4.1 The Product Portfolio
A company answers the question “What should we offer to consumers?” with its product portfolio.1 The product portfolio is where marketing and strategy intersect.
When it comes to product portfolio decisions, every business exists in a constant state of tension: on the one hand, the firm should be constantly monitoring its market, its competition, and its own Research and Development efforts to identify opportunities to either expand, contract, or eliminate existing offerings, or to launch completely new ones. At the same time, it must avoid the distraction of rushing out to chase every new fad or “bright shiny object” on the business horizon.
Company leaders are often ambitious people by nature; indeed, their initiative, drive, and bias towards action-taking likely helped them land their current positions. Typically, therefore, they will show an innate bias or inclination towards expansion. This is not necessarily a bad thing – but it’s something for boards and shareholders to be mindful of.
All decisions involving the product portfolio involve risk. In hindsight, of course, everyone is very talented at assessing company decisions. When an expansionary initiative succeeds, it will be hailed as a “bold strategic move” and the CEO’s visionary capabilities will be praised. When the initiative fails, the inevitable interpretation will be that the firm drifted away from its “core competencies” and must return to its roots.
As for its current, existing offerings, the decisions that a company makes to either retain or to abandon existing lines of operation are quite complicated.
If a business has ten separate operational units, it might seem tempting to just rank them by profitability, and then retain the best ones while dropping the worst ones. From a product portfolio perspective, though, this may not always make complete sense – there may be reasons for companies to retain less-profitable lines of operation, perhaps as a hedge against future uncertainty (this can be seen much like a portfolio of stocks – most experienced investors would not simply base their decisions on recent share performance).
Another type of tension arises when we consider the push-and-pull between a business wanting to please its customers (by offering more product choice) vs. a business wanting to simplify its operation and avoid overwhelming its customers with too many options (and therefore limiting the range of product choices).
If a business wishing to be “everything to everyone” expands its product line too far, it may strain its supply chain, burden its employees with the need to understand each offering, and ultimately just confuse its market.
1 Here, we will use the word ‘product’ as an all-encompassing term that can include both products and services.