With consumer confidence at an all-time low and no end in sight to the cost-of-living crises, Komi Sarna and Emma Tavernor, consultants at Frog, explore how organizations can still find pockets of growth within their existing portfolios.
It’s an age-old dilemma for organizations: should we focus on maximizing our existing portfolio, or invest in expanding it? The answer is a bit of both.
But with consumer confidence hitting record lows, driven by rampant inflation and a protracted cost-of-living crisis, it’s a tricky climate for launching new ventures. With no end in sight, it’s more prudent than ever for companies to shift their focus to managing the performance of their existing offerings.
The common belief is that an expansive product portfolio will have a more positive effect on your top and bottom line. However, with increased product ranges comes increased complexity that reverberates from the production facility all the way through to sales and marketing.
The effects extend from procurement departments needing to purchase new materials (which can lead to up to an increase in cost of goods sold), through to added complexity for sales teams to identify and prioritize their efforts on the most valuable products. Many companies have unclear structures, taking a siloed approach to innovation and product management, resulting in constant reinvention and duplicated products.
Less is more
Take supermarkets. How many varieties of your favorite tea do you see on the shelves? Does 'zero-calorie, decaffeinated and organic tea' appeal more than 'standard branded tea bags'? Recently, a high proportion of product diversity has become the norm across all industries. Manufacturers are expanding their product portfolios to capture new revenue sources and competitive edge. However, more products bring more complexity, and higher costs.
A US consumer goods company increased the number of new products introduced annually by 60% in 11 years, resulting in significantly higher costs throughout their supply chains - but sales only grew by 2.8% per year, a rate only slightly exceeding inflation.
In 2003, Lego was heading this way too. By undergoing product diversity and innovation in response to the changes in the toy industry, they ended up in $800M in debt. However, with new governing structures, the portfolio was managed to stick to core products and profits soared to $600M a decade later.
In these uncertain times, focusing on optimizing your existing portfolio can provide an avenue for growth. Here's how:
1. Create a robust framework to assess and measure portfolio performance
Understanding the performance of your products is a critical step to effective portfolio management. Implementing a data-driven approach to capturing and storing financial and customer insight data will help accelerate your organization’s performance.
Leverage data to identify which of your products are category leaders, which ones generate sustainable return-on-investment and which have the most positive consumer sentiment.
Equally, identify which of your products are laggards in their category and aren’t performing well with consumers. These insights will empower your organization to make critical decisions on where to optimize your portfolio.
2. The customer is king
Despite the sharp downturns some brands like Lego face, some recover by focusing on the products which deliver the highest value to their portfolio, often streamlining products and undertaking detailed audience research.
Understanding your customer and their needs is key to unraveling where value lies within the products. You cannot provide everything to everyone; Lego learned that the hard way. However, by undertaking in-depth audience analysis using ethnographic studies, they found out how kids around the world play. In doing so, they were able to identify products that their audience truly valued.
3. Develop an effective governance model
Organizational design and management practices have a direct impact on performance. Misalignment of product and organizational structures creates unnecessary complexity - in particular the misalignment between product management and marketing. Companies continue to overlook marketing and sales in product decisions, despite holding valuable consumer insights that are integral to the decision-making process. Cross-functional working is critical to an organization’s success and a fully-optimized portfolio.
In a time of uncertainty, it's hard to predict what will happen next. Businesses want to keep costs low, but this becomes harder when businesses have complex product portfolios, with a huge variety of brands on shelves trying to gain competitive edge.
Understand your customer to identify what products are needed on the shelves, lowering costs, gaining organizational efficiencies, and retaining customer loyalty. Be patient and the long-term benefits will be even bigger.