If you are serious about the company's development, you start to use new instruments with time. Perhaps this is how you came across the term "portfolio analysis" during your research. What is she? Let's check.
What is portfolio analysis?
Quite often in business publications you can find statements like: in the portfolio of this organization is…. It is then about the number or type of enterprises that belong to a given holding or corporation. Sometimes it is not a portfolio, but a company's portfolio. Knowing these terms makes it easier to understand what portfolio analysis is.
The portfolio method, i.e. the assessment of the assortment or the portfolio of the company or company. Thanks to it, you can better assess your resources against the background of market needs or competition. It is rather an instrument from the world of larger companies and corporations, although it can also be used, as an auxiliary, in the world of smaller players. The data obtained from the analysis is plotted on the coordinate grid. This allows you to see regularities and dependencies on the diagram or chart, and it makes it much easier to make a rational business decision. Often, the BCG matrix method is used to perform portfolio analysis. Near marketing audit portfolio analysis can be a great tool for building a brand strategy in many different areas at the same time.
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Portfolio analysis step by step
The portfolio method with the use of Boston Consulting Group matrices has been in use since the late 1960s. It is one of those marketing solutions that did not get old at that time. Under the complicated name and charts there is a simple and transparent in essence mechanism that can be applied to the operation of any company.
Portfolio analysis
In the first step, services or products must be placed in four fields. They are ranked by foot market growth and market share for a given category or product. The next four fields include those with a low and high rate of market growth with a simultaneous low or high market share.
For additional simplicity, the four fields are called:
- star,
- "Cash cow",
- question marks,
- "Crutches / difficult child".
These pictorial terms allow you to understand even better what exactly is portfolio analysis. As a result, it is possible to identify stars, i.e. entities whose share in the promising market is constantly growing and "milk cows", i.e. those services or goods that can be relied on because they have a large market share with a low rate of growth. More problematic places in the diagram remain to be discussed. This marked with a question mark means a small market share that is dynamically developing. This may suggest potential, but also the necessity to make large investments and unknown. Portfolio analysis is primarily used to identify "crutches". What are they? These are all those elements that have a small share in a small market that is developing poorly.
Portfolio method on the example of Nestle
Those who follow corporate business movements may sometimes feel that they don't make sense. Sudden movements can seem random and completely detached from reality. Meanwhile, usually what may seem incomprehensible from the outside is in fact based on facts and constitutes real sales support. Portfolio analysis is a tool that allows you to make such movements quickly and confidently.
Nestle is an international corporation with several dozen entities in its portfolio. Portfolio analysis allows you to quickly identify a star (Nescafe) and milk cows (the famous KitKat) among them. It is in them that such a company should invest the most, knowing that it can then generate large profits. The company's portfolio also includes products with a question mark, such as Nesquick and instant coffee. Competition in these segments may be too high for a strong marketing campaign to pay off, and growth prospects are uncertain. However, the worst situation is when it comes to Nestea tea. Very strong competition in a market that is not developing makes it possible to even think about removing this brand from the portfolio.
Macro and micro-environment and portfolio analysis
Portfolio analysis, in a way, includes some elements of macro- and micro-environment analysis, but it can be performed independently of them. On the other hand, the analysis of the macro-environment is an assessment of factors of a wide range, such as trends, social or political changes, market penetration. The micro-environment of the company is, in turn, what is closest: customers, suppliers or competitors.
Portfolio method
As you can see, the portfolio analysis focuses more on the market shares themselves and its development prospects. However, it does not analyze the causes of these or other trends. Based on it, important decisions can be made that will affect everything: from customer lifetime value if branding "Stars" and those less popular products, to the pricing policy and finally rethinking the decision to have one or another entity in the portfolio.
