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The Product Portfolio Matrix

product, product life cycle, packaging, promotion, product modifications, product extentions, product differentiation

The matrix developed by the Boston Consulting Group positions products into four categories with 'star' products being those with a big share of a high growth market. 'Cash cows' generate funds which can be used to support the stars or, possibly, turn problem children into stars if the circumstances allow. 'Dogs' are clear candidates for product elimination but a number of them collectively may still provide useful profits, provided that investment is kept to a minimum.

Product Modification
The basic product life-cycle concept supposes a need for a planned succession of products. Often, however, a better alternative is to modify the product in such a way as to extend its profitable life. Technology-based products such as computers can achieve this by new microchips to deliver additional functions or 'add-ons' such as extra memory capacity. Detergents are examples of products that has been around for many years but has had its profitable life extended by many, often small, changes at frequent intervals to the product itself (occasional changes in the basic formulation as well as additives to build in extra desirable properties). Over a long period of time the product has become totally different from how it was originally. A new product has been achieved by evolution rather than revolution.

The Product Mix
A further outcome of the product life-cycle is that few companies can rely on only one product. Most need to offer a series of products forming a product range. In some situations, in any case, a marketing organization will be forced to have a range of products rather than just a single one. For example, it is almost inconceivable that a shirt manufacturer would offer only one type of shirt. He is almost forced to offer various collar sizes and a selection of different patterns and colours. If we carry this process too far, we shall have an almost impossible and highly uneconomic task. Financing and controlling stock is just one of the problems that follows from a very wide product range, so decisions have to be made as to where to draw the line.
Continuing the shirt example, we have to decide how many different patterns of cloth to use, and, for each pattern, how many different colours. Are we to offer slim-line styles as well as the full-cut style? Are we to offer different collar styles as well as different patterns? Each time we add one element of difference, we may add twenty or thirty additional products to our range.
On the other hand, a manufacturer who decides to economize on research and development, on manufacturing costs, storage and distribution costs, may find himself in trouble for other reasons. For example, electrical appliance dealers often prefer to buy a range of different products from one supplier rather than having to deal with many. One advantage is that they can gain better quantity discounts. The supplier with a narrow range of products is then at a disadvantage. An example of a product range in depth would be a car manufacturer offering one model of car using the same body shape and basic engineering, but offering a wide range of powerpacks, colors and finishes, and optional extras. A car manufacturer with a wide range would offer a larger number of models, but each would have a much more limited choice of colors and options. There is no fundamental reason why a product mix should not have both breadth and depth. Generally, compromises have to be made.

There are, of course, a number of product attributes which have to be decided upon as part of the product mix decision. Here are some of them:

A. Product Size
In the case of a household detergent, for example, or a packaged food or a garden fertilizer, how many sizes will be available and what choice of sizes should be made? In some countries people buy many of their household goods in 1 or 2 kilo packs, whereas in other countries much smaller packs are standard although moving towards the larger pack sizes. Should a manufacturer offer these larger family packs in addition to those he already carries?

B. Packaging
The style of pack has to be decided upon. Are we to have cardboard cartons, plastic drums, glass jars or a choice of two or more? A package may have a number of quite different functions to perform, including the following:
1. Protection. Fragile products (glassware, delicate equipment, many foodstuffs) need packaging that will resist crushing during transit or withstand shocks during handling. Others need protection against contamination, dust, light, heat and many other conditions;
2. Identification. Distributors and retail customers need to be able to identify the product readily, especially if there are many competitors (e.g. cigarettes) or many varieties (e.g. car accessories;
3. Display. Both individual packs and 'outers' may have to contribute to distinctive displays in shops or in cash-and-carry warehouses. Increasingly, there is little room available for display items as such, and packs often have to do the job. At the same time, the pack can carry through the brand-image in a compelling way;
These requirements may carry different emphases in different parts of the country, or in different types of outlet. Which factors then are to have top priority and how many different packs will be necessary to meet the minimum requirement?

C. Presentation
Is the product to be packed and presented in stark simplicity or with frills and elaborations? What will this do to the price and are we to choose one of the options available or offer customers a choice? In some fields manufacturers offer a wide range of brands presenting slight variations on the same basic product.Cigarettes are a case in point. Each manufacturer has a wide variety of brands, which will vary in flavor, size, tipped or untipped, coupons or no coupons, style of packaging and other ways. Each one of these changes represents an additional item in the product range, and the product mix has to be carefully worked out to appeal to the maximum number of customers with the minimum of manufacturing, marketing and distribution complications.

D. Product Differentiation
One of the problems confronting marketing organizations is that very rarely do they have sole rights to a particular product. On the other hand, it is obviously desirable to be able to offer customers something that is unique, clearly different from anything else on the market. How does one do this with a product that is essentially exactly the same as everybody else's? The answers are many, but brand-image, packaging and all the variables listed above represent ways in which this differentiation of product can be achieved. It is important to note that these are often key elements in the competitive fight.
We may expect competition to take place mainly through price, but there are two strong reasons why this is not the case.
First, to compete mainly through price could lead either to all competitors in a particular market eventually arriving once more at the same price (i.e., once again with no choice offered to customers), or to price competition, leading to damaging results for some, or perhaps all, of the competing companies. Second, price is only one of the factors influencing customer choice. It is not always the case that customers will look for the cheapest article that will meet their needs. They may be perfectly happy to pay a little more, even sometimes a lot more, for the product so packaged and presented that it appeals to their sense of visual appeal or just sense of fun.
So, research and development goes into finding slight product differences, which may give one product an 'edge' over the others. Cigarettes with tips, more tobacco or coupons; seeds in 'harvest fresh' packaging or made into pellets for easier sowing; chocolates ready-packed with gift wrapping; all these are examples of product differentiation. At the same time advertising and presentation can achieve similar results by creating a different brand-image offering greater appeal for more people.
Published: 2007-04-29
Author: Martin Hahn

About the author or the publisher
Martin Hahn PhD has received his education and degrees in Europe in organizational/industrial sociology. He grew up in South-East Asia and moved to Europe to get his tertiary education and gain experience in the fields of scientific research, radio journalism, and management consulting.

After living in Europe for 12 years, he moved to South-East again and has worked for the last 12 years as a management consultant, university lecturer, corporate trainer, and international school administrator

www.martin-hahn.net

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