(the image shows a recent delivery of our Bubboz laundry bar soap to a customer in Iganga district)
A supermarket usually sells a wide variety of products. So we might say that a supermarket has a product portfolio. Now, each supermarket has a different kind of portfolio. The type of product a supermarket chooses to stock depends on many things like the demand of a certain product, product margins, business strategy
In any portfolio, you typically expect to see certain products. Some products are cash cows and are usually stable mature products that generate lots of cash. For example in a hardware store, a cash cow may be a product like cement. Volumes are high even though profit margins may be small.
Some products are growth products. These are typically new innovative products with high growth rates and tend to have higher margins. For example, Amazon now offers cloud computing services to its customers aside from the traditional online vending.
We might also have loss leaders. These products are sold at a price that loses money for the firm. Loss leaders help to fend off competition and lure in customers. For example, many supermarkets lose money selling things like milk and bread. However, they know that once a customer buys milk they may also buy a beer that is highly-priced.
Niche products are offered to a small group of customers just to keep them happy.
The idea is to design a product portfolio that maximizes profits while reducing risk within the scale constraints you operate in. For example, in our cottage business, we now have five products being offered to different customers. Our food condiments are offered to students in schools to spice up their food. Our tamarind juice is offered to people who desire to live a healthy lifestyle. Our laundry bar soap is a value offering to people who want a good deal for their money.
Each product within a product portfolio represents an additional income stream and separate business line. As the business grows it may be necessary to allocate separate resources and teams behind each brand. However, you should be careful to manage scale because each additional product increases the complexity of running the business. At a certain stage, you may have to spin off separate companies to manage similar products. For example, the Mukwano group in Uganda has separate companies to manage the plastics division, the soap products, the cooking oil, the water, tea leaves, real estate, etc.
A well-designed portfolio will enable you to maximize returns because you’re appealing to more people. It’s also a good way to have internal diversification which can protect your cash flows in case one of your products suffers in the market.