DEFINITION of 'Product Portfolio'
The collection of different items a company sells. Within the product portfolio, each item typically makes different contributions to the company’s bottom line. Some products cost more to produce, some are increasing their market share (or losing market share) at a faster rate, some bring in more revenue and some have greater marketing expenses.
INVESTOPEDIA EXPLAINS 'Product Portfolio'
Managing a product portfolio entails analyzing consumer behavior to determine how to expand with new products and how to improve profitability by removing underperforming or money-losing products. A broader product portfolio offers consumers more choices and gives a company more opportunities to capture consumers with different needs and tastes.
For example, Coca-Cola’s product portfolio consists of regular, low- and no-calorie beverages including sodas (e.g., Coca-Cola and Coke Zero), energy drinks, still and sparkling waters (e.g., Dasani), juices and juice drinks, sports drinks (e.g., vitaminwater) and bottled teas.
A key decision for any company with a product portfolio, as opposed to a single product, is how to allocate investment to each product based on its market share and its market growth rate. Based on their performance in these two areas, the items in a product portfolio can be divided into four categories:
- High-growth, high market-share products (“stars”)
- Low-growth, high market-share products (“cash cows”)
- Low-growth, low market-share products (“pets” or “dogs”)
- High-growth, low market-share products (“question marks”)
Each requires a different strategy and level of investment. For example, companies will invest more in high-growth products, even though this might mean minimizing profits in the short term, in the hopes that these products will become cash cows, which generate more cash for a lower level of investment compared to other products in the portfolio. Companies might also decide to sell their dogs/pets, which don’t generate a profit beyond the investment required to maintain them.
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