Competition and Product Strategy

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Slide 5.1
Chapter 5
Product portfolios
- Krishna Unadkat, MEFGI
Slide 5.2
Agenda
• The concept of product portfolios
• Assessing the contribution of individual products
• Boston Consulting Groups (BCG’s)
growth-share matrix
• Criticisms of portfolio analysis
• Shell’s directional policy matrix
Slide 5.3
Product Portfolios
In order to survive firms need to practice three
strategies simultaneously – market penetration,
market development, and product development.
While the single product firm may enjoy a long life
cycle, ultimately it will go out of business if it doesn’t
innovate.
Ideally, the firm should have a portfolio of products
each at a different stage of its life cycle.
Slide 5.4
The BCG growth-share matrix
The BCG matrix, or Boston Box, was developed by
Bruce Henderson from his observation that increased
experience led to lower manufacturing costs.
Factors:
•The learning curve
•Specialization of labour
•Process Innovations
•New Materials
•Product Standardization
•Product Re-design
Slide 5.5
The growth-share matrix
Market share
High
High
Low
2
1
3
4
Market
growth
Low
Slide 5.6
Relative competitive position
High
High
Low
Star
Question
mark
Cash
cow
Dog
Annual
market
growth
rate
Low
THE BOSTON BOX
Slide 5.7
Criticisms of the Boston Box
The major weakness of the Boston Box is the implicit assumption
that firms compete at the product category or industry level, e.g.
cars, detergents, in pursuit of a cost leadership strategy. But,
only one or a small number of firms can use size (market share)
as a competitive advantage.
Accordingly, the majority of firms compete through a strategy
of product differentiation so as to create a monopoly over that
segment of the market represented by their loyal customers, i.e.
they compete at the individual product level. Under these
conditions the concept of ‘market’ share is irrelevant.
Slide 5.8
The Box as an analytical device
While it is difficult to use the Boston Box as a tactical
planning tool, it is an important device at the strategic level:
1. It reinforces the inevitability of change implicit in the product
life cycle (PLC) concept.
2. It underlines the importance of having a portfolio of products
at different stages of their life cycles.
3. It requires formal consideration of the competition and their
relative standing.
4. It is intuitively appealing and simple to implement conceptually.
Slide 5.9
Shell’s Directional Policy Matrix (DPM)
The DPM is one of several models developed to aid
strategic analysis of markets.
It is based on two key parameters:
* The Company’s Competitive Capabilities
* The Prospects for Sector Profitability
These parameters are usually established by means of
a conventional SWOT analysis and marketing audit.
Each parameter is divided into three categories.
Slide 5.10
The directional policy matrix
PROSPECTS FOR SECTOR PROFITABILITY
Company’s competitive capabilities
Unattractive
Weak
Average
Strong
Average
Attractive
Slide 5.11
Business sector prospects
These are evaluated using the criteria most appropriate
to the markets involved. Among the more important are:
• Growth potential
• Profit potential
• Nature and degree of competition
• Threat of new entrants
• Threat of new substitutes
Slide 5.12
Company’s competitive capabilities
These are derived from the analysis of strengths
and weaknesses and include such factors as:
• Current market share
• Patent or trademark ownership
• ‘Know how’ – implicit knowledge
• Reputation
Slide 5.13
Strategic Indications
Prospects for sector profitability
Company’s competitive capabilities
Unattractive
Weak
Average
Strong
Average
Attractive
Disinvest
9
Phased
withdrawal
6
Custodial
Double or
quit
3
Phased
withdrawal
8
Custodial
5
growth
Try harder
2
Cash
generation
7
Growth
4
leader
Leader
1
Slide 5.14
GSM and DPM combined
Strong
Weak
Star
Question mark
Leader
Double or quit
Cash cow
Dog
Cash generation
Disinvest
Attractive
Unattractive
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