Today, M&A deals are at an all-time high as companies increasingly seek opportunities to capture market share and complement product portfolios. However, after years of bolt-on or more substantial acquisitions, too many companies can find themselves with dozens of brands and overlapping product lines.
To thrive, companies must resist the urge to launch new and protect old product lines and instead optimize their existing portfolios. Several consumer goods companies, for example, have achieved revenue growth two to five times higher than their historic norms by managing their portfolios more effectively.
Portfolio optimization is never a simple task, but is complicated today by the trend of product proliferation and the fact that organizations have few internal resources or time to devote to such an undertaking. Below are 4 critical tips for portfolio optimization for multi-product lines:
1. Establish and Follow a Carefully Defined Process.
A research-driven, formalized approach to portfolio optimization can make all the difference between a rigorous analysis and a trial-and-error game. A carefully defined portfolio analysis will provide a holistic view of the entire product portfolio, reveal potential areas of cannibalization, and highlight areas for additional investment or development. For example, this portfolio optimization process suggests mapping product offerings by price and customer segment to reveal areas of overlap and additional opportunities:
2. Assess Each Product Line Individually.
Within larger companies, many product lines operate as independent silos. Therefore, it is important to evaluate each product line individually to determine strengths and limitations. Companies should have a good sense of brand awareness, customer preference, customer satisfaction, as well as attitude and usage studies for each product line.
3. Use Conjoint Analysis to Determine Cannibalization.
With a multi-product portfolio, overlaps between various products (in terms of customer segment and value) may exist. In these situations, companies can examine the relative brand and product strength of the overlapping products and should conduct conjoint analysis to determine whether two or more adjacent products are taking share and margins from each other.
In one case with a recent client, a $200M machinery manufacturing company, a previous acquisition had resulted in two product lines of industrial machine cleaners that had very similar features and extensive cannibalization. To determine which product line to retire, a Brand Opportunity Matrix was created to reveal which product was performing the strongest on product attributes that were of high importance to customers. In this company’s case, one line of cleaners clearly came out on top in terms of better performance across more important features. As a result, the company could sunset the poorer performing line and consolidate resources to further invest in the stronger product.
In this Brand Opportunity Matrix, it is clear that Brand A has better performance on high importance attributes.
4. Balance Economic Opportunity with Brand Reality When Evaluating Changes.
Once each individual product has been assessed and areas for overlap have been identified, companies can make a strategic decision on how to optimize the portfolio to decrease cannibalization, capture on available market share, and make additional investments. Changes that can be made include:
- Launch or acquire a new product offering
- Reposition the product to new customer segments or price ranges to avoid cannibalization
- Divest a product
- Extend a product into new segments
- Consolidate overlapping products
Companies can also consider industry trends, current and potential shifts in the competitive landscape, and revenue projections when determining how to restructure their portfolio.
Although portfolio optimization can be a complex and time-consuming process, companies will find that streamlining the product portfolio can result in increased efficiency, higher margins, and revenue growth.
