Apr 162017
 

Well-managed Product Portfolios

Having survived the significant competitive battle of the growth stage, firms are looking for stability and ongoing profitability and to leverage their “cash cows”. It is also likely, in most well-managed firms, that they have now/since entered other markets and have new products in the introduction phase and growth phases as well. This means that they would like to take their profits from a mature/cash cow market and reinvest in their new product lines – which create the future profitability. This concept is the main concept underpinning the Boston Consulting Group model/matrix.

Stable or not?

As an aid to the stability of the market, mature stage markets generally attract fewer new entrants, as there is less opportunity to gain new customers easily at an attractive acquisition cost. Also, smaller/weaker competitors may decide to exit the market and invest in more attractive new markets. Again in terms of the Boston Consulting Group matrix, market followers in a low growth market are classified as “dogs”, which are typically low profit and low potential products.

However, one of the concerns with a mature market is that there is an incentive for a new competitor to “disrupt the market” with some breakthrough or innovative offering that provides a need/solution in a different form (which is probably how this particular market started anyway). A new product offering, entering the introduction phase of the product life cycle, would generally compete against mature stage products. Therefore, products and firms competing in a mature market, while protected from intense existing competitive battles, may face potential long-term challenges from new product solutions.

As a consequence, it is important that firms keep considering the longevity of their operations and product offerings and do not become too reliant on the core product profit contributors. They always need to be thinking about the future and about bringing on new products that compete in the introduction and growth stages of the product life cycle.

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