What is a Product Portfolio: Application, Examples, and Practical Tips
Most companies typically start with a single product or service. However, evolutions and opportunities — such as shifts in customer preferences, market disruptions, technology enhancements, and competitor offerings — can create a need to change your product and business strategy over time. A product portfolio helps you manage this evolution.
Product and service diversification is one of the most trusted ways of doing this. Building new products/services can help you better serve your target market and mitigate the risk of overly relying on one product or sector. In simple terms, expanding your range of products—building a product portfolio—can be incredibly useful for scaling your business and avoiding the threat of irrelevance.
This article will act as an all-in-one guide on product portfolios: what they are, how to build one, and common pitfalls you should try and avoid. Let’s get into it now.
What is a Product Portfolio?
A product portfolio is a comprehensive collection of your company's products and services. It is not just a list but a dynamic entity, continuously evolving to meet market demands, stay ahead of direct competitors, and maximize your business opportunities.
Let’s take an example of Coca-Cola’s product portfolio, as mentioned in their annual report for the year 2022.
It is essential to have a well-managed product portfolio. A balanced product portfolio helps you ensure you have the right mix of products to achieve your overall business goals. This snapshot also enables you to make informed decisions, such as which product to invest in, develop, or even phase out. These decisions significantly impact the company’s finances and guide you in building your product portfolio correctly.
How to Build a Product Portfolio with Examples
As we have discussed, a well-defined product portfolio can help strategically position your products in the market, highlight their strengths, and improve your company’s profitability. Now moving on to building a robust product portfolio. Here’s a step-by-step approach to guide:
1. Define Your Goals and Objectives
Tesla aims to produce affordable mass-market electric cars and shift global dependence towards sustainable energy. Likewise, you should start by defining the purpose of your product portfolio, whether it is capturing market share, diversification, revenue growth, or brand recognition.
2. Inventory Your Products
Map all your existing products and services. This will help understand their strengths and weaknesses to identify gaps for innovation. You can segment your product lines based on relevant criteria like customer base or product type. Consider the following points while conducting a preliminary analysis to screen the products relevant to your business:
- Strategic Fit: How well does it align with your business goals?
- Market Fit: Does it meet customer needs and have strong demand?
- Profitability: Is it generating healthy revenue margins?
- Growth Potential: Can it be expanded into new markets or features?
3. Market, Customer, and Product
Try to know your customers as well as possible. Conduct primary research through surveys, interviews, or focus groups to identify your customers' needs and pain points. Watch for emerging trends and technologies and strategize how to position your product to stand out from your competitors.
You can further analyze your product portfolios based on the Boston Consulting Group (BCG) Matrix and classify your products as Stars (High Performers), Cash Cows (Money-makers), Question Marks (Wildcards), and Pets (Dying products).
- Market Growth Rate: The rate at which the market for your product unit changes over time, indicating whether the market size is growing, remaining stable, or declining.
- Relative Market Share: This measure compares your product unit’s market share to that of your largest competitor in the same industry. If the value exceeds one, you have one-upped your competitors, or vice versa.
Let’s take Amazon as a parallel to understand how its different products fall under the BCG Matrix. ↓
- Stars: They have a high market growth rate and relative market share. You should invest in these products to maintain your market leadership as they have a significant growth potential.
In Amazon’s case, Amazon Web Services (AWS) is the star product, dominating the market and continuing to grow significantly.
- Cash Cows: They have a low market growth rate but a high relative market share. They generate substantial cash flows for you to reinvest in other products.
While the subscriber growth is not explosive, Amazon Prime is a vital source of cash flows through its subscription-based revenue model.
- Question Marks: They have a high market growth rate but a low relative market share. You should determine their potential to turn into “stars” and strategically decide whether to invest or divest.
Amazon Fresh Grocery Delivery falls under this category. Since it’s growing exponentially, it might transform into a star, but it also faces stiff competition from traditional grocery stores and competitors like Instacart.
- Pets: They have a low market growth rate and a low relative market share. You should decide whether it is worth putting in efforts for revitalization or it is best to divest.
Do you remember Amazon Kindle Fire Tablets? When they first launched, the market was booming, but it soon fizzled out as the tablet market became less prominent. While Amazon still sells them, there have been no significant updates since 2015, placing it under the pets category.
4. Resource Allocation
Prioritize your resource allocation based on the product evaluation and allocate their respective budget, personnel, and technological support.
5. Product Development and Management
It is an iterative process where you create product roadmaps for each product, outline future development plans, conduct research and analysis, and implement continuous improvements based on feedback.
You can streamline this process by leveraging Houseware, a product analytics tool, over your existing applications or data warehouses or integrating it with CDP platforms.
You can use Houseware’s Cohorts feature to segment users based on specific metrics like demographics and conduct further analysis on smaller targeted groups. Using the Trends and Flows feature, you can monitor the user journey, in-app behaviour, and product performance over time. Integrating such data analytics tools can help you prioritize areas of improvement efficiently.
6. Monitor and Adapt
The market and customers' needs constantly evolve. They push you to evolve and do better. Track and monitor your product’s performance continuously, and be prepared to pivot anytime.
How to avoid the common pitfalls
Even the most seasoned businesses can encounter challenges when building a product portfolio. Follow these tips and avoid repeating the mistakes made by these renowned companies.
1. Ignoring Customer Needs
Introducing new products based on the internal team’s assumptions can be detrimental. With skewed insights, you might end up solving problems nobody had in the first place.
Google+ was one such product that missed the mark regarding user needs. The most evident issue was that it was unsure of its target audience—the platform catered to the organization's needs, not the public. The interface appeared cluttered, and the language was overly Google-centric.
Pro-tip: Perform primary research. Gather customer feedback through surveys, interviews, and user testing and integrate them into product development. Iterate the process if necessary based on user needs.
2. Not Keeping Up With the Trends
Keep a lookout for emerging trends and technologies. Staying ignorant of upcoming innovations can disrupt your core products and offerings.
A classic example of this situation is Kodak. It dominated the photography industry for decades but failed to adapt to the new technology—digital photography. It clung to its traditional film business model and soon announced bankruptcy in 2012.
Pro-tip: Don’t be afraid to take calculated risks. Be adaptable and agile. Keep a close eye on how your competitors are responding to new technology. Invest in market research and your employees. Encourage them to stay updated with emerging trends.
3. Underestimating New Product Risks
While experimenting is good, committing to a product without fully considering the potential problems can lead to missed improvement opportunities, resource waste, and a damaged reputation.
Amazon Fire Phone was a major flop, costing the company a $170 million loss. The product was poorly planned and had too many unnecessary “innovative” features added.
Pro-tip: Get proof-of-concept, build prototypes, or run simulations. Once you decide it’s worth it, invest resources in further development and utilize a phased launch strategy to minimize risk.
Applications of a Balanced Product Portfolio
A balanced product portfolio includes products at different stages of their lifecycle and with varying risk and return profiles, ensuring opportunities for future growth.
Let’s explore a few instances of how this is applied to achieve specific benefits:
Mitigating Risks and Maximizing Cash Flows:
Not all products are the same. Some may be high-growth with uncertain returns, while others may be cash cows. A balanced portfolio ensures you have both. Consistent revenue can save the company from financial blows due to economic fluctuations or failed new products.
Market Segmentation:
You can address a broader range of customer segments. Your established products already have a loyal user base, and growing products can attract new users, resulting in increased market share and brand awareness.
Fund Your Research and Foster Innovation:
A balanced portfolio allows you to capitalize on new opportunities. You can reinvest your profits in research and development for new products and stay competitive in the dynamic market.
How Data Analytics and AI Optimize Product Portfolio Management
Product Portfolio Management (PPM) is undergoing significant changes due to the integration of data analytics and AI tools. These tools empower businesses to make informed decisions—decisions backed with data. Today, these tools have many applications. Sentiment analysis, for example, provides information on the general sentiment of your user base regarding your products. You can even perform predictive analysis, get a hint on emerging trends, and stay ahead of the curve.
Houseware, an AI-powered third-gen product analysis tool, can be a business companion and make your life much easier. It easily integrates with your existing data warehouses and performs analysis while maintaining data integrity and security.
It is non-coder friendly and saves the time you spend building queries. Through data visualization, you can explore your data and discover insights you can capitalize on. The tool offers features like Funnels, Flows, Trends, and more that can help you perform tailored analysis on your data.
Curious? Learn how to unlock the full potential of user data generated on your application, website, or warehouse. Connect with us to book a demo.
Conclusion
A product portfolio is your company’s menu card showcasing all its products and services. Before you start building your portfolio, think about what you want to achieve through the process—your primary objective—and how your portfolio can stay balanced with offerings from every stage of the product life cycle. Be adaptable to new technologies and leverage them as best you can.
