The concept of the Product Market Portfolio and how it can be applied to any firm as part of a strategic Plan

1. The Product Market Portfolio (B.2.2)
Creating and Presenting Strategic Plans
Part 1 of 2

2. •Competitive position: leader or follower?
•Scale: value to portfolio?
•Growth rate: high or low?
•Maturity: development, growth, maturity, decline?
Product-Market Matrix lacks Dynamism

3. What are the strategic determinants of a
superior cash position?
Bruce D. Henderson

4. •Relative market share (RMS)
•Market growth rate (MGR)
•Value of annual sales
Determinants of a Superior Cash Position

5. Your firm’s market share
Your firm’s largest rival’s market share
RMS =
Relative Market Share (RMS)

6. Mobile telephones Vodka
Competitor Market share Competitor Market share
A 40% Z 20%
Which Firm is Stronger Strategically: A or Z
B 60% Z1 to Z80 1%
Total 100%% Total 100%%

7. Mobile telephones Vodka
Competitor
Market
share
RMS Competitor
Market
share
RMS
A 40% 0.67 Z 20% 20.0
B 60% 1.5 Z1 etc 1% 0.05
Which Firm is Stronger Strategically: A or Z

8. Chairs
Competitor Market share RMS
A 20% 20/40 =0.5
B 40% 40/20=2.0
C 20% 20/40=0.5
D 10% 10/40=0.25
E 10% 10/40=0.25
Mental Arithmetic: What are the RMSs

9. The Product Market Portfolio (B.2.2)
Creating and Presenting Strategic Plans
Part 2 of 2

10. •Relative market share (RMS)
•Market growth rate (MGR)
•Value of annual
sales
Let’s put them on a matrix
Determinants of Strategic Position

11. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
•RMS
•MGR
•Ann Sales
The Product Market Portfolio

12. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
•RMS
•MGR
•Ann Sales
The Cash Characteristics
++++++
-
+++++
++++
- - -
+
++
- - -
- -
- - - - - -
+
- - - - -
12
3 4

13. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
•RMS
•MGR
•Ann Sales
++++++
-
+++++
++++
- - -
+
++
- - -
- -
+
_ _ _ _ _
_ _ _ _
The Cash Characteristics & Names
Small cash
surplus
Large cash
drain
May be large
cash drain
Large cash
surplus
Problem
children
DogsCash cows
Stars
_ _ _ _
D
A
B
C
E
F
12
3 4

14. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
The Product Market PortfolioThe Cash Characteristics & Names
201X
A
B
C
D
F
E
201Z
PMP in 201X and 201Z

15. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
•RMS
•MGR
•Ann Sales
The Product Market PortfolioIdeal Movement of Product A Over Life
2007
7
A
A
A
A
A

16. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
A
B
C
D
E
Ideal Movements of Cash

17. Market
growth
rate
High Low10.0 0.101.0
High
Low
5%
10%
0%
Relative market share
D
F
E
A
B
G
C
An Unbalanced Portfolio

18. 2005 Qantas PMP

19. •Build market share: problem child, star
•Sell or divest the product: dog, problem child
•Harvest dog, selected problem child, cash cow
•Hold market share: cash cow
Strategies for Each Category

20. •Correlation of RMS and profitability
•Location
•Technology
•Efficiency
•Only high RMS is desirable
Possible Issues with the Matrix

21. 1 2 3 4 5=2/4 6
Product Sales
Name
largest rival
Sales
largest rival
RMS
Ann Mkt
Gr Rate
(%)
Total Sales
For the matrix
Constructing a PMP
One table for each year
(Built from B.1. Product Market Matrix)

22. Leader Follower
Market
growth
rate
High
Low
High Low1.0
RMS
Blank PMP to Display two Years

23. The End
Parts 1 and 2

24. The End

25. The Product Market Portfolio (B.2.2)
Creating and Presenting Strategic Plans
Part 1 of 2

28. Leader Follower
Market
growth
rate
High
5%
10%
Low
0%
High Low10.0 0.101.0
RMS
•RMS
•MGR
•Ann Sales
The Product Market PortfolioPMP in 201X
201X
A
B
C
D
F
E

29. Mobile telephones MP3 Players
Competitor Market
share (%)
Relative
market
share
Competitor Market
share (%)
Relative
market
share
A 40 0.67 Z 20 20
B 60 1.5 Z1 1 0.5
Z2 1 0.5
Z3 1 0.5
....
Z80 1 0.5
Chapter 9
Chapter 10
Chapter 14
Chapter 11
Chapter 17
Chapter 16
Chapter 15
Chapter 12
Chapter 13
Q. Which competitors, A or Z is
strategically stronger?

30. Low
Unit cost of
A
Unit cost of
B
RMS of BRMS of A
High
Low
Chapter 9
Chapter 10
Chapter 14
Chapter 11
Chapter 17
Chapter 16
Chapter 15
Chapter 12
Chapter 13
The strategic position of A and B
Prevailing unit price
Unit cost
Profits/cash
for A
Profits/cash
for B
High
Unit cost and
price
RMS

31. Low
Unit cost of
Z’s largest rival
Unit cost of
Z
Z’s RMS
RMS of Z’s largest rival
High
Low
Chapter 9
Chapter 10
Chapter 14
Chapter 11
Chapter 17
Chapter 16
Chapter 15
Chapter 12
Chapter 13
The strategic position of Z
Prevailing unit price
Unit cost
Profits/cash
for smaller
rival
Profits/cash
for Z
High
Unit cost and
price
Volume or RMS