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4 Product Portfolio Optimization Tips

Companies looking to grow their company often rely on their product offerings. Investing in product development allows them to build new offerings, enhance existing products, or even sunset poor-performing offerings.  

While investing in a product is a strong strategy, companies that offer more than one product must first take a step back and look at the larger picture: Their entire product portfolio.  

What is a Product Portfolio?  

Companies that offer more than one product have what’s referred to as a product portfolio. A product portfolio can consist of different products or services that customers can buy one or more of from a single company. For example, at Hanover, we provide research that analyzes companies’ brands, customers, products, and markets, depending on their required insights.  

Building an expansive product portfolio allows companies to grow and strengthen their competitive advantage. Multiple products allow companies to expand the value they can provide while also providing customers with the convenience of solving their needs through a single provider. One they know and trust.  

Thats is why companies should not solely focus their time and effort on one product, even if it is more profitable or well-known. Doing so may lead to short-term revenue but can stifle growth in the long run. Instead, companies need to develop a strong product portfolio optimization strategy that allows them to uncover gaps, identify opportunities, and develop a competitive offering that will be in high demand.  

What is Product Portfolio Optimization?  

Product portfolio optimization is a strategy to develop and offer products that maximize ROI and align with market needs. Rather than focusing on optimizing one product, the focus of this strategy is on the holistic product portfolio. It involves decisions and resource allocations that elevate the collective product suite for a more competitive offering and stronger market positioning. 

In fact, several consumer goods companies have achieved revenue growth two to five times higher than their average by optimizing their product portfolios. 

Importance of a Product Portfolio Strategy 

Portfolio optimization is never a simple task. It requires a lot of research, investment, and time but provides long-term health and stability for the company. Optimizing their product portfolio allows companies to: 

  • Uncover product overlap to consolidate offerings, avoid self-competition, and redirect resources toward building a stronger offering 
  • Identify hidden gaps in company offerings to develop comprehensive services. 
  • Increase market positioning by providing a robust product suite against companies with fewer capabilities. 
  • Identify poor-performing products and determine whether enhancing, consolidating, or sunsetting the product would improve the company’s position. 
  • Quickly respond to market trends and shifting customer needs. 

Product Portfolio Management Best Practices  

A step-by-step, research-driven approach to portfolio optimization can make all the difference between a data-backed strategy 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. 

Below are 4 critical tips to optimize your product portfolio: 

1. Assess Each Product Line Individually

Within larger companies, many product lines operate as independent silos. Therefore, it is essential to evaluate each product line individually. 

Companies should evaluate brand awareness, customer needs, customer satisfaction, and attitudes and usage data for each product line. This allows them to determine the strengths, limitations, and untapped opportunities of each product line. 

Here are some examples of questions to ask: 

  • How aware are customers of our brand and products? 
  • How do customers perceive our brand and products? 
  • What are our customers’ needs?  
  • Have customers’ needs changed, and how will they continue to evolve?   
  • How are customers using our product?  
  • Does the product address the need that led them to buy?   
  • Overall, how satisfied are customers with our current product?   
  • What is customers’ satisfaction with the different elements and features of our product?   
  • Will customers repurchase our product? Why or why not?   

 2. Evaluate the Collective Product Portfolio

Once you have data on each product, it is time to assess the products collectively. Identify all the markets and segments your company sells to and the total value your company provides. The goal here is to identify untapped opportunities. 

For example, this portfolio optimization process maps different product offerings by price and customer segment to reveal areas of overlap and additional opportunities: 

 

3. Identify Areas of Product Cannibalization

With a multi-product portfolio, overlaps between various products may exist, as seen in the image above. Sometimes, overlap can be beneficial; for example, one client might purchase two or more of your products. Other times, if the service or use case is too similar, your products might compete against each other for a sale. 

In these situations, companies should evaluate the brand and product strength of the overlapping products through a conjoint analysis. A conjoint analysis will determine whether two or more adjacent products are taking share and margins from each other. 

For example, a manufacturing company client’s acquisition resulted in two product lines of industrial machine cleaners with similar features and extensive cannibalization. To assess both products, we developed a Brand Opportunity Matrix to reveal which product performed the strongest. To measure, we assessed the various product attributes and how important they were to customers. 

The matrix showed that Brand A provided more essential features and better performance. As a result, the company could sunset the poorer-performing line and consolidate resources to invest in the stronger product. 

In this Brand Opportunity Matrix, it is clear that Brand A has better performance on high-importance attributes.

4. Develop a Product Portfolio Optimization Strategy

After assessing all products and identifying areas of overlap, it is time to develop an optimization strategy. 

The final portfolio strategy should focus on decreasing cannibalization, capturing available market share, and making additional investments for a more competitive product suite. 

Some potential changes 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 should think about market trends, competition changes, and revenue predictions when deciding how to change their portfolio. 

Although portfolio optimization can be complex and time-consuming, companies will find that strategically enhancing the product portfolio can result in increased efficiency, higher margins, and revenue growth. 

 

Ensure your Product Succeeds

Discover the common mistakes companies make and how to avoid them in the Critical Pitfalls of the New Product Development Process
Critical Pitfalls of the New Product Development Process
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