The Product Market Portfolio (B.2.2)

Creating and Presenting Strategic Plans

Part 1 of 2

•Competitive position: leader or follower?

•Scale: value to portfolio?

•Growth rate: high or low?•Maturity: development, growth, maturity,

decline?

Product-Market Matrix lacks Dynamism

What are the strategic determinants of a superior cash position?

Bruce D. Henderson

•Relative market share (RMS)

•Market growth rate (MGR)

•Value of annual sales

Determinants of a Superior Cash Position

Your firm’s market shareYour firm’s largest rival’s market share

RMS =

Relative Market Share (RMS)

Mobile telephones Vodka

Competitor Market share Competitor Market share

A 40% Z 20%

Which Firm is Stronger Strategically: A or Z

B 60% Z1 to Z80 1%

Total 100%% Total 100%%

Mobile telephones Vodka

Competitor

Market share RMS

Competitor

Market share RMS

A 40% 0.67 Z 20% 20.0

B 60% 1.5 Z1 etc 1% 0.05

Which Firm is Stronger Strategically: A or Z

Chairs

Competitor Market share RMS

A 20% 20/40 =0.5

B 40% 40/20=2.0

C 20% 20/40=0.5

D 10% 10/40=0.25

E 10% 10/40=0.25

Mental Arithmetic: What are the RMSs

The Product Market Portfolio (B.2.2)

Creating and Presenting Strategic Plans

Part 2 of 2

•Relative market share (RMS)

•Market growth rate (MGR)

•Value of annual sales

Let’s put them on a matrix

Determinants of Strategic Position

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

• RMS

• MGR

• Ann Sales

The Product Market Portfolio

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

• RMS

• MGR

• Ann Sales

The Cash Characteristics

++++++

-

+++++

++++- - -

+

++- - - - -

- - - - - -

+- - - - -

12

3 4

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

• RMS

• MGR

• Ann Sales

++++++

-

+++++

++++- - -

+

++- - - - -

+_ _ _ _ _ _ _ _ _

The Cash Characteristics & Names

Small cash surplus

Large cash drain

May be large cash drain

Large cash surplus

Problem children

DogsCash cows

Stars

_ _ _ _

D

A

B

C

E

F

12

3 4

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

The Product Market PortfolioThe Cash Characteristics & Names

201X

A

B

C

D

F

E

201Z

PMP in 201X and 201Z

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

• RMS

• MGR

• Ann Sales

The Product Market PortfolioIdeal Movement of Product A Over Life

20077

A

A

A

A

A

Leader Follower

Market growth

rate

High

5%

10%

Low

0%High Low10.0 0.101.0

RMS

A

B

C

D

E

Ideal Movements of Cash

Market growth

rate

High Low10.0 0.101.0

High

Low

5%

10%

0%

Relative market share

D

F

E

A

B

G

C

An Unbalanced Portfolio

2005 Qantas PMP

•Build market share: problem child, star

•Sell or divest the product: dog, problem child

•Harvest dog, selected problem child, cash cow

•Hold market share: cash cow

Strategies for Each Category

•Correlation of RMS and profitability

•Location

•Technology

•Efficiency

•Only high RMS is desirable

Possible Issues with the Matrix

1 2 3 4 5=2/4 6

Product SalesName largest

rival

Sales largest

rivalRMS

Ann Mkt Gr Rate

(%)

Total Sales

For the matrix

Constructing a PMP

One table for each year(Built from B.1. Product Market Matrix)

Leader Follower

Market growth

rate

High

Low

High Low1.0RMS

Blank PMP to Display two Years

The End

Parts 1 and 2