Brands may have many ideas for new products, but they need to ensure that those products will contribute toward larger business goals to ensure a strong return on investment. To do that, brands need to focus on strategic planning to optimize their portfolio of products; the below paragraphs outline how to do so.
Table of Contents:
- What is a product portfolio?
- What is a product portfolio strategy?
- What are the benefits of implementing a product portfolio strategy?
- Key elements of a product portfolio strategy
- How to create a product portfolio strategy
- Implementing a product portfolio strategy
- Evaluating the success of a product portfolio strategy
- Overcoming challenges in a product portfolio strategy
- Execute your product portfolio strategy with quantilope
What is a product portfolio?
A product portfolio is the collection of all products or services offered by a company. This includes all individual products, brands, and product lines.
A well-managed product portfolio is essential for long-term success. It allows companies to diversify their offerings to reach more consumers, mitigate risk, and adapt to changing market conditions. By understanding the strengths and weaknesses of each product in their portfolio, companies can allocate resources effectively and optimize their product mix for maximum market impact.
Back to Table of Contents
What is a product portfolio strategy?
A product portfolio strategy is the approach/plan business leaders use to maximize their products' profitability and market share.
It starts with analysis. Companies analyze the performance of each of their products, their potential for growth, and their alignment with the company's overall objectives. These insights then help guide new product development, strategic decision-making, future investment decisions, and product optimization - which sometimes includes discontinuing or promoting certain products.
A product portfolio strategy ensures companies aren't putting 'all their eggs in one basket' by becoming overly reliant on one or two products. It serves as a master plan to adapt to changing market conditions as they happen and incorporate new customer preferences to stay relevant over time.
Back to Table of Contents
What are the benefits of implementing a product portfolio strategy?
By undergoing a product portfolio analysis, brands set themselves up for the greatest likelihood of success. During this analysis, brands comb through their existing product lines and evaluate them against key metrics that indicate their performance - whether that’s related to revenue, the volume of units sold, etc. It’s through this process that they understand which products best align with customer needs, streamline their internal processes, and identify areas for new product innovation.
The below sections detail a bit more how brands can benefit from a product portfolio strategy:
Align your products with your overall business strategy
A product portfolio strategy can help align product lines with business goals.
When crafting an optimized product portfolio, businesses will review the product performance of each specific product and all product lines they offer in their entire portfolio. This process identifies how much each product contributes to company growth, and whether that product or product line is a cash cow or a question mark (as defined by Boston Consulting Group’s growth-share matrix - more on that below).
Through this review process, brands will identify a portfolio of products for prioritization, and phase out product categories that don’t align with or contribute toward their strategic business objectives. They’ll also ensure that the products offered are effective in reaching all segments of their target market, each having various customer needs.
Additionally, any kind of new product development process is grounded in a single strategy so that businesses are only introducing new products to the market that they know align with their optimized product portfolio. In many cases, brands may even discover that their current product portfolio is cohesive enough on its own, and introducing any new products may not lead to a positive return on investment.
Better resource allocation
A product portfolio strategy helps allocate internal and external resources to the most appropriate products for your target market.
By managing resource allocation, business units have a much more efficient internal workflow, no longer dedicating their time and budgets to underperforming product categories or to products that are in a non-lucrative lifecycle stage. Taking budget and resources away from product categories that don’t benefit the overarching corporate strategy adds resources to the categories that indeed do.
Capture a greater market share
To increase market share, businesses need to identify areas of the market they currently don’t operate in, or, they have to tweak their existing offers to generate added value; the latter of which might involve understanding unmet customer needs.
This is where product portfolio analyses come into play, providing businesses with data-supported metrics on which product categories to focus on and which elements of a product offering are most important to consumers, rather than leaving them to make a guess. For rich and deep insights into consumers, brands can use advanced research methodologies like segmentation to understand their audience and identify how to address their needs.
Shape future market focus
Speaking of growth opportunities, a product portfolio strategy is leveraged long after its initial creation to guide future innovations and product ideas.
For example, say a product portfolio analysis identified that your line of shampoos and conditioners was underperforming, but your lines of hand soaps and body washes are cash cows for your business. Knowing this, future product development should be focused on new hand soaps or body wash products (i.e. new scents, different consistencies, partnerships with these products, etc.) rather than trying to introduce new shampoo or conditioner products.
Or, say your analysis found that your target market doesn’t want to buy separate hair products, but would be interested in a two-in-one shampoo/conditioner product. Testing this new product through a conjoint or A/B test will help shape future market focus to ensure it fits into your optimized product portfolio.
Back to Table of Contents
Key elements of a product portfolio strategy
A product portfolio strategy is unique to each business, depending on its products, its resources, and its business goals. Generally though, there are certain elements which are central to most product portfolio strategies – as described below:
Product Analysis
Analysis forms the foundation of any product portfolio strategy. It involves examining each product or service within the portfolio and evaluating its past and current performance using metrics like sales figures, market share, and profitability. Beyond the numbers, product analysis delves into understanding customer perception, competitive positioning, and the product's life cycle stage. This in-depth understanding helps determine which products are stars, which are struggling, and which have potential for future growth.
Strategic Alignment
A crucial aspect of product portfolio strategy is ensuring alignment with the company's overall business goals and mission. This means that a company's product mix should support its brand image, target market wants/needs, and long-term vision. For example, a company focused on sustainability would prioritize products and services that align with those values. Strategic alignment ensures that all product decisions contribute to the company's overarching objectives – which leads into portfolio optimization:
Portfolio Optimization
Once individual products are analyzed, the focus shifts to optimizing the portfolio as a whole to align with company objectives. This involves strategically allocating resources, investing in research-backed product development, and potentially divesting underperforming products. As mentioned above, the goal here is to create a balanced mix of products that maximizes profitability and minimizes risk. This might involve investing heavily in high-growth products, maintaining consistent performers, and phasing out those that no longer contribute to the company's objectives.
Market Adaptability
Even after analyzing and optimizing existing products, markets continue to evolve. With that in mind, a successful product portfolio strategy needs to be flexible and adaptable. To do so, companies need to stay informed about market trends, technological advancements, and changing consumer preferences (often done through market research studies). Based on changing needs and preferences, companies need to be prepared to adjust their product offerings, invest in new product innovation, and potentially even enter new markets to maintain a competitive edge.
Performance Measurement
To ensure the effectiveness of a product portfolio strategy, it's important to continuously monitor performance. This involves tracking key metrics like market share, revenue growth, and customer satisfaction across the entire portfolio. Regular monitoring through market research allows companies to identify any deviations from their objectives, assess the impact of strategic decisions, and make necessary adjustments to stay on track.
Back to Table of Contents
How to create a product portfolio strategy
Now knowing what a product portfolio strategy is and its benefits, the below steps outline how a brand can go about crafting its own company’s product portfolio for continued growth and success.
1. Understand your business goals and the current gap in product performance
There are endless opportunities to create new products or market existing ones, but they have to be right for your corporate strategy. Brands need to be intentional and strategic with the product decisions they put forth in the market. The first step is understanding where the business currently stands.
During this stage, bring key stakeholders into the conversation to ensure full transparency of business goals before moving forward with product decisions. All future business initiatives should in some way contribute to those overall business goals. Also in this stage, perform a product audit to create a list of products that are performing well, ones that have opportunities for improvement, and ones that don’t generate the expected return on investment.
2. Determine your ideal portfolio criteria
Using the list you created above, of products that perform well, need improvement, or no longer benefit your business, you are ready to determine your ideal portfolio criteria. This criterion will help guide product improvements or new product developments, ensuring the qualities of these products align with (you guessed it) the overall corporate strategy.
In this stage, establish a set of key performance indicators (KPIs) that all future product performance can be measured against. KPIs for your products might include the amount of revenue each product generates, the resource allocation required for each product line, or each specific product’s contribution to market share.
3. Create a product portfolio matrix
Next, it’s time to create a product portfolio matrix. A very popular one is Boston Consulting Group’s matrix, which organizes products into various quadrants based on their growth rate and market share. These four quadrants are known as ‘stars’ (high growth and high market share), ‘question marks’ (high growth rate but low market share), ‘cash cows’ (low growth rate but high market share), and ‘dogs’ (low growth rate and low market share).
Organizing your existing products into such a matrix allows you to visualize which products are performing well and which are struggling. This information guides future decision-making, whether that is to continue growing a ‘question mark’ product or to scrap a product classified as a ‘dog’ to use its resource allocation elsewhere.
Boston Consulting Group’s matrix is just one example of how to organize and visualize your products when building a product portfolio management strategy. Other models might adapt this standard x-y axis approach to fit their own KPIs for measurement.
4. Conduct a product portfolio analysis
Using the matrix you built with your business-specific KPIs as analysis credentials, it’s time to see where each product falls.
For example, if one of your KPIs is ‘generated revenue’, dive into the sales numbers behind each product line to plot their performance in your matrix. As a result, you’ll have your version of BCG’s ‘stars’, ‘question marks’, ‘cash cows’, and ‘dogs’ to use as a guide in developing your product roadmap for an effective product portfolio.
5. Develop your product roadmap
At this point, it’s time to start developing your optimized product roadmap!
Based on the analysis of your portfolio matrix and where each product lies, your brand is in a position to develop a plan for future business objectives. In this stage, you’ll identify which current products should be prioritized and which new product innovations you’ll plan to develop as part of the roadmap for a certain timeframe. This product roadmap will serve as a guiding template to base all product decision-making around.
6. Measure and iterate
Last but certainly not least, it’s important to measure the effectiveness of your portfolio planning. How do your product lines contribute to your identified criteria and KPIs for the business? Have you entered a new market as planned? Have your product innovations gone over well with your target market?
This is the stage to measure how your portfolio of products that you identified for your product roadmap is working for your business. If things are not going as planned, it might be time to go back to the strategic planning phase and iterate based on your learnings.
Ultimately, the main business objective for any brand is to optimize product offerings, streamline internal processes, and enjoy market growth. Your product portfolio strategy should be instrumental in getting you there.
Back to Table of Contents
Implementing a product portfolio strategy
A crucial aspect of implementing a product portfolio strategy is establishing a robust portfolio management process. This means setting clear roles and responsibilities for who will manage the product portfolio, communicating information across business channels, and putting clear frameworks/processes in place. It also includes developing a system for tracking progress, monitoring performance, and making adjustments as needed. This might involve regular portfolio reviews, where key stakeholders assess the performance of each product, identify potential risks and opportunities, and make decisions about resource allocation and future development.
An effective product portfolio strategy will align different departments within the organization, such as marketing, sales, and product development. This is key, as each department needs to understand the overall strategy and how their individual activities contribute to overall business success.
Back to Table of Contents
Evaluating the success of a product portfolio strategy
As touched on briefly in the steps above on how to create a product portfolio strategy, the 'last' step is to continuously evaluate your strategy's effectiveness. This involves tracking key performance indicators (KPIs) and analyzing the results, and determining whether the strategy is effective.
Some of the common KPIs used to evaluate product portfolio success include:
- Market share: This indicates the company's position in the market relative to its competitors. Businesses leveraging a Better Brand Health Tracking study to manage their product portfolio also have access to Mental Market Share (how 'present' a brand is in consumers' minds, considering all Category Entry Points).
- Revenue growth: This measures the increase in revenue generated by the product portfolio over time.
- Profitability: This assesses the overall profitability of the portfolio, considering factors like production costs, pricing, and sales volume.
- Customer satisfaction: This measures how satisfied customers are with the products and services your business offers.
- Return on investment (ROI): This evaluates the financial return your product portfolio investments generate.
By analyzing these KPIs, companies can gain insights into the overall health of their product portfolio and identify areas for improvement. Regularly evaluating your strategy ensures your product portfolio remains aligned with business objectives and contributes to long-term success.
Back to Table of Contents
Overcoming challenges in a product portfolio strategy
Though worth it in the long-run, implementing and managing a successful product portfolio strategy can come with its challenges. Companies can face both market-related and internal obstacles throughout their product portfolio strategy process.
Market challenges include intense competition, rapidly changing customer preferences, and unavoidable economic fluctuations. To overcome these challenges, companies can invest in market research to stay informed and be agile in adapting their product offerings based on those insights. This might involve developing new products, entering new markets, or adjusting pricing strategies to remain competitive.
Internal challenges include resistance to organizational change, lack of resources, and difficulties in coordinating across departments. Overcoming these challenges requires strong leadership, clear communication, and a commitment to collaboration. It's also important to foster a culture of innovation and continuous improvement to ensure that the business's product portfolio remains relevant and competitive.
By proactively addressing these challenges and adapting strategies accordingly, companies can effectively manage their product portfolios and achieve sustainable growth.
Back to Table of Contents
Execute your product portfolio strategy with quantilope
Create a winning product portfolio optimization strategy with quantilope’s Insights Automation Platform. quantilope offers a variety of advanced methodologies that get to the root of product performance - from TURF analysis, choice-based conjoint, price sensitivity meter, A/B testing, and more. Whatever it is you need to test among your products - be it innovation ideas, pricing structures, channels of reach, etc., quantilope has a tool to do so. All of quantilope’s analyses are available in real-time as well, allowing brands to quickly act on their initiatives or go back to the planning stage.
Get in touch to learn how you can optimize your product portfolio with quantilope:
