Product Portfolio Analysis is a useful tool for developing a product strategy for distribution companies. We use it to assist distributors that have a number of existing or potential products in identifying which areas have the greatest chance for success or failure. It also helps distributors prioritize which new products to develop that will deliver the most significant competitive advantage.
The Product Portfolio Analysis process involves plotting each product onto a four-quadrant matrix using two dimensions: market attractiveness and business strength. Market attractiveness includes size, margin, growth, barriers to entry, and competition. Business strength includes people, skills, strengths, alliances, and quality. Each of the factors are assessed on a scale of one to 20, with the aggregate value for each product being plotted on the matrix.
The four quadrants are referred to as wildcats, stars, cash cows, and dogs.
- Wildcats can go anywhere and can actually cost you time and money because you don’t really know where they are going.
- Stars are vulnerable because they are attractive to everyone else. They want to compete against you so you have to defend yourself all the time and that will cost you time and money.
- Cash cows are where you make your money.
- Dogs don't make any money because they are not attractive in the market and have no business strength.
Once each product is placed into the proper quadrant that represents its current state, a decision should be made as to where each needs to be in the future to provide a balanced portfolio. Movement is achieved by adjustments to the business strength and market attractiveness for each product and service.
Consider the following as you complete your analysis:
- Do you have a handle on your existing product mix and how it will benefit you in the future?
- What are the potential products you have in the pipeline for potential distribution and how will they fit into your product strategy?
- Have you addressed the “dogs” in your product strategy or do they continue to be a drain on resources?
We continue to engage with relationships in the distribution industry on Product Portfolio Analysis as part of our Distribution Accounting practice. In fact, we have designed an Excel tool that assists our relationships in developing product strategy on their existing business. If your organization has not gone through this exercise in the past, we strongly recommend you consider utilizing the complimentary Excel template.
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