative and not exhaustive as HLL has many more product lines. Hence, in the examplethe product width is 3. If Sunsilk has 3 different formulations (oily, dry and normal hair) and 3

variations (sachet, 50 ml and 100 ml), then the depth of Sunsilk is 3 X 3 = 9. The average depth of HLL’s product mix can be calculated by averaging the depths of all brands, which signifies the

Product Width

Product line 1 Product line 2 Product line 3……………

Detergents Bathing Soaps Shampoos

Surf Lifebuoy Sunsilk Surf Excel Lux Clinic Plus

Product Wheel DoveLength Liril

Rexona

Hamam




average depth of each product. For example if Surf, Lifebuoy, Surf Excel, Lux, Clinic Plus, Sunsilk,

Wheel, Liril, Rexona, Dove and Hamam have depths of 3, 2, 1, 3, 6, 9, 2, 3, 2, 1 and 2 respectively

(all are hypothetical figures), then the average depth of HLL’s HPC division is

(3+2+1+3+6+9+2+3+2+1+2)/11 i.e. 34/11 i.e. 3.1. The length of HPC division is 11. The average

length of line is determined by dividing the total length by the width (i.e. the number of lines), whichsignifies the average number of products in a product line. In this case, the average length is 11/3 i.e.

3.67.

Let us look at another example where we will discuss the real product varieties in detail. We will

discuss the entire range of products from Dabur and will calculate the length, width, product depth,

average length and average depth. Following table shows the products from Dabur.

Amla Hair Oil 50 ml, 100 ml, 200 ml, 300 ml, 500 ml

Amla Lite Hair Oil 100 ml, 200ml

Anmol Sarson Amla Hair Oil 50 ml, 100 ml, 200 ml

Anmol Natural Shine Shampoo Rs 0.50 and Rs 1 sachet and 200 ml and 500 ml bottles.

Baby Olive Oil 100 ml

Back-aid cream 25gm, 5gm

Binaca Toothbrush Top, Flexi, 1-2-3 Trickleen, Flex-n-Turn

Capsico Red Pepper Sauce Standard pack

Dabur Chyawanprash Vishwast 1 kg, 500 gmSpecial 1 kg, 500 gm, 250 gm

Dabur Balm 10 gm, 5 gm

Glucose-D 100 gm, 200 gm, 500 gm

GlucoPlus-C 100 gm, 500 gm

Gulabari 30ml, 60ml, 120ml, 250ml Bottles

Skin Care PET pack

Hajmola 130 tablets (72 pieces / case)

110 Sachets jar (16 pieces / case)

110 Sachets refill (16 pieces / case)

Sachet Combi (16 pieces / case)

Hajmola Anardana 100 gm Flip top bottleHajmola Candy 250 gm refill pack (Albela Aam, Chulbuli Imli, Pangebaaz

Pineapple, Rangeela Santra)

250 gm jar (Albela Aam, Chulbuli Imli, Pangebaaz Pineapple,Rangeela Santra)

500 gm jar (Albela Aam, Chulbuli Imli)

Hajmola Candy Fun2 Pitch, Litchi, Green mango

Hajmola Mast Masala 100 gm

Hingoli 100 tablet Bottle, 200 sachet jar

Hommade

Ginger & Garlic Tamarind paste 50 gm, 100 gm, 200 gm Pouch

200 gm Tamarind

200 gm Bottle

Tomato puree Tetra pack

Coconut milk Tetra pack

Imli Saunth chutney Bottle 230 gm

Honey 50gm, 100gm, 250gm, 500gm & 1kg Bottle

400gm Squeeze Pack

Itch care cream 12 gm

Janmaghunti 30 ml, 60 ml, 125 ml

Lal Dant Manjan HDPE Packs 60g, 100g, 150g, 300g

Sachet 5g, 10g

Lal Tail 60 ml, 120 ml, 200 ml

Lemoneez Bottle 250 mlNature care Regular 100 gm, 100gm (refill), 200 gm, 375 gm

Orange 100 gm

Lemon 100 gm

Pudin Hara Liquid 10 ml, 30 ml




Pearls Strip

Pudin Hara G 5 gm sachet

Real juice Grape, Guava, Pineapple, Tomato, Orange, Litchi, Mango,

Mixed fruit

Real Activ Orange, Apple, Orange Carrot

Red Toothpaste 200 gm, 100gm, 50 gm

Red Gel toothpaste

Ring Ring Cream 10 gmSarbyna Strong 600 strip jar, 20 strip box

Sat Isabgol 7 gm Sachet, 50 gm Packs, 100 gm Packs

Shilajit 10 caps, 30 caps, 100 caps

Shilajit Gold Blister of 10 capsules

Shankha Pushpi 225ml, 450ml

Vatika enriched coconut hair oil 75 ml, 150 ml, 300 ml bottles

150 ml, 300 ml Flip can

Vatika Henna cream conditioning shampoo 8 ml, 50 ml, 100 ml, 200ml, 500 ml bottles

Source: http://www.dabur.com

First, all the brands with all the variants are grouped under separate product categories to find out the

width, length and depth.

1. Health supplements

Brands Variants Depth

1) Dabur Chyawanprash Vishwast 1 kg, 500 gm

Special 1 kg, 500 gm, 250 gm5

2) Glucose D 100 gm, 200 gm, 500 gm 3

3) GlucoPlus-C 100 gm, 500 gm 2

2. Baby care


1) Dabur Baby olive oil 100 ml1

2) Dabur Janma Ghunti 30 ml, 60 ml, 125 ml 3

3) Dabur Lal tail60 ml, 120 ml, 200 ml

3

3. Digestives

Brands Variants

1) Hajmola 130 tablets (72 pieces / case), 110 Sachets jar (16 pieces /

case), 110 Sachets refill (16 pieces / case), Sachet Combi

(16 pieces / case)

4

2) Hajmola candy 250 gm refill pack (Albela Aam, Chulbuli Imli, Pangebaaz

Pineapple, Rangeela Santra)

250 gm jar (Albela Aam, Chulbuli Imli, Pangebaaz

Pineapple, Rangeela Santra)500 gm jar (Albela Aam, Chulbuli Imli)

10

3) Hajmola Candy Fun2 Pitch, Litchi, Green mango 3

4) Hajmola Mast Masala 100 gm 1

5) Hajmola Anardana 100 gm Flip top bottle 1

6) Pudin Hara Liquid 10 ml, 30 ml

Pearls Strip

3

7) Pudin Hara G 5 gm sachet 1

8) Dabur Hingoli 100 tablet Bottle, 200 sachet jar 2




4. Natural cures

Brands Variants

1) Nature Care Regular 100 gm, 100gm (refill), 200 gm, 375 gm

Orange 100 gm

Lemon 100 gm

6

2) Sat Isabgol 7 gm Sachet, 50 gm Packs, 100 gm Packs 3

3) Shilajit 10 caps, 30 caps, 100 caps 34) Shilajit Gold Blister of 10 capsules 1

5) Ring Ring 10 gm Cream 1

6) Itch Care 12 gm 1

7) Back-aid cream 5gm, 25gm 2

8) Shankha Pushpi 225ml, 450ml 2

9) Dabur Balm 5 gm, 10 gm 2

10) Sarbyna Strong 20 strip box, 600 strip jar 2

5. Hair oil


1) Amla Hair Oil 50 ml, 100 ml, 200 ml, 300 ml, 500 ml 5

2) Amla Lite Hair Oil 100 ml, 200ml 2

3) Anmol Sarson Amla Hair Oil 50 ml, 100 ml, 200 ml 3

4) Vatika Hair Oil Bottles 75 ml, 150 ml, 300 ml

Flip cans 150 ml, 300 ml

5

6. Shampoo


1) Anmol Silky Black Shampoo Sachets 50p, Rs. 1

Bottles 25 ml, 100 ml

4

2) Vatika Henna

Conditioning Shampoo

8 ml, 50 ml, 100 ml, 200ml, 500 ml

bottles

5

3) Anmol Natural Shine

Shampoo

Sachets 50p, Rs. 1

Bottles 200 ml, 500 ml

4

7. Skin care


1) Gulabari Bottles 30ml, 60ml, 120ml, 250ml

Skin Care PET pack

5

2) Vatika Fairness Face Pack 60 gm pack 1

8. Oral care


1) Dabur Red Toothpaste 50 gm, 100gm, 200 gm 3

2) Dabur Lal Dant Manjan HDPE Packs 60g, 100g, 150g, 300g

Sachet 5g, 10g6

3) Dabur Binaca Toothbrush Top, Flexi, 1-2-3 Trickleen, Flex-n-Turn 4

4) Dabur Red Gel Standard pack 1




9. Food

Brands Variants

1) Hommade

Ginger & Garlic Tamarind paste Pouch: 50 gm, 100 gm, 200 gm

Tamarind: 200 gm

Bottle: 200 gm

Tomato puree Tetra pack Coconut milk Tetra pack

Imli Saunth chutney Bottle 230 gm

8

2) Honey Bottles 50gm, 100gm, 250gm, 500gm, 1kg

Squeeze Pack 400gm 6

3) Lemoneez 250 ml Bottle 1

4) Real juiceGrape, Guava, Pineapple, Tomato, Orange, Litchi, Mango,

Mixed fruit8

5) Real Activ Orange, Apple, Orange Carrot 3

6) Capsico Red Pepper Sauce Standard pack 1

Form the above groupings the following information can be interpreted.

The product width: 9

Total product length: 43 (3+3+8+10+4+3+2+4+6)Total product depth: 140

So,

The average length: 4.8 (43/9) [it denotes the average number of brands in each product category]

The average depth: 3.3 (140/43) [it denotes the average number of variants of each brand ]

Product Mix Strategies

Expansion of product mix: An organization may opt to expand its existing product mix by

increasing its product lines (Anchor switch introduced Anchor toothpaste) and/or the depth(Lifebuoy liquid soap) within the line. New product lines may be either related (Tata Motors

from commercial vehicle viz. 407 mini-truck to passenger car viz. Indica) or unrelated

(ITC from tobacco to hotel) to the existing product lines.

Contraction of product mix: Due to economic slumps or intense competition, companies contracttheir product mix to eliminate low profit yielding products and get a better profit margin from fewer

products. This may be done either by eliminating the entire product line (Sahara sold its airline business) or by simplifying the assortments within the lines, i.e. reducing product depth (Madura

Garments’ Allen Solly dropped its youth line)

Altering existing products: Companies should sometimes consider altering the existing productsinstead of adding new products to their product mix. Redesigning (softer toothpaste tube from

harder metallic one) or adding new features to the existing product (value-added service

offered by mobile companies) can prove to be less risky and more lucrative. Packaging

Assignment Assignment Assignment Assignment No 3:No 3:No 3:No 3:Describe product-mix strategy of Marico, which must include the calculation of length,

width, average length and depth, and also the description of consistency.




(Parachute coconut oil container) is an equally important tool in altering the look and the usage

of the product.

Positioning the product: Marketers use following strategies to position the product in the market

Positioning the product in relation to the competitor’s product: Complan and Horlicks Positioning the product in relation to the target market: Diet Coke for calorie conscious

consumers

Positioning in relation to product class:o Associating to a common class of products: Fanta and Mirinda orange flavoured soft

drinks o Disassociating from a common class of products: Minute Maid orange pulp

Positioning by price: Big Bazaar discount store, Aiwa CTV

Positioning by quality: Westside lifestyle departmental store, Sony CTV

Trading Up: Here, the companies offer products of higher price or more premium image compared to

their existing product line in an effort to increase the overall sales and enhance the company's image,which may happen in 2 ways:.

Continue to depend on old, low priced products for the bulk of their sales and promote the oldproducts heavily; Nokia sub-ten thousand models, Zee movies

Gradually shift their promotion emphasis onto the new products, wait till the new product toincrease its sales volume to a reasonable level, and then slowly drop the low priced product totally;Intel introduced higher performing Pentium with increasing versions along withplanned obsolescence of Celeron

Trading Down: Here, marketers add low priced items to their existing line of specialty products in

order to provide a new product to customers who cannot afford the original product. Tata in

addition to its up-market Taj hotels, introduced Ginger budget hotels.

Managing Product Lines

Product line analysis: Product line managers should study the sales, profits generated by theproducts and the market profile of each product in the product line. This helps in building,

maintaining, extending and pruning the product lines. Sometimes, marketers drop products that yield

lesser profits or incur losses.

Product line length: According to Kotler, a product line is too short if profits can be increased by

adding new products to the existing line and the product line is to too long if profits can be increased

(or losses if any, can be decreased) by removing a few of the existing products. A company's

objectives could also influence product line-length decisions. A company aiming for higher market

share and market growth will carry longer product lines, whereas companies concerned with high

profitability will selectively choose the items in the product line and try to keep them short. Productlines can be increased in two ways: (a) line stretching and (b) line filling.

Line stretching: Here, company stretches its product line beyond the current range of products. It

can stretch its product line in either the down market, the up market or in both.

o A company stretches its product line downwards when it is positioned in the middle market

and it wants to introduce the products at a lower price. Reasons for stretching downwards can be(i) the company finds the middle market stagnating or declining, (ii) it may notice potential

growth in the down-market, and (iii) it may aim to tie up with the lower end competitors who

might otherwise try to move up market.

o A company stretches its product line upwards when it wishes to enter the high end of the

market. The objective may be to have higher growth, increase its margins or to project itself as afull-line manufacturing firm.

o A company serving the middle market might indulge in stretching its product line both ways

to capture both the upper market and the down market.




Line filling: It is carried out by adding more products to the existing range of the product line.

Manufacturers opt for line filling (a) to reach incremental profits, (b) to satisfy sales and distribution

people who complain about the missing items in the line, (c) to utilize excess production capacity of

manufacturing units or (d) to keep the competitors at bay.

Product-line modernization: A company using old machine tools, and producing the same old model

of the product, may find its customers shifting to competitors. Therefore companies try to modernize

their existing products in order to compete better in the market. One of the major issues in line

modernization is the time of the product launch for these improved products. If it is timed too early, it

might damage the sales of the existing product and if it is timed too late, competitors might capture

the market with their products. HUL entered into male fairness segment quite after

Emami’s launch of Fair & Handsome.

Line pruning: Product line managers should periodically check and analyze the product lines so that

product/s with no or low profit-earning potential could be found out. IBM sold its desktop and

laptop business to Lenovo and concentrated in server segment.

Reasons for line extension

It may be perceived as a low cost, low risk way to meet the needs of various customer segments.

It provides a wide variety of goods under the umbrella of the same brand.

Marketers can advertise the superior quality of the line extension products and charge a premiumprice for these products. They can also consider charging a lower price for the new products when

compared to the original product.

Adding new products to the same product line needs less time and cost as compared to introducing anew product or brand. Also forecasting the demand and sales is much easier for these products.

Introducing new products to the existing product line helps marketers to boost short term sales.

Product line extension also helps the marketers in raising the admission price for new brands and

new labels. Marketers can reduce the price of their superior products as products are distributed viathe same distribution channels, thereby helping to reduce the logistic and storage cost.

Limitations of product line extension

Weaker lines: Managers sometimes extend the lines to the point of super saturation. Sales personnel

will not be able to explain the benefits of all the products in the product line. They lose control of

presentation, confusing customers.

Lowers brand loyalty: When marketers mindlessly increase the number of products under the samebrand umbrella, it often leads to reduction in brand loyalty. Many brands have successfully catered to

the needs of the customers for quite a long period of time. In such cases, extension of lines risks

disruption of well-set buying patterns and habits.

Under exploitation of ideas: While concentrating on line extension, marketers often overlook thefact that the idea may warrant a new brand rather than a new product under the same brand umbrella.

Stagnant demand: Line extensions rarely increase the demand of the total category.

Profits earned by extending product lines are short lived since competitors can quickly and easily

match the company's new products.

Line extension can fragment the overall marketing efforts of the firm and dilute the brand's image.

It leads to logistics complexity and more errors in forecasting demand resulting in over-stocking toavoid stock-outs.




Line proliferation distracts attention of R&D department from developing new products and

generating new ideas.

The costs of line extension proliferation remain hidden.

Product Portfolio

Product portfolio strategy - introduction to the Boston Consulting Matrix or Box

Introduction

The business portfolio is the collection of businesses and products that make up the company. The

best business portfolio is one that fits the company's strengths and helps exploit the most attractive

opportunities.

The company must:

(1) Analyze its current business portfolio and decide which businesses should receive more or less

investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at thesame time deciding when products and businesses should no longer be retained.

Methods of Portfolio Planning

The two best-known portfolio planning methods are from the Boston Consulting Group (the subject of

this revision note) and by General Electric/Shell. In each method, the first step is to identify thevarious Strategic Business Units ("SBUs") in a company portfolio. An SBU is a unit of the company

that has a separate mission and objectives and that can be planned independently from the other

businesses. An SBU can be a company division, a product line or even individual brands - it alldepends on how the company is organized.

The Boston Consulting Group Matrix/Box ("BCG Matrix/Box")




Using the BCG Box, a company classifies all its SBU's according to two dimensions:

On the horizontal axis: relative market share - this serves as a measure of SBU strength in the

market

On the vertical axis: market growth rate - this provides a measure of market attractiveness

By dividing the matrix into four areas, four types of SBU can be distinguished:

Stars - Stars are high growth businesses or products competing in markets where they are relatively

strong compared with the competition. Often they need heavy investment to sustain their growth.

Eventually their growth will slow and, assuming they maintain their relative market share, will

become cash cows.

Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share.

These are mature, successful businesses with relatively little need for investment. They need to be

managed for continued profit - so that they continue to generate the strong cash flows that thecompany needs for its Stars.

Question marks - Question marks are businesses or products with low market share but whichoperate in higher growth markets. This suggests that they have potential, but may require substantial

investment in order to grow market share at the expense of more powerful competitors. Management

have to think hard about "question marks" - which ones should they invest in? Which ones should

they allow to fail or shrink?

Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share inunattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely,

if ever, worth investing in.

Using the BCG Box to determine strategy

Once a company has classified its SBUs, it must decide what to do with them. In the diagram above,the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a largedog and two, smaller stars and question marks.

Conventional strategic thinking suggests there are four possible strategies for each SBU:

(1) Build Share: here the company can invest to increase market share (for example turning a

"question mark" into a star)

(2) Hold: here the company invests just enough to keep the SBU in its present position

(3) Harvest: here the company reduces the amount of investment in order to maximize the short-term

cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows.

(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use theresources elsewhere (e.g. investing in the more promising "question marks").

Portfolio Matrix and Product Life Cycle

The product portfolio matrix approach propounded by the Boston Consulting Group may be related to

the product life cycle by letting the introduction stage begin in the question mark quadrant; growth

starts toward the end of this quadrant and continues well into the star quadrant. Going down from the




star to the cash cow quadrant, the maturity stage begins. Decline is positioned between the cash cow

and the dog quadrants. Ideally, a company should enter the product/market segment in its introduction

stage, gain market share in the growth stage, attain a position of dominance when the product/market

segment enters its maturity stage, maintain this dominant position until the product/ market segment

enters its decline stage, and then determine the optimum point for liquidation.

Balanced and Unbalanced Portfolios

Unbalanced portfolios may be classified into four types:

1. Too many losers (due to inadequate cash flow, inadequate profits, and inadequate growth).

2. Too many question marks (due to inadequate cash flow and inadequate profits).

3. Too many profit producers (due to inadequate growth and excessive cash flow).

4. Too many developing winners (due to excessive cash demands, excessive demands onmanagement, and unstable growth and profits).

Let us consider one company having just one cash cow, three question marks, and no stars. Thus, thecash base of the company is inadequate and cannot support the question marks. The company may

allocate available cash among all question marks in equal proportion. Dogs may also be given

occasional cash nourishment. If the company continues its current strategy, it may find itself in adangerous position in five years, particularly when the cash cow moves closer to becoming a dog. To

take corrective action, the company must face the fact that it cannot support all its question marks. Itmust choose one or maybe two of its three question marks and fund them adequately to make them

stars. In addition, disbursement of cash in dogs should be totally prohibited. In brief, the strategicchoice for the company, considered in portfolio terms, is obvious. It cannot fund all question marks

and dogs equally. The portfolio matrix focuses on the real fundamentals of businesses and their

relationships to each other within the portfolio. It is not possible to develop effective strategy in a

multi-product, multi-market company without considering the mutual relationships of different

businesses.

Conclusion

The portfolio matrix approach provides for the simultaneous comparison of different products. It also

underlines the importance of cash flow as a strategic variable. Thus, when continuous long-termgrowth in earnings is the objective, it is necessary to identify high-growth product/market segments

early, develop businesses, and pre-empt the growth in these segments. If necessary, short-term

profitability in these segments may be forgone to ensure achievement of the dominant share. Costsmust be managed to meet scale-effect standards. The appropriate point at which to shift from an

earnings focus to a cash flow focus must be determined and a liquidation plan for cash flowmaximization established. A cash-balanced mix of businesses should be maintained. Many companies

worldwide have used the portfolio matrix approach in their strategic planning. The first companies touse this approach were the Norton Company, Mead, Borg-Warner, Eaton, and Monsanto. Since then,

virtually all large corporations have reported following it. The portfolio matrix approach, however, isnot a panacea for strategy development. In reality, many difficulties limit the workability of this

approach. Some potential mistakes associated with the portfolio matrix concept are

1. Over-investing in low-growth segments (lack of objectivity and “hard” analysis).

2. Under-investing in high-growth segments (lack of guts).

3. Misjudging the segment growth rate (poor market research).




4. Not achieving market share (because of improper market strategy, sales capabilities, or promotion).

5. Losing cost effectiveness (lack of operating talent and control system).

6. Not uncovering emerging high-growth segments (lack of corporate development effort).

7. Unbalanced business mix (lack of planning and financial resources).

Thus, the portfolio matrix approach should be used with great care.

MULTIFACTOR PORTFOLIO MATRIX

The two-factor portfolio matrix discussed above provides a useful approach for reviewing the roles of

different products in a company. However, the growth rate-relative market share matrix approachleads to many difficulties. At times, factors other than market share and growth rate bear heavily on

cash flow, the mainstay of this approach. Some managers may consider return on investment a moresuitable criterion than cash flow for making investment decisions. Further, the two-factor portfolio

matrix approach does not address major investment decisions between dissimilar businesses. These

difficulties can lead a company into too many traps and errors. For this reason, many companies (suchas GE and the Shell Group) have developed the multifactor portfolio approach. It is worthwhile to

mention that the development of a multifactor matrix may not be as easy as it appears. The actual

analysis required may take a considerable amount of foresight and experience and many, many daysof work. The major difficulties lie in identifying relevant factors, relating factors to industry

attractiveness and business strengths, and weighing the factors.

Strategy Development: The area of the circle refers to the business’s sales. Investment priority isgiven to products in the high area (upper left), where a stronger position is supported by the

attractiveness of an industry. Along the diagonal, selectivity is desired to achieve a balanced earnings

performance. The businesses in the low area (lower right) are the candidates for harvesting and

divestment. A company may position its products or businesses on the matrix to study its present

standing. Forecasts may be made to examine the directions different businesses may go in the future,

assuming no changes are made in strategy. Future perspectives may be compared to the corporatemission to identify gaps between what is desired and what may be expected if no measures are taken

now. Filling the gap requires making strategic moves for different businesses. Once strategic

alternatives for an individual business have been identified, the final choice of a strategy should be

based on the scope of the overall corporation vis-à-vis the matrix.

For example, the prospects for a business along the diagonal may appear good, but this business

cannot be funded in preference to a business in the high-high cell. In devising future strategy, acompany generally likes to have a few businesses on the left to provide growth and to furnish

potential for investment and a few on the right to generate cash for investment in the former. Thebusinesses along the diagonal may be selectively supported (based on resources) for relocation on the

left. For an individual business, there can be four strategy options: investing to maintain, investing togrow, investing to regain, and investing to exit. The choice of a strategy depends on the current

position of the business in the matrix (i.e., toward the high side, along the diagonal, or toward the lowside) and its future direction, assuming the current strategic perspective continues to be followed. If

the future appears unpromising, a new strategy for the business is called for. Analysis of present

position on the matrix may not pose any problem. At GE, for example, there was little disagreement

on the position of the business. The mapping of future direction, however, may not be easy. Arigorous analysis must be performed, taking into account environmental shifts, competitors’

perspectives, and internal strengths and weaknesses. Strategy to maintain the current position may beadopted if, in the absence of a new strategy, erosion is expected in the future. Investment will be

sought to hold the position; hence, the name invest-to-maintain strategy. The second option is theinvest-to-grow strategy. Here, the product’s current position is perceived as less than optimum vis-à-




vis industry attractiveness and business strengths. In other words, considering the opportunities

furnished by the industry and the strengths exhibited by the business, the current position is

considered inadequate.

A growth strategy is adopted with the aim of shifting the product position upward or toward the left.Movement in both directions is an expensive option with high risk. The invest-to-regain strategy is an

attempt to rebuild the product or business to its previous position. Usually, when the environment

(i.e., industry) continues to be relatively attractive but the business position has slipped because of

some strategic past mistake (e.g., premature harvesting), the company may decide to revitalize the

business through new investments. The fourth and final option, the invest-to-exit strategy, is directed

toward leaving the market through harvesting or divesting. Harvesting amounts to making very lowinvestments in the business so that in the short run the business will secure positive cash flow and in a

few years die out. (With no new investments, the position will continue to deteriorate.) Alternatively,the whole business may be divested, that is, sold to another party in a one-time deal. Sometimes small

investments may be made to maintain the viability of business if divestment is desired but there is noimmediate suitor. In this way the business can eventually be sold at a higher price than would have

been possible right away.

Unit of Analysis: The framework discussed here may be applied to either a product/market or an

SBU. As a matter of fact, it may be equally applicable to a much higher level of aggregation in theorganization, such as a division or a group. Of course, at the group or division level, it may be very

difficult to measure industry attractiveness and business strengths unless the group or division

happens to be in one business. In the scheme followed in this article, the analysis may be performedfirst at the SBU level to determine the strategic perspective of different products/ markets. Finally, all

SBUs may be simultaneously positioned on the matrix to determine a corporate-wide portfolio.

The General Electric Model

McKinsey & Co prepared the nine boxes for General Electric, which became popular and is better

known as GE Business Screen or GE Strategic Business Planning Grid. This model is very similarto the BCG matrix in the sense that the vertical axis represents industry attractiveness and the

horizontal axis represents the company's strength in the industry or business position. Theseparameters are necessary in the sense that any company’s success depends on the extent of ease and

promptness it enters attractive markets and has the required business strengths to succeed in thosemarkets. One difference from BCG matrix is that the GE approach considers more than just market

growth rate and relative market share in order to determine market attractiveness and business

strength. The industry attractiveness index is made up of such factors as market size, market growth,

industry profit margin, amount of competition, seasonal and cyclical nature of demand, and industry

cost structure. Business strength is an index of factors like relative market share, price,

competitiveness, product quality, customer and market knowledge, sales effectiveness, andgeographic advantages.

Factors that Affect Market Attractiveness Whilst any assessment of market attractiveness is necessarily subjective, there are several factors

which can help determine attractiveness. These are listed below:- Market Size- Market growth- Market profitability

- Pricing trends- Competitive intensity / rivalry

- Overall risk of returns in the industry- Opportunity to differentiate products and services




- Segmentation

- Distribution structure (e.g. retail, direct, wholesale

Factors that Affect Competitive Strength Factors to consider include:- Strength of assets and competencies

- Relative brand strength

- Market share

- Customer loyalty

- Relative cost position (cost structure compared with competitors)

- Distribution strength- Record of technological or other innovation

- Access to financial and other investment resources

GE matrix is divided into 9 cells, which form 3 zones.

The most desirable SBUs are those located in the highly attractive industries where thecompany has high business strength. Strategically, the SBUs located in the 3 green cells in the

upper-left corner are those in which the company should invest and grow.

The SBUs in the yellow cells along the diagonal running from lower left to upper right are

overall medium in attractiveness. The strategy is to protect or allocate resources on a

selective basis.

The SBUs in the red cells on the lower right corner have low overall attractiveness. Aharvest strategy should be used in the two cells just below the three-cell diagonal. These

SBUs should not receive substantial new resources. The SBUs in the lower right cell shouldnot receive any resources and should probably be divested or eliminated from an

organization’s portfolio.

Invest/Grow

Selectivity/Earnings

Harvest/Divest




Management should also forecast each SBU’s expected position both in short-term as well as long-

term in view of product life cycle, competitor’s strategies, economic cycles, threat of substitutes or

new entrants. The specific strategies for 9 situations are:Business Strength

High Medium Low

High

Medium

LowIndustry

Attractiveness

Shell Directional Policy Matrix

A slightly different technique, the directional policy matrix, is popularly used in Europe. It was

initially worked out at the Shell Group but later caught the fancy of many businesses across theAtlantic. The two sides of the 3-by-3 matrix are labeled business sector prospects (industry

attractiveness) and company’s competitive capabilities (business strengths). Business sector prospectsare categorized as unattractive, average, and attractive; and the company’s competitive capabilities arecategorized as weak, average, and strong. Within each cell is the overall strategy direction for a

business depicted by the cell. The consideration of factors used to measure business sector prospects

and a company’s competitive capabilities follows the same logic and analyses discussed above. Like

Boston model, it has been designed to assess business or strategic business units, but it can be applied

to products too.

Industry/Market Evolution Model

Michael Porter first recognized the generic strategies for success in a competitive market. He

identified two key factors for attaining the competitive advantage that wins higher market share.These two factors are low costs in relation to other competitors and a high degree of product

differentiation. These two aspects of competitive positioning form the axes of Porter’s CompetitivePositioning Matrix as shown in following figure.

Relative costs with respect to competitors

High Low

Degree of High

Product Low Differentiation

As seen from the matrix, the most undesirable (and hence disastrous) situation would be when anorganization offers a product that is undistinguished against its rivals with relatively high cost in

Invest heavily for growth Invest selectively and

build

Develop for income

Invest selectively and

build

Develop selectively for

income

Harvest or divest

Develop selectively and

build on strengths

Harvest Divest

Niche market Outstanding success

Disaster Cost leadership




comparison to competitors. The unquestionable organizational success lies in attaining just opposite

status i.e. low costs and high product distinctiveness. Some companies may survive with high costs

with distinctive product offerings in a niche market or with undistinguished run-of-the-mill products

having tight control over operating costs.

But Porter also mentioned that a high market share is not necessarily a major financial criterion,

which is shown in the following figure.

Focus Cost leadership and/or Differentiation

High

Profitability

No FocusNo Cost leadership

No Differentiation

Low

Here three situations are important.

Cost leadership: This simply means reducing prices to be lowest in the market. By pursuingthis strategy, the organization concentrates upon achieving the lowest costs of production and

distribution so that it has the capability of setting its prices at a lower level than itscompetitors. Whether it then chooses to do this depends on its objectives and perception of

the market. Saunders provided the examples of IBM and Boeing, both of which are costleaders who have chosen to use their lower costs not to reduce prices, but rather to generate

higher returns that could subsequently be invested in marketing, R&D and manufacturing as a

means of maintaining or strengthening their position.

Differentiation: This is the establishment of some unique features (also described as USP by

Roger Reeves), which could be product or image related that competitors couldn’t match. Bypursuing this strategy, the organization emphasizes a particular element of the marketing-mix

that is seen by customers to be important and as a result provides a meaningful basis for

competitive advantage. The firm then wants to be quality leader (Mercedes Benz with cars),

service leader (McDonald’s), marketing leader (Japanese cars) or the technological leader(Dolby with noise suppression circuits for tape decks). Differentiation can also be achieved by

means of the brand image and packaging especially in a mature market where the products are

for the most part physically indistinguishable.

Focus: This is where the company consolidates its efforts on a small product range in asingular market niche.




‘Stuck in the middle’ is the term used by Porter to describe those companies at the bottom of thecurve.

Focus

Cost Differentiation

There is no single best strategy within a given industry and the task faced by the marketing strategists

involves selecting the strategic approach that will best allow it to maximize its strengths vis-à-vis itscompetitors.

Type of

strategy

Ways to achieve the strategy Benefits Possible problems

Costleadership

Size and economies of scale

Globalization

Relocating to low-cost parts of world

Modification/simplification of designs

Greater labor effectiveness

Greater operating effectiveness

Strategic alliance New sources of supply

Outperforming rivals

Erecting entry barriers

Resisting fivecompetitive forces

Vulnerability toeven lower cost

operators

Possible price

wars

Difficulty of

sustaining in

long-term

Focus Concentration upon one or a

small number of segments

The creation of a strong and

specialist

A more detailed

understanding of particular segments

Creation of entrybarriers

Reputation for

specialization

Limited

opportunities forsector growth

Possibility of outgrowing

market

Decline of the

Middle of the road




Ability to concentrate

efforts

sector

Reputation for

specializationthat ultimately

inhibits growth

and development

into other sectors

Differentiation The creation of strong brand

identities

The consistent pursuit of

those factors which customers

perceive to be important

High performance in one or

more of a spectrum of

activities

Distancing from others

in the market

Creation of major

competitive advantage

Flexibility

Difficulties of

sustaining thebases for

differentiation

Possible high

costs

Difficulty of

achieving trueand meaningful

differentiation

Porter produced a more sophisticated model in 1985, which was based on a number of evolutionary

stages, which were examined in terms of whether the company was a leader or a follower. These areillustrated in following figure:

Porter’s advanced Model

Growth Maturity Decline

(Emerging industry) (Transition to maturity)

Leader

StrategicPosition

Follower

'Growth' is exemplified in an emerging industry by purchasing conservatism over theattributes of new products and the potential for them becoming quickly dated in the style or

functional senses.

'Transition to maturity' usually means diminished profit margins as more competitors enter

the market and there is a slowing down of sales. Purchasing confidence is higher throughproduct familiarity, and the emphasis is upon features and non-price factors like image. Focus

is important in terms of attempting to serve individual market segment needs.

'Decline' suggests that the marketplace has become saturated and that products areuninteresting. Alternate products start to appear and this stage is when companies should seek

to exit the marketplace and look for alternative markets and products.

Industry maturity/competitive position matrix

This was proposed by the consultants Arthur D Little. The vertical axis cites a number of criteria from

'dominant' to 'weak' and the SBU is then entered into the appropriate box along the horizontal axis,

depending upon the life-cycle stage the overall industry has reached. It is perhaps a slightly subjectiveset of measures, but at least it does give the analyst an immediate point of reference, and its utility is

Keep ahead of

the field

Cost leadership

Raise barriers to entry

Deter competitors

Redefine scope

Divest peripheral activities

Encourage departures

Imitation at

lower cost

Joint ventures

Differentiation

Focus

Differentiation

Look for new opportunities




'Cash dogs' have a low market share in a saturated market, but produce a small positive cash

flow.

'War horses' are seen in a declining market but are still supportable because of their high

market share, which contributes to a positive cash flow. The likelihood, too, is thatcompetitors are leaving the market, so handing their market share back to the marketplace.

'Dodos' are precarious SBUs in that they are in a declining market and have a low market

share and the likelihood is that their cash flow is negative. They should be deleted, but are

probably still there because management clings to the belief that they might witness a revival.

Drawbacks of the Product Portfolio Approach

In recent years, a variety of criticisms has been leveled at the portfolio framework. Most of the

criticism has centered on the Boston Consulting Group matrix.

1. A question has been raised about the use of market share as the most important influence onmarketing strategy. The BCG matrix is derived from an application of the learning curve tomanufacturing and other costs. It was observed that, as a firm’s product output (and thus market

share) increases, total cost declines by a fixed percentage. This may be true for commodities;

however, in most product/market situations, products are differentiated, new products and brands are

continually introduced, and the pace of technological changes keeps increasing. As a result, one may

move from learning curve to learning curve or encounter a discontinuity. More concrete evidence isneeded before the validity of market share as a dimension in strategy formulation is established or

rejected.

2. Another criticism, closely related to the first, is how product/market boundaries are defined. Marketshare varies depending on the definition of the corresponding product/market. Hence, a product may

be classified in different cells, depending on the market boundaries used.

3. The stability of product life cycles is implicitly assumed in some portfolio models. However, as in

the case of the learning curve, it is possible for the product life cycle to change during the life of theproduct. For example, recycling can extend the life cycle of a product, sparking a second growth stage

after maturity. A related sub-issue concerns the assumption that investment is more desirable in high-growth markets than in low-growth ones. There is insufficient evidence to support this proposition.

This overall issue becomes more problematic for international firms because a given product may be

in different stages of its life cycle in different countries.

4. The BCG portfolio framework was developed for balancing cash flows. It ignores the existence of

capital markets. Cash balancing is not always an important consideration.

5. The portfolio framework assumes that investments in all products/markets are equally risky, butthis is not the case. In fact, financial portfolio management theory does take risk into account. The

more risky the investment, the higher the return expected of it. The portfolio matrix does not considerthe risk factor.

6. The BCG portfolio model assumes that there is no interdependency between products/markets. This

assumption can be questioned on various grounds. For instance, different products/markets might

share technology or costs. These interdependencies should be accounted for in a portfolio framework.




7. There is no consensus on the level at which portfolio models must be appropriately used. Five

levels can be identified: product, product line, market segment, SBU, and business sector. The most

frequent application has been at the SBU level; however, it has been suggested that the framework is

equally applicable at other levels. Because it is unlikely that any one model could have such wide

application, the suggestion that it does casts doubt on the model itself.

8. Most portfolio approaches are retrospective and overly dependent on conventional wisdom in the

way in which they treat both market attractiveness and business strengths. For example, despite

evidence to the contrary, conventional wisdom suggests the following:

Dominant market share endows companies with sufficient power to maintain price above acompetitive level or to obtain massive cost advantages through economies of scale and the

experience curve. However, the returns for such companies as Goodyear and Maytag showthat this is not always the case.

High market growth means that rivals can expand output and show profits without having totake demand out of each other’s plants and provoking price warfare. But the experience of

industries as different as the European tungsten carbide industry and the U.S. airline industrysuggests that it is not always true.

High barriers to entry allow existing competitors to keep prices high and earn high profits.

But the experience of the U.S. brewing industry seems to refute conventional wisdom.

9. There are also issues of measurement and weighting. Different measures have been proposed and

used for the dimensions of portfolio models; however, a product’s position on a matrix may varydepending on the measures used. In addition, the weights used for models having composite

dimensions may impact the results, and the position of a business on the matrix may change with theweighting scheme used.

10. Portfolio models ignore the impact of both the external and internal environments of a company.

Because a firm’s strategic decisions are made within its environments, their potential impact must be

taken into account. Day highlights a few situational factors that might affect a firm’s strategic plan.

As examples of internal factors, he cites rate of capacity utilization, union pressures, barriers to entry,

and extent of captive business. GNP, interest rates, and social, legal, and regulatory environment are

cited as examples of external factors. No systematic treatment has been accorded to suchenvironmental influences in the portfolio models. These influences are always unique to a company,

so the importance of customizing a portfolio approach becomes clear.

11. The relevance of a particular strategy for a business depends on its correct categorization on thematrix. If a mistake is made in locating a business in a particular cell of the matrix, the failure of the

prescribed strategy cannot be blamed on the framework. In other words, superficial and uncritical

application of the portfolio framework can misdirect a business’s strategy. As Gluck has observed,Portfolio approaches have the following limitations:

It is not quite easy to define the businesses or product/market units appropriately before youbegin to analyze them.

Some attractive strategic opportunities can be overlooked if management treats its businessesas independent entities when there may be real advantages in their sharing resources at the

research or manufacturing or distribution level. Like more sophisticated models, when it’s used uncritically the portfolio can give its users the

illusion that they’re being rigorous and scientific when in fact they’ve fallen prey to the old

garbage-in, garbage-out syndrome.

12. Most portfolio approaches suggest standard or generic strategies based on the portfolio position of

individual SBUs. But these kinds of responses can often result in lost opportunities, turn out to beimpractical or unrealistic, and stifle creativity. For example, the standard strategy for managing dogs

(SBUs that have a low share of a mature market) is to treat them as candidates for divestment orliquidation. New evidence demonstrates, however, that, with proper management, dogs can be assets




to a diversified corporation. One recent study of the performance of more than a thousand industrial-

product businesses slotted into the four cells of the BCG matrix found that the average dog had a

positive cash flow even greater than the cash needs of the average question mark. Moreover, in a

slow-growth economy, more than half of a company’s businesses might qualify as dogs. Disposing of

them all would be neither feasible nor desirable. Yet the portfolio approach provides no help insuggesting how to improve the performance of such businesses.

13. Portfolio models fail to answer such questions as:

a) How a company may determine whether its strategic goals are consistent with its financial

objectives:

b) How a company may relate strategic goals to its affordable growth?c) How relevant the designated strategies are vis-à-vis competition from overseas companies?

In addition, many marketers have raised other questions about the viability of portfolio approaches asa strategy development tool. For example, it has been claimed that the BCG matrix approach is

relevant only for positioning existing businesses and fails to prescribe how a question mark may bereared to emerge as a star, how new stars can be located, and so on. Empirical supports for the

limitations of portfolio planning methods come from the work of Armstrong and Brodie. According tothem, the limitations are so serious that portfolio matrices are detrimental since they produce poorer

decisions.

In response to these criticisms, it should be pointed out that the BCG portfolio framework wasdeveloped as an aid in formulating business strategies in complex environments. Its aim was not to

prescribe strategy, though many executives and academicians have misused it in this way. No simple,monolithic set of rules or strategy imperatives will point automatically to the right course. No

planning system guarantees the development of successful strategies, nor does any technique. TheBusiness Portfolio (the growth/share matrix) made a major contribution to strategic thought. Today it

is misused and overexposed. It can be a helpful tool, but it can also be misleading or, worse, a

straitjacket.

AGBS-PBM Note 2_Product Management Process

Documents

Transcript of AGBS-PBM Note 2_Product Management Process