Exploring BCG Matrix Alternatives for Product Portfolio Analysis

Introduction

The BCG Matrix is a useful tool for analyzing a product portfolio and evaluating a company's investment strategies. Based on the growth rate and market share of a product or service, it allows decision-makers to categorize and prioritize products and services. However, this tool is not without its shortcomings and criticism, which has given rise to a number of alternative methods.

Definition of BCG Matrix

The BCG Matrix was developed by Boston Consulting Group (BCG) as a method of portfolio analysis. It divides products or services into four categories: Stars, Question Marks, Cash Cows, and Dogs. Stars are characterized by high market share and high growth rate, while Cash Cows have higher market share but slower growth rate.

Overview of Alternative Methods

• The Johnson Model
• The Ansoff Matrix
• The Boston Box
• The Gravitational Plan
• The Adizes Method

Relative Market Share

Relative market share is a measure of a company’s performance in comparison to the performance of its competitors. This measure compares a company’s market share with the market share of its competitors and assesses how effectively a company is competing in the market.

What Relative Market Share Is

Relative market share is a ratio that measures a company’s market share relative to its competitors. This measure looks at how much of the total market a company has captured in relation to its competitors and can be used to estimate a company’s market position and overall performance.

How It Can Be Used to Analyse Product Performance

Relative market share can be used to analyse product performance and help companies to gain market share and identify areas of growth potential. This measure can be used to compare the performance of different products or services, compare performance of a particular product over time, or compare performance of a particular product in different regions or markets.

Relative market share can also be used to assess a product’s performance in relation to its competitors’. This can be useful for understanding how an individual product is performing in relation to the rest of the market, and can help inform strategic decisions about how to best optimise product performance.

Value Chain Analysis

Value chain analysis is a useful tool to analyze production activities and costs. It involves tracing and quantifying the value of each activity within a business, and then evaluating how those activities are interrelated. This analysis is important to understanding where production costs are high and low, which is vital for product portfolio analysis.

In-depth Look at Activities and Costs

Value chain analysis offers an in-depth view of the activities and costs associated with production. By breaking down these activities and costs, organizations can identify areas where opportunities and savings can be realized. It also helps them understand the environmental, social, and economic impacts associated with production.

Understanding High Versus Low Costs

Value chain analysis can help an organization identify where production costs are high and low. By analyzing individual activities in the production process and then assessing their interrelatedness, organizations can determine which activities are the most important for their business and where costs can be minimized. For example, an organization might identify that producing a certain component is very costly and then decide to outsource the production of this component to a supplier.

In addition, value chain analysis can help organizations spot trends in production costs. This can be an important tool for spotting areas of potential growth and investment. For instance, an organization can identify that a particular process has been consistently more expensive than its competitors and use this information to plan an improvement strategy that would reduce the cost of production.

SWOT Analysis

An important part of portfolio analysis is to periodically conduct a SWOT analysis – a tool that helps companies identify the internal strengths and weaknesses, as well as the external opportunities and threats. It is used to gain insights into a product’s competitive positioning and capabilities, and how it can be improved. Below, we’ll take a closer look at each component of SWOT for product portfolio analysis.

Strength and Weakness

Strengths and weaknesses are the characteristics of the product that enable or hinder it from succeeding in the market. Strengths are features that the product has that give it a competitive advantage, such as advanced technology, strong customer relationships, or pricing advantages. Weaknesses are the opposite – features that reduce a product's ability to compete in the market, such as inferior technology, lack of product differentiation, or lack of resources and resources.

Opportunity and Threats

Opportunities and threats are external factors that may affect a product’s performance. Opportunities are beneficial forces in the market that the product can capitalize on, such as changes in consumer preferences, expanding market, government regulations, new technologies, or emerging competitors. Threats are potentially harmful forces in the market, such as new competitors, changing customer needs, economic downturn, regulation changes, or technological advancements.

Using SWOT, companies can assess the current position of their product in the market and develop strategies to improve their performance. Conducting regular SWOT analysis can help companies stay ahead of the competition and keep their portfolio of products up-to-date and relevant for the current market.

Porters’ Five Forces

Porter’s Five Forces is an approach to evaluate the effects of external factors on businesses in a market-driven environment. It examines five forces that affect the competitive dynamics of businesses, namely market competition, threat of substitute products, the bargaining power of customers, the bargaining power of suppliers, and the threat of new entrants. This concept is used to inform product portfolio analyses, providing a broader view of the market landscape.

Knowing How the Market Is Structured by the Five Forces

When studying the dynamics of a given market, understanding the five forces driving competition can be invaluable. Porters Five Forces model can provide an analytical framework for examining the level of competition, potential for substitutes, customer and supplier power, and the impacts of new entrants. These insights, in turn, can inform product portfolio decisions.

Understanding How the Industry is Changing Based on These Five Forces

Not only can Porters Five Forces help in understanding the current market structure, it can be used to predict the impact of changing trends or market conditions. For example, an increase in customer power or in the entry of new competitors might lead to a decrease in the profit potential of certain products within the portfolio. Companies can use this data to assess which products are positioned to succeed in different scenarios and drive product portfolio planning.

Identifying upcoming events or changes in the five forces can give management valuable insights into strategic decision-making. Companies can then use this knowledge to evidence-based decisions to optimize market performance and profitability.

Product Life-Cycle

A product life-cycle is an essential aspect to consider when utilizing the Boston Consulting Group’s (BCG) matrix for a product portfolio analysis. The product life-cycle shows the various stages that a product goes through - from production to retirement. Understanding the costs of production at each stage can help assess the success or failure of the product at each particular stage thus predicting future trends.

How product goes from production to retirement

The product life-cycle from start to finish typically consists of four stages. At each stage, strategic decisions must be taken in order to move the product forward.

• The first stage is the introduction stage. This is the stage of development. At this stage, the product is new and will require significant resources and research for its continued development.
• The second stage is the growth stage. This is the stage in which the product begins to gain traction and begins to generate revenue.
• The third stage is the maturity stage. This is the stage at which the product has reached its maximum potential and requires few resources to maintain. This is a crucial stage as this is the stage where the most profit is made.
• The fourth and final stage is the decline stage. This is the stage at which the product has reached its end and is retiring from the market.

Understanding the costs of production at each stage

Knowing how much resources and funds are put into each stage is key to the success of the product. It is important to consider the cost of production at each stage to see the return on investment (ROI) of a particular product. This can be determined by assessing the research and development costs, the marketing costs, and the actual cost of the product itself. This knowledge can be used to assess the decisions that have been taken and to plan for future product portfolio strategy.

Conclusion

Product portfolio analysis can be a powerful tool if used correctly. A variety of methods exist that can be used to make informed decisions about which products to pursue and which products to discontinue. The classic BCG Matrix is one such method, but it is not the only one. In this article, we have explored some of the alternatives to the BCG Matrix that can help in product portfolio analysis.

The Growth-Share Matrix is an alternative to the BCG Matrix, and it allows companies to classify their products and services into four categories: cash cows, stars, question marks, and dogs. The product life cycle is another popular tool that can be used to understand product development and maturity. Companies can use both of these methods in combination to gain insights into their products and services and make informed decisions about product pipelines.

The skills, technique and tools matrix is a method that allows corporations to review their products from the customer's perspective. This can be used to determine a product's competitive advantage and any shortcomings for future product development. Finally, the opportunity cost matrix is a case-by-case decision-making tool that can be used to compare investments in multiple areas. It can provide valuable insights about the benefits and risks associated with certain products.

Each of these methods is valuable in product portfolio analysis and can provide valuable insights. Companies should consider all the options when choosing which method to use.