What is a product portfolio and how can it be used?

By Indeed Editorial Team

Published 22 June 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A product portfolio is a collection of the various products or services that a company offers. A business can use a product portfolio to identify how profitable its products are and whether its current range of products meets the needs of its business strategy. Effective product portfolio analysis empowers companies to better allocate their resources and enables employees to create new, innovative products. In this article, we outline what a product portfolio is, identify who uses them and discuss the benefits they offer.

What is a product portfolio?

A product portfolio is an assortment of the products and services offered by a company. For example, the product portfolio for a coffee company might include whole coffee beans, ground coffee beans, coffee accessories, cups and any other additional services they may offer. Products and services fit into various categories within a product portfolio. This helps the company organise their portfolio and make it easier to analyse in the future. Companies or entire conglomerates with lots of products or services benefit greatly from product portfolios because they help them inspect and track their items.

How is a product portfolio used?

Product portfolios help companies perform various types of financial analysis because they offer context around their operations. An investor or shareholder can analyse a product portfolio and determine whether the company is working with long-term value stocks or short-term growth options. This can also be use this to model a company's business practices because they look at specific performance drivers in terms of profit margins, as a company's line of products has its own individual contributions to the bottom line based on how they interact with the market. Companies can view successful and less successful products at a glance.

It's common for businesses to refresh or restructure products that are performing poorly in the market, but doing this effectively requires product portfolio analysis. Products that bring in the strongest profit margins are the most important ones to analyse, as any significant changes to their elements in a portfolio can impact the business's performance. For instance, in the case of some large companies, a single product can account for nearly half of its sales.

Related: How much does a product manager make? (with duties and tips)

What is product portfolio management?

Product portfolio management gives companies the ability to inspect their range of products and determine their current impact on the market. By looking at the sales figures of a product, companies can streamline their portfolio by removing products that are performing poorly. It's also an excellent way for companies to find future opportunities for growth by finding gaps in the market. Evaluators work to provide in-depth product portfolio analysis that allows them to inspect all products and determine if they're meeting company goals. To perform product portfolio analysis, evaluators complete the following steps:

  1. Outline the products for evaluation.

  2. Define analysis parameters for products.

  3. Implement an analysis model.

  4. Collect raw data from analysis.

  5. Create plans for where new products fit into the product line for optimal market impact.

  6. Evaluate any gaps in the market for new or existing opportunities.

Related: 9 essential business analyst skills

Who uses product portfolios?

Product portfolios are usually used by a company's product portfolio management team, which develops new items and improves existing ones. This team includes product development managers, senior product managers and product portfolio managers. Marketing departments can also help by devising and implementing effective strategies for product lines. This is usually achieved by assessing which product lines have the highest earning potential and predicting the impact of certain strategies on company revenue.

Related: Product manager skills: 15 essential hard and soft skills to develop

Product portfolios and mature companies

A mature company is one that's well-known in its industry and which often has a very diverse product portfolio. Mature companies are better positioned to innovate and develop new products internally, increasing their portfolios' scale. Moreover, they're more likely to work on an international platform which expands product portfolios significantly. Selling products in different countries also means a company monitors different consumer habits for the same products in different contexts, which makes analysis much more complex. An example of this is evident in McDonald's diversifying their menu for the Indian market.

Product portfolios and growth companies

Growth companies and younger businesses tend to have much smaller product portfolios. A smaller portfolio can make it easier to analyse the performance of products. It also leaves companies more vulnerable to volatility in the market, which increases the risk for the business as they rely on the limited depth of their product portfolio.

How do product portfolios help businesses?

Product portfolios help businesses understand which of their products are popular, which gives them a good idea of the sorts of products they might fund. Companies can track and monitor market trends and identify gaps in the market where their products could flourish. There are many advantages to using a product portfolio as a business, including:

Increased innovation

Performing product portfolio analysis helps companies develop new product lines that can positively impact the market. A company can diversify their range of products this way and find new points of entry into areas of the market that they've yet to penetrate. Inspecting older products can help businesses determine consumer habits across certain periods, which can help companies develop plans for new products.

Related: How to become a product designer (duties, skills, salaries)

Ensuring products meet the business strategy

A product portfolio can help a business determine if its existing products align with its overall business strategy. This ensures that the products they're investing in are playing their allotted roles in meeting the company's various goals, standards and objectives. Product portfolios also help companies keep their new products aligned with their overall aims.

Creating useful data for management teams

Product portfolios are a useful way to gather insightful data about a company's output or even the entire market it wants to work in. Management teams can utilise the data for future projects and marketing plans. Data points concerning revenue margins for products and consumer habits, for example, can develop new strategies for future products.

Efficient resource allocation

Companies can better allocate resources by using product portfolios to identify which products are performing well in the market. They can invest greater resources in profitable products and cut the budget on less successful products. Product portfolios can even help businesses assess how much of their budget can go towards research, development and marketing.

Related: Marketing vs PR: Key differences and 10 career options

Creating a visual representation of the entire product line

Being able to visually inspect the entire line of products that a company offers can help with brand alignment. It can also show which products fit where in regards to the overall business strategy. With a visual representation, it's also possible to compare existing products with previous ones and perform analysis and comparisons.

Improving cash flow

Product portfolios can help businesses learn which products generate the most revenue for them. This helps companies remove products that are losing them money and focus their efforts on more profitable product lines. In essence, product portfolios can improve a business's cash flow by optimising where they invest.

How does a business classify products in a product portfolio?

Businesses can use an established framework known as the Boston Consulting Group (BCG) matrix or growth-share matrix to classify their range of products. The BCG matrix helps companies prioritise their product range based on its potential for growth in the market. It uses a graph where the y-axis represents industry growth levels and the x-axis represents market shares. There are four quadrants represented in the BCG matrix, which use the following symbols:

  • Star. The star quadrant is the best-case scenario for a product, meaning that a company may look to invest more into it due to its high market share and a high industry growth rate.

  • Question mark. This quadrant is for products with a low relative market share but high industry growth rate, giving it the potential to grow into the star quadrant.

  • Cash cow. The cash cow quadrant represents products that offer a high market share with a low growth rate. Companies expect a large return on investment with these products.

  • Pet. The pet quadrant is for products that use financial capital but offer low market shares and a low growth rate. Companies are likely to sell or reposition these products.

Please note that none of the companies mentioned in this article are affiliated with Indeed.

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