Product Portfolio

What is a 'Product Portfolio'

A product portfolio is 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. 

BREAKING DOWN '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.

RELATED TERMS
  1. Contribution Margin

    A cost accounting concept that allows a company to determine ...
  2. Investment Product

    A product purchased with the expectation of earning a favorable ...
  3. Product Life Cycle Management

    The observation of an item as it moves through the typical stages ...
  4. Production Efficiency

    1. An economic level at which the economy can no longer produce ...
  5. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  6. Wide Variety

    A merchandising strategy in which a retailer stocks a large number ...
Related Articles
  1. Products and Investments

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  2. Stock Analysis

    Looking to Invest in Coca-Cola? Here's What to Expect (KO, PEP)

    Learn about the Coca-Cola company as well as the industry in which it operates. Understand what its investors should expect of the company.
  3. Professionals

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  4. Investing

    What's Behind the Decline in Productivity Numbers? 

    There are several theories and hypotheses about low productivity numbers in the American economy. This article examines some of them.
  5. Stock Analysis

    Top 5 Companies Owned By Coca Cola (KO)

    Discover the top five companies that Coca-Cola has ownership or an ownership stake in and how changing consumer tastes have influenced the majority of deals.
  6. Economics

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
  7. Stock Analysis

    Comparing Coca-Cola and Pepsi's Business Models

    Understand more about the Coca-Cola company and the PepsiCo company. Learn about the key similarities and differences that make both companies successful.
  8. Economics

    Understanding Product Differentiation

    Product differentiation is a marketing tool companies use to distinguish their products or services from the competition’s.
  9. Options & Futures

    Investing 101: Portfolios And Diversification

    It's good to clarify how securities are different from each other, but it's even more important to understand how their different characteristics can work together to accomplish an objective. ...
  10. Stock Analysis

    Analyzing Porter's 5 Forces on Coca-Cola (KO)

    Read about how to use the Porter's five forces model to evaluate the competitive landscape and how a large company such as Coca-Cola still has rivals.
RELATED FAQS
  1. How is a product line depth related to a product line?

    Understand what a product line is and why it's important to a company. Learn how product line depth is related to a company's ... Read Answer >>
  2. What is the difference between research and development and product development?

    Understand the difference between research and development and product development. Learn why a company would want to invest ... Read Answer >>
  3. What are some examples of Apple and Google's best-selling product lines?

    Understand what a product line is and what it looks like in the technology industry. Learn about specific examples of technology ... Read Answer >>
  4. How do companies with a large product portfolio use BCG Analysis?

    Understand what BCG analysis is, and learn how companies use the BCG Matrix to analyze the performance of their product portfolios. Read Answer >>
  5. How is the marginal cost of production used to find an optimum production level?

    Understand more about production cost calculations, and specifically how the marginal cost of production is used to determine ... Read Answer >>
  6. How can you calculate diminishing marginal returns in Excel?

    Learn more about production costs and applying the law of diminishing marginal returns using Excel. Find out more about how ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center