What Is a Product Portfolio?

A product portfolio (or product mix) refers to all product lines and product items that an enterprise provides to the market. ^[1]

Product Portfolio

The product portfolio includes four factors: the width, length, depth of the product line, and the relevance of the product line. The difference of these four factors constitutes different product combinations.

Product Portfolio Interrelation

There is a certain relationship between enterprise product lines, that is, there is a certain relationship between various product lines in terms of end use, production conditions, sales channels, or other aspects. The degree of correlation between these various product lines is called Relevance. The following connections are generally made:

(1) These products meet the same needs;

(2) These products are complementary and can be used together;

(3) The sales of these products are the same customer;

(4) These products are sold through the same broker;

(5) These products are sold at the same set of prices at different price levels.

A product combination is a combination of various product series sold by an enterprise or company, including all product series produced by the manufacturer or all product series distributed by the commercial sector, and also refers to the entire product combination mode operated by an enterprise.

Product portfolio follows principles

The company's product mix should follow the principle of promoting sales and increasing corporate profits. Generally speaking, broadening the product range is conducive to the full potential of the company, opening up new markets, and avoiding large risks. "Brightening the West", deepening the product line can promote the professional operation of the enterprise, meet more special needs, highlight its characteristics, strengthen the relevance of the product line, can strengthen the market position of the enterprise, and increase its competitiveness.

When companies make product portfolios, there are three levels of issues that need to be resolved, namely:

-Whether to add, modify or delete product items;

Whether to expand, fill and delete product lines;

The third is which product lines need to be added, strengthened, simplified or eliminated in order to determine the best product mix.

The choice of three levels of issues should follow the basic principle of not only facilitating sales but also increasing the total profit of the enterprise.

Product portfolio balance dynamics

Due to changes in market demand and the competitive situation, each item in the product mix will inevitably undergo differentiation in a changing market environment. Some products will grow faster, some products will continue to achieve higher profits, and some products will have higher profits. Tends to decline. If companies do not attach importance to the development of new products and the elimination of decline products, they will gradually emerge with unsound and unbalanced product portfolios.

To this end, companies need to constantly analyze the sales growth rate, profit margin and market share of each product item or product line in the product portfolio, determine the potential or development trend of each product item or product line sales growth to determine the use of corporate funds Direction, making decisions to develop new products and eliminate declining products to adjust its product portfolio.

Therefore, the so-called dynamic balance of the product mix means that the company should timely add new products that should be developed and phase out the decline products that should be withdrawn according to the prospect of changes in market environment and resource conditions, so that the company can still maintain maximum profits over time Product portfolio. It can be seen that timely adjustment of the product mix is a condition for maintaining a dynamic balance of the product mix. A dynamically balanced product portfolio is also known as an optimal product portfolio.

The dynamic balance of the product mix is actually a matter of dynamic optimization of the product mix, which can only be achieved by continuously developing new products and eliminating obsolete products. The formation of a product portfolio dynamic balance requires a comprehensive study of possible changes in corporate resources and market environment, changes in the growth rate, profitability, and market share of each product item or product line, and the changes that these changes have on the company's total profit The impact of the rate. This is a very complicated problem for a company with many product projects or product lines. The application of system analysis methods and electronic computers has provided a good prospect for solving the problem of product portfolio optimization.