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Product portfolio analysis

Relates attractiveness and competitiveness indicators


to facilitate strategic thinking suggesting specific
marketing strategies to achieve a balanced mix of
products that will ensure growth and profit
performance in the long run
•Helps a multibusiness firm to decide how to allocate scarce
resources among product markets they compete in.
•Procedure consists of cross- classifying each activity each
activity with respect to two independent dimensions.
•Dimensions are
•Attractiveness of the reference market
•Firm’s capacity to take advantage of opportunities within
the market
BCG GROWTH –SHARE MATRIX

There are two basic assumptions underlying the BCG


matrix
• Concerning the existence of experience effect.
Higher market share leads to cost advantage. The
largest competitor will be the most profitable at
current prices. The implication of this assumption
is that the expected cash flow is market share
specific.
• The PLC model highlights the desirability of a
balanced mix of products situated in different
phases of PLC. Implication is that the cash needs
for products in rapidly growing markets are
expected to be greater than they are for those in
the slower growing ones
BCG matrix

22
stars Problem child
4 1
Market growth rate

5 3

Cash cows dogs


6
7

8
0
10x 1x 0.1x
Relative market share
Portfolio alternatives
+ -
+
stars Problem children +

disaster
Market growth rate

in
no

mediocrity
vat
or er
ow
foll

- -
cash cows dogs

Relative market share


+ -
Limitations of growth
share market

•The technique can only be used when


there is an experience effect
•The method is based on the notion of
‘internal’ competitive advantage only and
doesn’t take into account any ‘external
competitive advantage.
•Differentiation is not accounted for.
•Measurements problems can arise.
•The recommendations of a portfolio
analysis remain very vague.
The multi-factor portfolio matrix

•B.C.G matrix is based on two single indicators.


•Market ‘s attractiveness can also depend on factors
such as
•Market accessibility
•Size
•Existing channel network
•Structure of competition
•legislation
•A firm’s competitive advantage may be the result of
• strong brand image
•Commercial organization
•Technological leadership
•Quality etc.
•Multi-factor Grid is necessarily company specific.
Multi-factor grid

high B C
Selective Offensive
developme growth
attractiveness

nt (stars)
PC
average

A D
weak

Divestment Low profile


(dogs) (cash cows)
weak average high
competitiveness
Evaluation of MFPG
•MFPG Basically leads to same kind of analysis as BCG matrix
but the major difference is that the link between the
competitiveness and financial performance is lost.
• Since it is not based on any particular assumption, it
overcomes many of the shortcomings of BCG
•It is much more flexible as the indicators used are company
specific.

LIMITATIONS
•Measurement problems are more delicate And element of
subjectivity is higher here
•If the number of indicators and activities to evaluate is high .
The procedure becomes heavy and demanding.
•The results are sensitive to the ratings and the weightings
•Recommendations remain very general and need to be clarified.
Benefits of product portfolio
analysis

A portfolio analysis rests on the


following principles
•An accurate division of the firm’s activities
into product markets or segments
•Measures of competitiveness ad attractiveness
allowing evaluatiion and comparison of different
activities’ strategic values.
•Links between strategic position and economic
and financial performance, mainly in the BCG
method.
Contrary to appearances Matrix representations are
not simple to elaborate. they require complete and
reliable information about the functioning of the
markets, competitors strengths and weaknesses. More
specifically, this analysis implies
•Considerable effort to segment reference market.
because the validity of recommendations is conditioned
by the choice of segmentation.
•Systematic and careful collection of detailed
information, as the quality of results depend on the
reliability of this information.
Such a tool is not a panacea , but has the
merit of emphasizing some important
aspects of management.
•It moderates excessively short-term vision by insisting on
keeping a balance between immediately profitable activities
and those that prepare the future profit.
•It encourages the firm to keep both market attractiveness
and competitive potential in mind.
•It establishes priorities in allocation of human and financial
resources.
•Suggests differentiated development strategies per type of
activities on a more data oriented basis.
•Crates a common language throughout the organization and
fixes clear objectives to reinforce motivation and facilitate
control.
Choice of a generic strategy

Sustainable competitive advantage has two aspects as reference


points
2. Productivity (cost advantage)
3. Market power (advantage in terms of maximum acceptable
price)
Sustainable competitive advantage requires an analysis of the
competitive structure and answers to the questions
5. What are the key success factors in a given product or
market segment?
6. What are the firm’s strengths and weaknesses with regard to
these factors?
7. What are the strengths and weaknesses of the firm’s direct
rival's) with regard to the same KSFs
Three generic strategies

Strategic advantage

Uniqueness perceived
by the customer Low cost position
strategic target

Differentiation Overall cost


advantage

Particular
segment focus
only
Focus

Middle of the
road

Cost Differentiation
Cost leadership

How?
•Size and economies of
scale globalization.
•Relocating to low cost Benefits
parts. •The ability to
•Modification/simplificati outperform rivals
on of design. •Erect barriers
•Operating effectiveness to entry
•Strategic alliances •Resist the five
•New sources of supply forces

Possible problems
•Vulnerability to even lower cost operators
•Possible price wars
•Difficulty of sustaining it in the long term
Focus

Possible problems
How? Benefits •Limited
opportunities for
•Concentration •A more detailed sector growth
upon one pr a outstanding of a •The possibility of
small number of particular segments outgrowing the
segments •The creation of Market
•The creation of Barriers to entry •The decline of the
a strong and •A reputation for sector
specialist specialisation •A reputation for
reputation •The ability to specialization which
concentrate efforts ultimately inhabits
growth and
development into
other sectors
Differentiation
How?
Benefits Possible problems
•The creation
of strong •A distancing •The difficulty of
Brand activity from others in sustaining the bases
•The consistent the market for differentiation
pursuit of •The creation of •Possibly higher costs
those factors a major •The difficulty of
which competitive achieving true and
customers advantage meaningful
perceive to be •Flexibility differentiation
important
•High
performance in
one or more of
a spectrum of
activities
Company value chain
Primary activities and costs

Purchased Distribution
Supplies and And Sales and Profit
operations service
Inbound Outbound marketing margins
logistics logistics

Product –technology and systems development


Support
Activities Human resources management
& costs
General administration
Many
Number of approaches to achieving

Fragmented Specialized

Stalemate Volume
Few
advantage

Small Large
Size of advantage
Competitive Information System (CIS)

Industry
analysis

Building
competitive Industry
advantage mapping
Desk
Database
research Critical success
Benchmarking factors
Market Internal
informati
research
on
Competitor
Value chain profiling
analysis

Internal Special
informati competitor
on studies
•Expand the market

Leaders •Protect the current share

•Expand share

•Discount or cut prices


challengers •Cheap goods
•Innovate
•Promote heavily
•Proliferate the range
•Reduce costs

•Segment carefully

Nichers followers •Use R&D


•Challenge commercial wisdoms

Get
started
Market leadership
Expansion of the
Expansion of the Guarding the existing
current market
overall market market share
share

•Target groups – •Strong market •Heavy advertising


currently non- positioning •Improved
users •Developing distribution
•Identifying new competitive •Price incentives
uses for the advantage •New product
offering •Product / process development
•Increasing usage innovation •Mergers
rates •Heavy advertising •Takeovers
•CRM •Geographic
•Strong distribution expansion
relations •Distributor
expansion
Strategies for market leaders

•Position defense
•Mobile defense
•Flanking defense
•Contraction defense
•Pre-emptive defense
•Counter offensive defense
Challenger strategies

Challenger faces two key questions


2. Choice of battle ground to mount the attack
3. Evaluation of leader’s reactive and defensive
abilities

Lateral
Frontal attack attacks
•Balance of •Confronting
power Choice of battle ground over one or
•Balance more
normally 3:1 strategic
dimensions

Outflaning, encircling,guerilla tactics, mobile defence


Mounting the attack

Before the attack it is essential to asses correctly a


dominant firm’s ability to react and defend using the
following criteria
• Vulnerability :to what strategic moves and
governmental macroeconomic or industry events would
the competitor most vulnerable.
• Provocation : what moves or events will provoke a
retaliation from the competitors, even if retaliation is
costly and leads to marginal financial performance
• Effectiveness of retaliation : identify moves /events
to which competitor may not react quickly given its
goals, strategy, existing capabilities and assumptions.
Market follower strategies

• Policy of peaceful coexistence


• Behavior observed mainly in Oligopolistic markets
where differentiation are minimal and cross price
elasticity's are very high
• Four main features of strategies to be adopted are

1. Creative market segmentation.


2. Efficient use of R&D
3. Think small
4. Ubiquitous chief executive
Market nicher

A nicher is interested in one or few market segments,


and not in the whole market. the objective is to be a
large fish in a small pond rather than being a small
fish in a large pond. This competitive strategy is
based on “focus”
The key to a focus strategy is specialization in a niche.
For a niche to be profitable and sustainable five
characteristics are essential.
3. Sufficient profit potential
4. Growth potential
5. Unattractive to rivals.
6. The market corresponds to the firm’s distinctive
competence.
7. A sustainable entry barrier.
Market leadership and
customer focus

High
Under exploited
Current markets areas
Customer’s awareness of

Areas of greatest
opportunity
their needs

Under exploited Unexploited


areas areas
Areas of greatest Areas of highest risk /
opportunity return
Low
existing Not yet served
Company’s customer groups
PIMS linkages

Relative market
share
(gain )

Relative perceived Relative cost


quality (lower )

Profit price Profit result


(higher) (higher)
Contribution of process improvement to
competitiveness

Quality being
RIGHT

COMPETITIVENESS
Speed being
FAST
Dependability being ON
TIME
Flexibility being ABLE TO
CHANGE
Cost being
PRODUCTIVE
comptt 9
performance against
8
Better 7
6
5
same

4
3
2
worse

1
1 2 3 4 5 6 7 8 9
Less Order qualifier Order winners
important
Low importance to customers
high