What do cash cows, stars, question marks, and dogs have to do with your small business?
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Probably more than you think they do. The health of your product line is directly related to your ability to your grow as a company, so unless you have an effective an effective product portfolio strategy you're going nowhere fast.
Your product portfolio is simply the mix of products and business activities that comprise your company. Ideally, your product portfolio should both leverage your company's strengths and exploit advantages in the marketplace. But before you can maximize your product portfolio's effectiveness, you first need to know how to classify your current products, and determine which products warrant the most focus and investment.
There are four broad product classifications you should be aware of. Although it is good practice to achieve a mix of these classifications in your portfolio, each class of products serves a different function, allowing you to tailor your portfolio to your specific business goals.
As the name suggests, stars are products that shine in the marketplace. They are high growth products that are recognized as leaders in the market. But to achieve consistent growth, they require continuous focus, energy, and investment from your company. Without it, they may lag or lose their market status under the strain of competitive pressure. Over time, the return on investment will level out as the growth rate decreases. When that happens, stars naturally progress to the next class of products: Cash cows.
Unlike stars, cash cows are generally low-growth products. But what makes cash cows unique is that they continue to enjoy a high level of market share. In other words, with a relatively small amount of investment cash cows yield a significant level of income. Often (but not always) cash cows are stars that have reached a level of maturity and are now reaping the rewards of prior investment. However, it is a mistake to assume that your cash cows no longer require close attention. In order to maintain their profitability, cash cows need to be closely managed if they are to remain profitable over the long term.
Question marks are not nearly as straightforward as stars or cash cows. Their ambiguity comes from the fact that their value lies primarily in their potential. Although they currently possess a low market share, question marks operate in high growth markets. With the right strategy, a question mark can quickly become a star, but only to the extent that the business owner is able to invest in the product to achieve a sizeable portion of market share. Since these products are inherently risky ventures, the trick is learning which question marks to invest in and which to abandon.
Not surprisingly, dogs are products that have little or no appeal for most business owners. They are low-growth products in a low-growth markets that offer no incentive for investment since (at best) dogs yield a break-even bottom line. Even though a healthy product portfolio should contain a mix of stars, cash cows, and question marks, your goal should be to weed out or minimize the number of dogs in your portfolio unless they are part of a broader marketing strategy (e.g. loss leaders).