product portfolio strategy - introduction to the boston consulting box

Introduction

The business portfolio is the collection of businesses and products that make up the company. The best business portfolio is one that fits the company's strengths and helps exploit the most attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses should receive more or less investment, and

(2) Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.

Methods of Portfolio Planning

The two best-known portfolio planning methods are from the Boston Consulting Group (the subject of this revision note) and by General Electric/Shell. In each method, the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a separate mission and objectives and that can be planned independently from the other businesses. An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organised.

The Boston Consulting Group Box ("BCG Box")

Using the BCG Box (an example is illustrated above) a company classifies all its SBU's according to two dimensions:

On the horizontal axis: relative market share - this serves as a measure of SBU strength in the market

On the vertical axis: market growth rate - this provides a measure of market attractiveness

By dividing the matrix into four areas, four types of SBU can be distinguished:

Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.

Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars.

Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink?

Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.
Using the BCG Box to determine strategy
Once a company has classified its SBU's, it must decide what to do with them. In the diagram above, the company has one large cash cow (the size of the circle is proportional to the SBU's sales), a large dog and two, smaller stars and question marks.

Conventional strategic thinking suggests there are four possible strategies for each SBU:

(1) Build Share: here the company can invest to increase market share (for example turning a "question mark" into a star)

(2) Hold: here the company invests just enough to keep the SBU in its present position

(3) Harvest: here the company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows.

(4) Divest: the company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks").

CREATE YOUR MARKETING STRATEGY

Introduction

Central to any successful marketing strategy is an understanding of your customers and their needs. The ability to satisfy your customers' needs better than your competitors are able to can help you build customer loyalty and increase sales.

However, both customer needs and the business environment in which you operate are constantly changing. Your marketing strategy needs to consider what changes are taking place, and the opportunities and threats that are emerging.

A marketing strategy will also help you assess how successful you are at meeting your customers' needs, as well as how successful your competitors are. It may also help you identify new markets that you can successfully target.

This guide helps you to identify which customers to focus on and your key objectives in reaching them. It explains what to include in your marketing strategy and how it can be used as the basis for effective action.

CREATE YOUR MARKETING STRATEGY

Key elements of a successful marketing strategy

One of the key elements of a successful marketing strategy is a thorough understanding of who your customers are and what "needs" they are looking to satisfy. Customer groups or segments can be identified and each targeted with marketing activity that specifically addresses their particular needs.

In order to meet customer needs and remain competitive, it is important to identify and respond to any changes in customer needs and attitudes in your industry and in the broader economic climate. It is therefore vital that you assess your business environment when developing your marketing strategy.

You can then create a marketing strategy that makes the most of your strengths and matches them to the needs of the customers you want to target. For example, if a particular group of customers is looking for quality first and foremost, then any marketing activity aimed at them should draw attention to the high quality service you can provide.

It is important to think through the consequences of your marketing strategy to make sure it's realistic. For example, there is no point in basing a strategy on rapid growth if you won't be able to produce enough goods. The best strategy will reflect your own strengths and weaknesses. See our page within this guide on strenghts and weaknesses.

A key element often overlooked is that of monitoring and evaluating how effective your strategy has been. This control element not only helps you see how the strategy is performing in practice, it can also help inform your future marketing strategy.

Don't forget that your marketing plan (your action plan for implementing your marketing strategy) needs to be constantly reviewed and updated or replaced when necessary - just like your own products or services.

CREATE YOUR MARKETING STRATEGY

Understanding your strengths and weaknesses

Your strategy must take account of how your business' strengths and weaknesses will affect your marketing.

Begin your marketing strategy document with an honest and rigorous SWOT analysis, looking at your strengths, weaknesses, opportunities and threats.,

Strengths could include:

· personal and flexible customer service
· special features or benefits that your product offers
· specialist skills

Weaknesses could include:

· limited financial resources
· lack of an established reputation
· inefficient accounting systems

Opportunities could include:

· increased demand from a particular market sector
· using the Internet to reach new markets
· new technologies that allow you to improve product quality

Threats could include:

· the emergence of a new competitor
· more sophisticated, attractive or cheaper versions of your product or service
· new legislation increasing your costs
· a downturn in the economy, reducing overall demand

Find out how to do a SWOT analysis on the bizhelp 24 website.

Having done your analysis, you can then measure the potential effects each element may have on your marketing strategy.

For example, if new regulations will increase the cost of competing in a market where you're already weak, you might want to look for other opportunities. On the other hand, if you have a good reputation and your key competitor is struggling, the regulations might present the opportunity to push aggressively for new customers.

CREATE YOUR MARKETING STRATEGY

Developing your marketing strategy

With an understanding of your business' internal strengths and weaknesses and the external opportunities and threats, you can develop a strategy that plays to your own strengths and matches them to the emerging opportunities. You can also identify your weaknesses and try to minimise them.

The next step is to draw up a detailed marketing plan that sets out the specific actions to put that strategy into practice. See our guide on how to write a marketin plan.

Questions to ask when developing your strategy

· What changes are taking place in our business environment? Are these opportunities or threats?
· What are our strengths and weaknesses?
· What do I want to achieve? Set clear, realistic objectives.
· What are customers looking for? What are their needs?
· Which customers are the most profitable?
· How will I target the right potential customers? Are there groups that I can target effectively?
· What's the best way of communicating with them?
· Could I improve my customer service? This can be a low-cost way of gaining a competitive advantage over rivals, keeping customers, boosting sales and building a good reputation.
· Could changing my products or services increase sales and profitability? Most products need to be continuously updated to maintain competitiveness.
· How will I price my product or service? Although prices need to be competitive, most businesses find that trying to compete on price alone is a poor strategy. What else are my customers interested in? Quality? Reliability? Efficiency? Value for money?
· What is the best way of distributing and selling my products?
· How can I best promote my products? Options might include advertising, direct marketing, exhibiting at trade fairs, PR or marketing on the web.
· How can I tell if my marketing is effective? A small-scale trial can be a good way of testing a marketing strategy without committing to excessive costs.

CREATE YOUR MARKETİNG STRATEGY

Tips and pitfalls

Before looking at new markets, think about how you can get the most out of your existing customer base - it's usually more economical and quicker than finding new customers.

Consider whether you can sell more to your existing customers or look at ways of improving the retention of key customers.

Focus on the market

Your marketing strategy document should:

· analyse the different needs of different groups of customers
· focus on a market niche where you can be the best
· aim to put most of your efforts into the 20 per cent of customers who provide 80 per cent of profits

Don't forget the follow-up

· Put your marketing strategy into effect with a marketing plan that sets out actions, dates, costs, resources and effective selling programmes.
· Measure the effectiveness of what you do. Be prepared to change things that aren't working.

Pitfalls to avoid

· Making assumptions about what customers want.
· Ignoring the competition.
· Trying to compete on price alone.
· Relying on too few customers.
· Trying to grow too quickly.
· Becoming complacent about what you offer and failing to innovate.

CREATE YOUR MARKETİNG STRATEGY

Here's how I chose the right marketing mix

Two years ago, human resources consultancy Wickland Westcott reviewed the marketing strategy for its assessment and development services. A new focus and a more structured approach have already paid dividends. The last financial year was Wickland Westcott's best ever. Co-owner and director of assessment and development, Colin Mercer, describes the process.

What I did

Identify strengths and weaknesses

"In 2002 the company was doing well, but our approach to marketing was hit-and-miss. We went through the business from top to bottom and pinpointed our strengths and weaknesses.
"On the plus side, customer research showed that we had a great reputation for quality service. On the minus side, brand awareness was low and some of our systems weren't working well. We also used published academic research to find out more about our target customers' mindset and why they buy. We used all the information to create a marketing strategy with clear objectives. These included developing our network of partnerships, raising brand awareness, positioning ourselves as strategic thinkers in our market, and getting more business through referrals."

Work to a plan

"With clear objectives in mind, writing and implementing a marketing plan was easier. We changed our marketing mix and our approach:

· Our printed newsletter, our main direct marketing method, was made more customer-focused by including market briefings. Feedback has improved and we've had several approaches from new clients who've received it.

· Instead of cold calling, we stepped up marketing via our network of partners. We provided them with clear information so that they could promote all our services to their clients. Now, about 20 per cent of what we bill is to partners rather than end users.

· To establish ourselves as strategic thinkers in our markets we began getting articles published in relevant trade journals. This raised brand awareness and enhanced our reputation. We also use re-prints of the articles as a direct marketing tool.

· We also re-designed our website and launched an Interview Guide on CD-Rom to show the flexibility of our services.

"We now review our marketing strategy and update the plan every six months. As a result of one review, we decided to attend a big trade conference, which worked extremely well for us and generated a lot of new leads."

Clean up the database

"Marketing to existing customers is easier and cheaper than starting from scratch with new ones, because existing customers are aware of our quality. However, to market effectively to this group required a better customer database than we had. As a result we decided to update our customer database. It's just as well we did, because as we updated it we found that approximately 40 per cent of the entries contained errors, duplications or were completely irrelevant. If we'd marketed to our original database we'd have wasted a lot of time and money.
"We now have a proper database management strategy. We nominated one person internally to take responsibility and now it's kept up to date meticulously. We also use bought-in contact databases to help us target new customers."

What I'd do differently

Repackage content

"We were slow to realise that the content we had on our website and in other marketing literature was a gold mine. It can be repackaged in lots of different ways. For example, a case study written for the website can be used as a mail shot, as the basis for a trade magazine article and as a handout for meetings as well. We're much better at it now, and we use all our content, including survey results, across all our marketing channels. However, we could have made use of what we had much sooner."