Product Portfolio and Product lifecycle Management

Product Portfolio and Product lifecycle Management

Introduction  

            Organizations in the contemporary world are always looking for ways to enhance their competitiveness in the market. Different strategies are applied to ensure a business achieves an edge over its competitors in an industry. For instance, companies and organizations utilize product portfolio and product lifecycle management practices have been utilized to enhance the edge of many companies (Smith & Sonnenblick 2013). Basically, most organizations offer more than one product or service. The main advantage is that various products can be managed to ensure they are not in the same phase in their lifecycles (Hollensen 2015). Having products or services evenly spread across lifecycles allow the most efficient use of both human resources and cash (Mohr, Sengupta, & Slater 2010). This paper intends to examine the product portfolio and product lifecycle management concepts and how they enhance an organization’s competitiveness.

Product Portfolio

            A product portfolio can be defined as the collection of dissimilar items sold by a company. Each item makes different contributions to an organization’s bottom line. For instance, some products may cost more to produce, while others may be experiencing an increase or decline in their market share at a fast rate. Equally, some products may have greater marketing expenses (Geracie 2010). Companies offering wide range of products and services have the ability to survive the market with ease. Fundamentally, they mitigate the risk of exiting the market in the event that one of the products experiences declining market share. In the same regard, this helps organizations to attract many customers as compared to their competitors that may be offering one product or fewer product. However, this is largely dependent on the value proposition (Levin & Wyzalek 2014).

The Boston Matrix can be utilized to analyze range of items sold by most businesses. According to the Matrix, products offered by companies can be categorized into stars, cash cows, question marks, and dogs. Stars relate to products characterized by high growth and high market share. These products generate the most cash. Fist to market and monopolies are frequently considered stars (Hollensen 2015). Nevertheless, they consume more cash considering the high growth rate. In most cases, the amount coming is equal to the amount going out. Consistent with Aaker (2009), stars can in time become cash cows especially when success is sustained until a point in time when market growth declines. Normally, organizations are advised to invest in stars. A company cannot afford the luxury of having only stars in its product portfolio (Geracie 2010). Basically, the risk of exiting the market increases as such products require high investment. A business requires other sources of cash as stars consume almost every penny raised from their sale as a consequence of reinvestment. All in all, such products are essential to the success of a business in market as they can easily turn into cash cows (Sanwal 2013).

Cash cows relate to products deemed leaders in a particular marketplace. Such products generate more cash for the firm than what they consume. They are characterized by high market share in an established, slow growing industry. The fact that they require little investment means that cash generated can be used for investment purposes in other business units. Cash cows normally provide cash required to cover administrative costs of a firm, turn question marks into market leaders, and fund research and development among others. Ass argued by Ganesan (2012), companies are advised to invest more and more in cash cows with an aim of maintaining productivity levels. Nevertheless, it is hard for an organization to maintain its edge when managing cash cows only. Eventually, cash cows experience a decline. In the event of this, a company must have stars that it can convert into cash cows to collect enough cash integral to finance its business activities. This is one of the main reasons as to why companies use cash raised from cash cows to invest in research and development. Fundamentally, this helps them to improve the performances of other products in terms of sales, market share, and profits (Mkaouar & Prigent 2010).

Dogs are products characterized by both low growth rate and low market share. As postulated by Levine (2011), they break even, that is, they neither consume nor earn a great deal of cash. Dogs are considered cash traps considering money is tied in them despite the fact that they bring nothing in return. Such products are deemed candidates for divesture. Nevertheless, they are also times when such business units generate revenue with little cost (Mahajan 2009). For instance, in the automotive industry, the need for spare parts continues even when a car line ends. An automotive company has to continue manufacturing spare parts for consumers who already own car it is no longer producing until they are completely depreciated or considered obsolete (Singer & Fedorinchik 2013). Organization expand their product portfolio to avoid a situation when they are only dealing with dogs or pets. An organization cannot survive the market for long when a large percentage of its products are dogs. Essentially, it may be forced to divest, hence failure. On the contrary, dealing with more than one product ensures that a business continues to thrive even after a divestiture as a firm focuses on other products (stars, question marks, and cash cows) (Hitt, Ireland, & Hoskisson 2015).

Question markets are products that exhibit high growth prospects nut have a low market share. They consume a lot of cash yet a firm realize less in return. Such products are also referred to as problem children. Nevertheless, the fact that they grow rapidly means that they have the potential of turning into stars (Singer & Fedorinchik 2013). Companies are encouraged to invest in question marks. Nonetheless, they must ensure a product shows great potential for growth. On the other hand, organizations have the freedom to sell question marks in the event that they do not any potential for future growth. For example, computer games come up with hundreds of games before making a breakthrough (Reilly & Brown 2012). It is normally hard to spot a future star. Many companies suffer wasted funds whenever their questions marks do not achieve their goals and objectives. Equally, it is very risky for a business to manage questions marks only. A business’s potential to succeed in impacted negatively when question marks show no potential for growth. This is a risk that is mitigated by having a wide range of products categorized differently (Uggla 2013).

Successful companies have more than one product in the different quadrants. For instance, most consumer electronics company have more than one star or cash cow. This also helps them enhance their productivity. Having one cash cow can be risky in the event that its performances declines (Mkaouar & Prigent 2010). Research has shown that companies always look for ways to change their question marks into stars and stars into cash cows. They also divest from dogs to avoid hold of cash that can be used in other areas to enhance the edge of a firm in the market (Reilly & Brown 2012).

Portfolio management aims to achieve a number of goals and objectives. This includes, among others, value maximization, balance, business strategy alignment, pipeline balance, and sufficiency. In regards to value maximization, portfolio management enables firms to allocate their resources efficiently. This is done to maximize value of the portfolio through a number of key goals such as acceptable risk, return on investment (ROI), and profitability (Mohr, Sengupta, & Slater 2010). Scoring and financial methods are utilized to achieve this maximization. Companies are also able to achieve desired balance of projects through different parameters including risk versus return, long-term versus short-term, and across different markets technologies and business arenas (Reilly & Brown 2012). Common methods used to realize balance include pie charts, histogram, and bubble diagrams. Businesses also ensure an alignment between their projects and product innovation strategy. The same case applies with spending. Fundamentally, spending alignment aids in ensures a company achieves its strategic priorities (Herfert & Arbige 2008).

Product Lifecycle Management

            Offering a number of products and services results into companies having products in different product lifecycle. This is also imperative for an organization’s success. A product offered by a firm goes through four major stages before divestment. This includes market introduction, growth stage, maturity stage, and decline stage (Machac & Steiner 2014). Market introduction is characterized by high costs, slow sales volume, creation of demand, customer trials, and little money. At this stage, a company makes heavy investment in marketing to create awareness on the product in question among customers to attract them or motivate the purchase decision. As this point, a company makes little money from the sale of a products are profits are reinvested to improve the performance of the product in the market (Lapide 2009).

A company’s product starts to experience growth in the second stage. Costs are reduced as a result of high economies of scale. Sales volume and profits start to rise as more and more and more customers are attracted to products offered by a business. In the same regard, public awareness is increased. Ultimately, a business also faces increased competition. There are companies that increase their marketing to improve growth (Cooper, Edgett, & Kleinschmidt 2010).

A product achieves maturity in the third stage. At this point costs are reduced as a consequence of increased production. In the same regard, an organization experiences curve effects. Sales volumes are enhanced as many customers are aware of a product’s existence and willing to try or consume it (Wiklund & Shepherd 2008). Competition intensifies because more competitors enter the market to benefit from different prospects available to them. Similarly, prices drop as a result of proliferation of competing products. Companies are advised to ensure product differentiation as well as feature diversification to maintain a high market share or profitability (Cooper, Edgett, & Kleinschmidt 2010).

The last stage is saturation or decline stage. Companies whose products are experiencing decline deal with issues such as their costs becoming counter-optimal. Correspondingly, their profits and prices diminish over time with reduced sales volumes. Maintaining profitability becomes a major challenge as customers are attracted to newer products (Machac & Steiner 2014).

Clearly, a product goes through a number of phases before it is deemed unwanted in the market. Stark (2011) argues that some products do not even complete all stages. For instance, a product can be launched and fail to reach the growth phase. This is common among products introduced in the market without a careful consideration of consumers’ needs and preferences. Fundamentally, this leads to the creation of a product that is not in line with consumers’ needs. In the process, a company is forced to divest to avoid losses (Cooper, Edgett, & Kleinschmidt 2010). Research has proved that companies that have products in different stages of product lifecycle find it easy to compete. Specifically, they are able to use cash raised from products that have achieved maturity to ensure improvement in the performance of those in the market introduction and growth stages (Hollensen 2015). At some point, products in the maturity stage move to the saturation stage. Managing a wide range of products enables a firm to invest in those in the growth stage to ensure they hit maturity. With this being the case, the risks linked with different stages of product lifecycle are mitigated (Wiklund & Shepherd 2008).

Recommendations

From the above analysis, it is clear that portfolio management and product lifecycle management enables a firm to improve its competitiveness in the market or its specific industry. It is through these practices that a firm mitigates risks associated with managing a single product. Generally, managing a number of products helps businesses to deal with shocks linked with a decline in the performance of one or more products (Levin & Wyzalek 2014). Managers in a company must understand the stage in the product lifecycle a product may be to develop effective strategies to enhance its performances. Failure to ensure the same can easily lead to ineffective competitive strategies. For instance, a company can treat a product as a cash cow when in real sense it is a star. Consequently, its ability to convert the star into cash cow is compromise. It is also of great importance of an organization to understand when it is time to divest to avoid investing in a product that will only result into losses (Sanwal 2013).

Managing many products may be advantageous. However, it also has its disadvantages. For instance, it can impact negatively on a business’ ability to maintain the quality of its products. There are organizations that are overwhelmed by the number of products offered to their target customers to the extent that they encounter challenges maintaining the right quality (Singer & Fedorinchik 2013). Product cannibalization is also common problem. Apple Inc. is an example of companies that have suffered as a result of cannibalization. Effective strategies must be developed to deal with such challenges to realize the full benefits relating to portfolio management and product lifecycle management (Mallin & Finkle 2011).

Conclusion

Companies in the modern world have ensured expansion of their product portfolio to enhance their competitiveness in the market. The basis assumption is that having more than one product enables a business to avoid having all its products in the same phase in their life cycles. As a consequence, the risk of failure when a certain product achieves saturation is mitigated. Products offered a company can be categorized into cash cows, stars, question marks, and dogs. Different product’ categories require different marketing strategies. Equally, they contribute to the continued success of their firm in dissimilar ways. Chances of success are increased when a company is dealing with all the product categories.

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