Portfolio analysis - in marketing this concept is understood as a tool that helps to determine the economic condition of an enterprise, the justification of certain investments in various fields of activity. As a result of the analysis, investments in non-profitable areas are “curtailed” or reduced, investments in promising departments of the company are renewed or increased.
The purpose of portfolio analysis is to agree on the best strategies of the company and the correct distribution of cash resources.
Portfolio Analysis Methods :
The most common methods in this area are various matrices. Widely used by six matrix methods:
1) BCG - the essence of the methodology is reduced to the analysis of market share and enterprise growth rates .
2) IWC - the mission of the enterprise and the core competence of the business for compliance are compared.
3) McKinsey - an assessment of the attractiveness and competitiveness of an enterprise in the market.
4) Shell - calculates the attractiveness of the industry based on competitiveness
5) Ansof - analyzes the strategy and its applicability to the market and products.
6) ADL - using this matrix, an analysis is made of the life cycles of the company and the market position relative to competitors.
Stages
The process through which portfolio analysis passes is usually divided into several important stages:
1) Definition of company divisions
2) The choice of analysis method
3) The collection of information that will be needed in the process of compiling the matrix
4) Matrix construction
5) Development of a new strategy based on the analysis.
The information collected for portfolio analysis may include:
1) The condition and the possibility of developing industries that are involved in the process of the company.
2) Enterprise competitiveness
3) Life cycle, stage of the life cycle of a company.
4) The share of company departments in the market.
Portfolio analysis provides answers to the most important questions on the work of the company. These include:
- What is the competitiveness of the enterprise?
- How balanced is the distribution system of the product on the market?
- What is the maximum number of markets a company can cover in the course of its activities?
- The life cycle of each of all existing areas of the company.
- The receipt of what type of product is most justified?
- What industries should be closed or modernized in the future?
- Is it worth it to bring new products to the market in the near future?
- What is the size of the investment that is currently ideally suited for a particular product group?
- What production and marketing strategies should be implemented in the near future?
After the analysis, conclusions can be drawn that will subsequently affect the development of the enterprise. A decision can be made to diversify the enterprise, that is, to implement a strategy in which new products and services are developed and brought to market. Diversification has several subspecies:
Bound and unbound (conglomerate)
Associated diversification, in turn, is divided into several types:
- Vertical is inverse and direct
- Horizontal acts on expanding the range of products or on the geographical expansion of territories.
Portfolio analysis. Example.
The company is engaged in the production and sale of baby food - mixtures, cereals, mashed potatoes, juices.
Periodically, the company needs to find out whether this or that product is popular among consumers, whether it is worth launching new products on the market, what types of baby food can be removed from production altogether due to low demand, and how strong the competition is in the baby food industry. To answer all these questions, it’s worth conducting a portfolio analysis.
Data is collected from stores selling baby food, profitability, costs, competitiveness, etc. are calculated. Based on the analysis, it turns out that competitive cereals for children are bought faster, and the juices of the company in question are not in demand at all. The first group of products needs marketing improvements - a new look for packaging, a variety of tastes, etc. The production of the second group will be best stopped altogether so as not to remain at a loss.