Balance Your Portfolio with the Product Portfolio Matrix
The product portfolio matrix is a handy tool that helps you make the right product portfolio decisions. This post explains how you can effectively apply it to manage a portfolio of digital products.
The Matrix Reloaded
The product portfolio matrix, also called growth–share and BCG matrix, wants to help you achieve a balanced portfolio, a portfolio that contains the right mix of young and established products. The matrix categorises products as question marks, stars, cash cows, and pets (also known as dogs). The picture below shows the grid with its four quadrants and product types; cash cows are represented by the dollar sign and pets by a cross.
Question marks are products with high growth that don’t yet deliver significant business benefits — be it generating revenue, selling other products or services, enhancing the brand equity, or saving money. [1] Stars show high growth and deliver the desired benefits. Cash cows are products characterised by low growth, but they offer plenty of business benefits. Pets, finally, exhibit low growth and offer few benefits. A sample question mark might be Google Translate and Apple Watch, a star Microsoft Surface, a cash cow Google Search and Microsoft Windows, and a pet the iPod family.
When you apply the product portfolio matrix to the offerings in an established company, you’d like to see a healthy, balanced portfolio with enough question marks and stars that have the potential to become cash cows. You also need sufficient cash cows that generate the desired business benefits at a comparatively low cost and are therefore able to help fund the development of new products, question marks, and stars. Finally, you’d like to minimise the number of pets, as they incur cost but deliver only limited benefits.
From Question Mark to Cash Cow
The quadrants of the portfolio matrix form an interesting relationship: Products start out as question marks. If they are to become successful, they have to develop into stars and then morph into cash cows. Both development steps require effort, time, and money. You may have to change or enhance the features, user experience, and architecture of the product; you may have to adjust the business model and opt for different marketing and sales strategies; and some products require a pivot — think of Youtube, which started out as a dating website, and Flickr, which was an online game before it became a photo-sharing website.
Once a product has become a star or cash cow, it is able to offer the desired business benefits. While stars still require substantial investment to sustain the growth, for example, more or improved features, cash cows need less money but still provide significant benefits, as features are largely incrementally enhanced. A revenue-generating product is now most profitable (hence the term cash cow).
Eventually, though, cash cows will lose their ability to provide business benefits and become pets. These products provide few benefits but still consume money to maintain them. The following picture shows the desired development sequence from question mark to pet.
As every successful product will become a pet and eventually die, it is crucial that you are able to replace ageing cash cows with stars and stars with question marks. At the same token, you must invest enough in new product development initiatives to generate new question marks — assuming that you want to grow organically.
Your product portfolio therefore requires regular adjustments, and portfolio management should be a common activity. As a rule of thumb, review your product portfolio once per quarter and initiate the necessary changes.
Product Portfolio Matrix and Product Life Cycle
As you may have noticed, the development sequence discussed above is correlated with the product life cycle: Question marks tend to be products in the introduction stage; stars are products in growth; cash cows are mature offerings; and pets are products in decline. The picture below illustrates this relationship.
Note that the picture above does not account for life cycle extensions — prolonging the life expectancy of a product by adding new features, optimising existing ones, creating variants, or taking it to a new market or market segment, for instance. Such a measure extends the product’s status as a star and prevents it from prematurely becoming a cash cow.
Read On …
To read the rest of this article and access the remaining tips, please head over to my website: https://www.romanpichler.com/blog/balance-your-portfolio-with-the-product-portfolio-matrix/
Learn More
To learn more about managing your product portfolio, attend my Product Strategy and Roadmap training course and read my book Strategize.
Notes
[1] I have tweaked the original product portfolio matrix by using business benefits instead of market share on the horizontal axis. When Bruce D. Henderson developed the matrix in 1970, he focused on revenue-generating products; digital products, as we know them today, did not exist. But many digital offerings do not directly generate revenue — take, for example, Amazon Kindle and Google Chrome. Instead, they provide different types of benefits to their companies, such as, help sell another product or service (Kindle books), collect data to learn more about user behaviour and build new products (Chrome), and tie the user into the company’s ecosystem (both products). Substituting market share with benefits makes the product portfolio matrix applicable to all digital products.
Source: https://www.romanpichler.com/blog/balance-your-portfolio-with-the-product-portfolio-matrix/
