Businesses NEED a variety if products
A product portfolio is a range of different products sold by a firm.
Most large firms will have different products at different stages of a products life cycle which gives them a balanced portfolio.
Some products will have reached their peak in sales - bringing in lots of money
with little investment
so these producs are most responsible for the businesses income (Revenue).
However at some point, these products will start to decline will of course have to be replaced. So firms need to have products in the Development and Introduction stages that will later grow and end up in the Maturity stage of which they would then take the place of the product that would have just gone obsolete. These products in the Maturity stage still need lots of investment.
Firms may try to extend the Life or Products in De
The Decline stage in a product life cycle is when the product is starting to become unpopular and its sales are decreasing.
However....some firms try to make that decline stage occur that bit later with some products. This kind of action extends a products life.
- Firms might decide to use an extension strategy during the decline stage in the products life cycle e.g changing its design or offering discounts on the products price.
If this extension strategy works, the product will make profit for longer (sales wont die down so quickly).
However, this means spending more money on the product - this takes away cash from other parts of the business.
Firms must strike a balance between investing money and supporting their old products as well as designing and marketing new ones.
Firms may broaden their product portfolios
Businesses may broaden (expand) their portfolios in order to fufill growth or to compete with other companies.
Firms can do this by:
> adding products to an existing range by developing new products similar to the current ones in that range. This is called line extension.
> increasing their range of products by developing completely new products; different to their current ones. This is called diversification.
**** Diversification reduces the risk of a decline in the sales of one product harming the business — less of a threat to the firms profits. ****
Basically, the sales of a product makes profit but no sales doesn't. If there is another product that is producing sales whilst another isn't, then the businesses profits wont be harmed. All good.