Portfolio Management Flashcards
What is a Product Portfolio?
The complete range of products produced by a business.
It is made up of both individual products and product lines.
What is a Product Line?
A group of products that are closely related to each other, usually sold under the same name.
These products share similarities in terms of their function, target market, distribution channels, or other characteristics.
What’s the goal of Product Portforlio Management Strategy?
To have a portfolio that coversa a variety of need without overlap or duplication. It is designed to promote complementarity while minimizing cannibalization.
Balance of two forces: Market coverage and cannibalization.
Too few brands: company may be missing opportunities and may be limiting its growth.
Too many brands: innefficient complexity and reduced profit.
What’s the difference between Product Portfolio Breadth and Product Line Depth
Product Portfolio Breadth is the variety and number of product lines offered by a firm.
Product Line Depth is the number of items in a given product line
How to manage the Product Portfolio?
Firstly, understand. Start with a good sense of the current state of the portfolio.
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VISUALIZATION - Understand the porfolio
It’s neessary to undestand how the offering covers the market and relative to competition, the idea is to use the axis that are important in the company’s segmentation (berska, pull) -
FINANCIAL CONTRIBUTION - Undersand how each product contribute to the company’s total revenue, volume and profit.
This can be done with the BCG growth matrix -
STRATEGIC ROLES - What strategic role does the product play?
Sometimes there are strategic reasons that lead the company to keep a certain product in a portfolio.
Secondly, change. Making decisions about what needs to change - what to reduce, revitalize, or where to expand.
* Line Pruning: discontinue or revitalize underperforming products, to increase efficiency and avoid cannibalization
* Line filling: add new products to cover market gaps, and achieve full coverage
Describe the BCG Growth matrix
Axis: Market Share (horizontal), Category Growth (vertical)
- Star (high cg, high ms)
- Cash Cow (low cg, high ms)
- Question Mark (high cg, low ms)
- Pet (low cg, low ms)
It is a dynamic process - Ideally, companies should use the revenues from cash cows to invest in question marks in order for them to become stars, and ultimately cash cows, once the category growth slows down, that will start the process all over again.
What’s Disciplined Experimentation?
Approach that requires companies to invest in more question marks, experiment with them in a quicker and more economical way than competitors. After that, systematically select promising ones to grow into stars
What are the different strategic roles a product can take in a company?
Focus brand: star of the portfolio
Fighter brand: low value offering
Niche: brand targeted at very narrowly defined segment
Past champion: past strategic brands, cash cows.
Silver bullet: help establishing/maintain the overall brand imagem, mystique and credibility, by adding important associations
Entry point: Affordable priced product to serve as entry point to the brand.
Brand extensions (line filling) are broagly classified into four categories:
- Line Extension (depth): transfers the existing brand name to a new product within the same or closely related product line. Can be horizontal (same quality level, Compal flavors) or vertical (different quality level, low-price brand launching a premium product).
- Category Extension (breadth): transferring of a brand name to a new product or service outside of the original product category (Doritos launching a sauce)
- Customer Extension: extend the portfolio to include a new customer segment (Dove introducing a line for men)
- Channel Extension: expand to a different distribution channel (Amazon opening a physical store).
What is the optimal number of companies in a portfolio?
It is different for different types of companies.
Smaller Optimal Portfolio
- Service companies
- Dispersed competition
- Durable products
Bigger Optimal Portfolio
- Product companies
- Concentrated competition
- Fast-moving
Companies with bigger brand portfolios tend to have higher consumer loyalty and company value, but also higher advertising, selling and administrative costs.
What are the advantages of a high-priced product in a portfolio?
- Increases sales of other products within the portfolio.
- Helps to communicate expertise and brand prestige (enhanced perceived value).
What can be the impact of individual produts on a portfolio?
- Asymmetric Dominance (Decoy Effect): cognitive bias that occurs when people change their preference between two options when a third, asymmetrically dominated option is presented
- Compromise Effect: individuals’ tendency to choose intermediate options
Brand Architecture System: Branded House
One brand creates a single powerful image. All products and services are branded under a single, overarching brand name (e.g. FedEx).
Advantages: Increase brand awareness and customer acceptance.
Disadvantages: A crisis with 1 product will affect the entire brand.
Brand Architecture System: Sub-brands
Products or services are individually branded, but endorsed by a common corporate brand. (e.g. Apple, Nestlé).
Advantages: Quality assurance for the product brand increases consumer confidence and acceptance; maintains individuality and better targeting.
Disadvantages: Contamination risk and costs with the launch of new brands.
Brand Architeture System: House of Brands
Decentralized companies targeting diverse markets. Each product or service has its own independent brand with no clear association to the corporate brand. (e.g. P&G).
Advantages: Lowers risks of contamination in case of failure; each brand covers a different segment; niche and unique identity.
Disadvantages: Expensive and no equity built on the parent brand.
