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Product Portfolios aqa

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Exam code:8132

New product development

A product portfolio is the range of products or services offered by a business
One way to grow the product portfolio and stay ahead of the competition is by developing new products and innovating existing ones
The process of new product development involves a number of important stages:

The product development process

Flowchart with five steps: Generate Ideas, Select the Best Idea, Develop a Prototype, Test Launch, Full Launch, in connected blue hexagons. — New product development is a lengthy process that typically involves generating ideas, developing prototypes and conducting test launches prior to the full launch

1. Generate ideas

New product concepts are discussed and brainstormed using customer suggestions, ideas from competitors’ products, employees’ ideas and information collected through market and technical research

2. Select the best idea

Ideas are weighed up with some dropped and others chosen for further research
This decision relates closely to costs and likely demand
Research includes looking into forecast sales, size of market share, and cost-benefit analysis for each product idea

3. Develop a prototype

This is an early version of the actual product
This allows the operations department to see how the product can be manufactured, any problems or difficulties arising from its production and how to fix them
Computer simulations are often used to produce 3D prototypes on screen

4. Test launch

The developed product is sold to on a small scale to a limited market to see how well it sells before its full launch
Changes may be needed prior to an expensive, large scale launch
Digital products like apps and software run beta versions, which is a method of test-launching

5. Full product launch

The finalised version of the product is launched to the entire target market

Costs and benefits of new product development

Costs	Benefits
Market research collection and analysis related to the new product is often time-consuming and expensive	Sell more products/services to existing customers Making the most of existing relationships is cheaper than finding new customers
Investment in research, development and design can also be very expensive, and is likely to require specialist staff	Developing new products spreads fixed costs, like premises or salaries, across a wider range of products
The costs of producing trial products, including the costs of wasted materials, can be significant, especially if innovative materials and components are used	Diversifying the products it offers means a business is less reliant on certain customers or markets
Low sales if the target market is wrong or if market or technical research leads to the development of an inappropriate product or service for the market	Can create a unique selling point by developing a new innovative product for the first time in the market This USP can be used to charge a high price for the product as well as be used in advertising
Damage to the brand and other products in the portfolio if the new product fails to meet customer needs	Charge higher prices for new products Pricing methods, such as price skimming, can be used for innovative new products

The Boston matrix

The Boston Matrix is a tool used by businesses to analyse their product portfolio
- The model can help managers make strategic decisions about each product within the portfolio
It classifies products into four categories based on their market share and the market growth rate
- Cash Cow
- Problem Child/Question Mark
- Star
- Dog

The Boston Matrix helps businesses have a balanced product portfolio
- Profitable cash cows fund the development of problem children and ensure stars receive the investment they require to maintain their market leader position
- Unprofitable dogs are divested to increase focus and funding on products with more potential

The Boston matrix

BCG Matrix showing market segments: Stars (high growth, high share), Question Marks (high growth, low share), Cash Cows (low growth, high share), Dogs (low growth, low share). — The classification of products in the Boston Matrix according to their market share and the growth rate in the market as a whole

By categorising products into these categories, businesses can allocate resources more effectively, improve their cash flow and develop marketing strategies that align with the product’s potential

The four types of product in the Boston matrix

Product Type	Explanation	Implications
Cash cow	Cash cows are products with a high market share in a mature market (the entire market is no longer growing)	They generate significant positive cash flow but have low growth potential They need minimal investment and are stable sources of income Marketing efforts focus on maintaining their market share and profitability Cash cows are valuable assets and can be used to fund the development of new products
Problem child/question mark	Problem child or question mark products have a low market share in a high-growth market These products have the potential to become stars if the company invests in their development	There is often a negative cash flow as businesses invest in problem child products to increase their market share and turn them into stars Marketing efforts focus on increasing their market share and brand recognition
Star	Star products have a high market share in a high-growth market The company typically invests in stars to maintain or increase their market share	They generate significant positive cash flow and have potential for continued growth Marketing efforts focus on building brand recognition and increasing market share Stars are valuable assets and the business should focus on maximising their potential
Dog	Dog products have a low market share in a low-growth market	They generate little revenue for the company and have no growth potential Businesses often move away (divest) from these to focus on more profitable products Marketing efforts for dog products are minimal or zero

Examiner Tips and Tricks

You will not be required to construct your own Boston Matrix in the exam, but you must be able to define and describe the features of each type of product.

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