The product portfolio
represented by the product variety that a company offers on the
market. The portfolio analysis proceeds from the assumption that
different product categories bring the company different levels of
sales and profits, that might sustain the results of other products.
It is a well known fact that most of
the companies follow the 20/80 rule
that says that 80% of the
profits are generated by 20% of the products. Analyzing the product
portfolio is crucial in taking the best strategic decisions,
depending on the future perspectives each product category offers.
For this analysis there are several models, the most used are those
from Boston Consulting Group
The BCG model has been created by the Boston Consulting Group and it
has two variants(BCG1 and BCG2).
The first model, BCG1
designed in 1970, according to the American economy conditions at
that time, defined by dynamism and high stability of production
techniques. The model is best suited for big companies, that can
become market leaders for some products, but can also be applied to
smaller companies that focus on becoming leaders of a market segment.
BCG1 is a matrix with 4 cells,
analyzing 3 variables
- Relative market share
- Market growth
The four cells of the matrix are the
main product categories that can exist in a company's portfolio:
The second variant - BCG2
- Cash cows – the company is market leader on the product's
market segment. The market is at the maturity stage, with low
increases. The sales are extensive, they generate profits that support
other product categories from company's portfolio.
- Stars – Products that are in the growing stage and the
company holds the market leader position. The products are still
sustained by the company, so the profits are not very high. They are
reinvested in technologies, promotion, staff. The products can become
cash cows as the market starts the maturity stage.
- Question marks – the company is not the market leader but
the market is growing. These products absorb financial resources
because they need to be sustained for sales increases, the products
being in initiation stage or beginning of growth stage. These products
pose question marks for the decision makers: whether or not to keep
offering them on the market, analyzing if the products can outface the
- Dogs - products that are in the maturity or decline stage,
on whose market the company holds a small market share. They can still
generate profits, in this case, will be kept for a short period or can
not generate profit anymore and the company adopts a abandonment
appeared in 1980 as an answer to the new economic environment defined
by increasing competition. This new model allows a more flexible
approach because it's not focused anymore on strict bordering of the
products in the four matrix cells.
It is also designed as a 4 cell matrix
built around two variables
- Competitive advantage
- Competitive differentiation
Besides bordering the products in four
categories, the BCG2 matrix offers strategies for the company to
- Volume strategy – suitable for a company with strong
competitive advantage but low competitive differentiation
opportunities. Such a company can increase the offer volume, obtaining
high profits with low costs, as o consequence of economies of scale.
- Differentiation strategy – when company's competitive
advantage is high an the differentiation opportunities are also
available. In this case, the company must approach different market
segments with different products and adopt volume strategies on each
- Niche strategy – is suitable for companies that don't
hold a strong competitive advantage, but their products can be
differentiated from the competitors'. The company must focus on a
certain customer segment, preferably not covered by the competitors,
and offer them specific products. This segment can be enlarged as the
company gains competitive advantages.
- Dilemma – when the competitive advantages and
differentiation opportunities are both low. The company can adopt a
maintaining strategy for a short period of time if the products
generate reasonable profits or a abandonment strategy if the products
don't offer any more development perspectives.