Portfolio Analysis – Evaluating your Products & Services

How do you currently evaluate your products and services? When your thinking strategically, it’s important to evaluate the potential of your existing range, especially when it comes to capital investment, research & development funding and advertising campaigns. Is one of your products a “cash cow”? Or do you have a “dog”? This post explores the method of evaluating your products and services.

As with all things, our products and services have a life. This life moves through various stages, much like the business life-cycle. Understanding where your various products and services are in their life-cycle is very important when it comes to strategising in your business. Let’s look at an example. Where would you imagine the carbon/carbonless invoice book is in its life-cycle? The answer? Very close to the end! So, if you’re a manufacturer of carbon/carbonless invoice books you had better be looking for something else to manufacture. Now, I’m not saying that these books don’t sell because they do. What I’m saying is that the market for these products is in decline and will be completely dead some years down the track (for obvious reasons). Market growth (or otherwise) is axis 1.

The second axis is the relative market share you have for each product. Do you dominate the market with this product or are you a minor player? Is the market saturated with many small players or do some larger businesses dominate? This requires some careful research so make sure you get it right.

Now that we know where are market is going, and we know how much of the market we have for each product, plot the products position on 2 axes, market growth low to high on the Y axis and market share high to low on the X axis. If your product sits in the top right quadrant, call this a question mark. The top left quadrant is a star, the bottom right quadrant is a dog and the bottom left a cash cow.

So what do these names mean? Look at the cash cow. The market is in decline but you dominate it. This means that you can most likely charge a premium for the product, making as much money out of it as you can until it dies. You hold a strong brand position and the equipment to produce it probably owes you nothing in terms of depreciation. A cash cow!

A star is what we all want to have in our portfolio. A market that is growing steadily and lots of market share to get hold of. This presents an opportunity to your sales and marketing teams to come up with the right formula to take advantage of the potential in this product.

As you would expect, the dog is a dog! The market is in decline and you don’t have much market share. Don’t waste your time going any further.

So what about the question mark. It’s exactly that. Question whether you think you can increase the market share of this product. If the market is dominated by strong brands you may never achieve any real traction with your product. Examine this one closely, it’s not one you want to get wrong.

The objective of this exercise is to assess the potential of each of your products and make sure you don’t just rely on the cash cows that will provide short-term results and long-term cash issues. Forget the dogs and re-think the question marks. Try to develop the stars that will take your business forward.

Sustainable Operations Management are strategy experts. We can work with you to develop your competitive strategy and earn above average returns. http://www.somconsulting.com.au