Analyzing market opportunity using the Product Portfolio Analysis

Portfolio analysis is a way to systematically analyze products and services that make up an organizations business portfolio.  Unless an organization is really small size; most companies are involved in more than one business or at least sell more than one product. For any typical organization, the internal and external businesses include publishing, staff training, public expos and events, government representation, research and development, public relations, etc.  Each such business consists of a portfolio of products and services.  For example, an association's publishing business might include a professional journal, a lay magazine, specialized newsletters geared to different member segments, CDs, a website, social networking sites, etc.
Portfolio analysis helps you decide which of these products and services should be emphasized and which should be phased out, based on objective criteria.  Portfolio analysis consists of subjecting each of the association's products and services through a progression of finer screens.  During a time of cutbacks and scarce resources, it is essential to screen out programs and services that are not essential to most members.  Those that appeal to a more limited segment can be funded by those desiring the product or service rather than by dues.
Understanding the overall product portfolio of a company, and evaluating the current and future product lines is an important component of the Marketing Strategy. Peter Drucker (1973)[1] proposed a classification method for analyzing a company’s product portfolio based on each product’s current and expected profitability. After the classification exercise, the marketing team is able to pinpoint products that contribute to the company’s strengths and those that do not. Accordingly, support and investment for each product can be decided.
Using Drucker’s method, products are classified into seven categories—

1. Today’s Breadwinners—These products are contributing the most to current profits. The company should support these products and, at the very least, maintain current investment levels.
2. Tomorrow’s Breadwinners—These products represent investments in the company’s future. They are not currently contributing significantly to profits, but they have the potential to do so in the future. The company should support these products and perhaps increase investments in them.
3. Yesterday’s Breadwinners—These products have supported the company in the past but do not currently contribute significantly to profits. A minimum level of support and investment should be maintained for these products until the time they resume generating substantial profits. Alternately, a decision may be made to discontinue such products.
4. Developments—These products are currently in development and may generate profits in the future, but greater investment is needed to achieve those profits. A decision on whether to invest more resources needs to be made after a thorough analysis of the market potential and Return on Investment (ROI) for these products.
5. Sleepers—These products have been around for some time but have failed to establish themselves. The company needs to analyze the reasons for their poor performance and then decide on a future course of action.
6. Investments in Managerial Ego—These products, backed by influential managers, have little proven demand in the market and typically waste many functional resources. It is up to senior management to ensure that all products created are viable and fulfill the demands of customers; otherwise such products should be discontinued.
7. Failures—These products have failed in the past and have no future in their current form. They should ideally be discontinued unless there is a way to successfully reposition them.

Products in the first three categories, “Today’s Breadwinners,” “Tomorrow’s Breadwinners,” and “Yesterday’s Breadwinners,” are strengths of the company while those in the last two categories, “Investments in Managerial Ego” and “Failures,” are weaknesses. The “Developments” and “Sleepers” need to be analyzed in greater detail to classify them as either strengths or weaknesses.
Advantages and Disadvantages of Portfolio Analysis
Portfolio analysis offers the following advantages:
1.      It encourages management to evaluate each of the organization's businesses individually and to set objectives and allocate resources for each.
2.      It stimulates the use of externally oriented data to supplement management's intuitive judgment.
3.      It raises the issue of cash flow availability for use in expansion and growth.
Portfolio analysis does, however, have some limitations.
1.      It is not easy to define product/market segments.
2.      It provides an illusion of scientific rigor when some subjective judgments are involved.
Categorizing all its products using product portfolio analysis helps a company identify its strengths and weaknesses, and in turn plan its Marketing Strategy.


Acknowledgement: The content borrowed from www.smstudy.com (Original url: http://www.smstudy.com/Article/Analyzing-market-opportunity-using-the-Product-Portfolio-Analysis)