The product life cycle portfolio matrix - Marketing Management

Product Life cycle Matrix in Strategic Management

The product life cycle portfolio matrix is specifically designed to deal with the criticisms that the BCG matrix ignores products that are new, and that it overlooks markets with a negative growth rate, i.e. markets that are in decline. Because of this, the product life cycle portfolio matrix includes a specific focus on the growth and maturity stages of the product life cycle in developing the portfolio technique. However, the same assumptions that underlie both the conventional product life cycle experience curves and the BCG growth/share matrix are also built into this model. These assumptions, which we have already witnessed, are repeated:
  • Products have finite life spans. They enter the market, pass through a period of growth, reach a stage of maturity, subsequently move into a period of decline and finally disappear.
  • Strategic objectives and marketing strategy should match the market growth rate changes to take advantage of the challenges and opportunities as the product goes through the different stages.
  • For most mass-produced products, costs of production are closely linked to experience (volume). Hence, for most types of products, the unit cost goes down as volume increases.
  • Expenditures – investment in plant and equipment and marketing expenses are directly related to rate of growth. Consequently, products in growth markets will use more resources than products in mature markets.
  • Margins and the cash generated are positively related to share of the market. Products with high relative share of the market will be more profitable than products with low shares.
  • When the maturity stage is reached, products with high market share generate a stream of cash greater than that needed to support them in the market. This cash is available for investment in other products or in research and development to create new products.

Building on these assumptions, Barksdale and Harris also highlight the additional issues which arise out of pioneering new products, which they label infants, and products in declining markets which they label as either warhorses (high share products in declining markets) or dodos (low share products in declining markets). The result is combined PLC/product portfolio model. This approach is based on the notions that both the initial and decline stages of the life cycle are important and, more specifically, recognizes that product innovations as well as products with negative growth rates are important and should not be ignored in strategic analysis. The result is an expanded (2 _ 4) portfolio matrix. The seven-cell matrix is composed of the usual four BCG categories plus the new categories as outlined.

Warhorses

When a market begins to exhibit negative growth, cash cows become warhorses. These products still have high market share and hence can still be substantial cash generators. This might require reduced marketing expenditure or it may take the form of selective withdrawal from market segments or elimination of certain models.

Dodos

These are products that have low shares of declining markets with little opportunity for growth or cash generation. The appropriate strategy is to remove them from the portfolio, but if competitors have already removed themselves from the market it may still be marginally profitable to remain. Timing is thus crucial.

Infants

These are pioneering products that possess a high degree of risk. They do not immediately earn profits and consume substantial cash resources. The length of the innovation can vary from a short time with consumer packaged goods to an extended period with a product that is innovative enough to require a shift in buying habits.

Barksdale and Harris combined PLC/BCG matrix

Barksdale and Harris combined PLC/BCG matrix

Life Cycle Portfolio Matrix

Product life cycle portfolio matrix

Product life cycle portfolio matrix

Uses and limitations of the product life cycle portfolio matrix

The developers of the matrix claim that it is comprehensive. Regardless of the level of analysis – corporate, business division or product/market categories – they suggest that the expanded model provides an improved system for classifying and analysing the full range of market situations. Classification of products according to this expanded model is meant to reveal the relative competitive position of products, indicate the rate of market growth and enable the configuration of strategic alternatives in a general sense if not in specific terms.

The key here is that it is only ‘general’. Barksdale and Harris admit that the new matrix does not eliminate the problems involved in defining, say, products and markets, or rates of growth. As with the other strategic planning tools, the benefits a company can achieve are only as good as the inputs upon which they are based.

It is claimed that it provides an improved framework that identifies the cash flow potential and the investment opportunity for every product offered by an organization. In addition, it helps conceptualize the strategic alternatives of all product/market categories of an organization.


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