PPM analysis
(product portfolio management analysis) is a method for classifying a company’s businesses, products, and services into two axes: market growth rate and market share, and
determining the investment allocation of management resources. This
will help you see where you and your competitors stand and plan your strategy.
In this article, we will explain the PPM analysis method, the meanings of flower shapes, money trees, etc., advantages and disadvantages, and specific examples of companies.
What is PPM analysis?
PPM analysis is an analysis method proposed by the Boston Consulting Group in the 1970s, and is an abbreviation for “Product Portfolio Management.”
It is a method for determining the investment allocation of management resources by classifying businesses, products, and services on coordinates consisting of two axes: “market growth rate” and “market share.”
PPM analysis classifies your business into the following four positions.
With these four positions, you can understand the future potential of your company’s business and visualize the sales gap with competing companies.
*Please refer to the link below for the explanation of PPM analysis terminology.
Terminology explanation [PPM analysis]
Meaning of the four positions in PPM analysis
Let’s take a look at the meaning of each of the four positions in PPM analysis.
Star
Hanagata has a high market growth rate and market share, making it a business that can truly be called “Hagata.”
Although it is easy to make a profit due to a high market share,
competition is fierce due to the high market growth rate
.
In order to overcome competition in the market, it is desirable to continue to make active investments.
For example, the development of software and applications in IT-related companies, and the distribution business of music and games on a subscription basis are some of the most prominent examples.
As soon as you hesitate to invest in such a business, your market share will be taken away by your competitors, and your position may be completely reversed from your previous advantage.
Continuous and proactive investment is essential to maintain market share and avoid being overtaken by competitors.
Cash Cow
The money tree has a low market growth rate and few new entrants, so competition is calm and active investment is not required.
On the other hand
, it has a high market share, making it easy to generate stable profits
.
Therefore, it is necessary to reinvest profits from businesses that are classified as cash cows, and to allocate them to star or problem businesses.
For example,
infrastructure-
related businesses such as railways, aviation, electricity, and gas fall under the category of money trees.
There are a limited number of new companies entering the market, and once they have established a system that generates profits, they can generate profits by simply performing the same tasks.
Surplus profits from business operations can be used to renovate platforms in the case of railway businesses, or to expand and renovate terminals in the case of airline businesses.
Electric power companies and gas companies can also use the money for capital investment, shareholder dividends, and business expansion in different areas.
Problem Child
Problem children have a high market growth rate, intense competition, and require active investment, but their market share is low, making it difficult to generate profits.
However
, if the market share can be increased, it has the potential to become a star or a money tree in the future
.
Therefore, it is important to actively allocate surplus funds obtained from other projects to projects that are classified as problem children.
For example, related businesses such as
SaaS
, online securities, and AI are problematic. These businesses are characterized by the difficulty of increasing their own market share even though the market is rapidly expanding.
The growth ranking by industry from 2021 to 2022 is as follows.
Source:
Industry Trend Search Growth Ranking by Industry
However, these industries have the potential to grow into stars if they can gain market share.
Dog
Losers don’t need to invest because their market growth rate is low, and they don’t even make a profit because their market share is low.
Since business growth is not expected, it may be
an appropriate business decision to liquidate the business and allocate the surplus funds to star or underdog businesses
.
For example, the publishing industry, manufacturing industry, and tourism industry fall under the category of losers. This is especially noticeable in the publishing industry, where the market share of paper media continues to decline year by year due to the spread of digital books.
Reference material:
Public Interest Incorporated Association, National Publishing Association, Publishing Science Research Institute, Publishing Sales in Japan
In the manufacturing industry, the number of companies introducing AI and robots is increasing year by year, and personnel reductions are progressing due to automation of manufacturing processes.
In addition, the market scale of the tourism industry has shrunk due to the new coronavirus. Although inbound tourists have returned, they have not recovered to pre-coronavirus levels, and the amount handled by major travel agencies has been shrinking in recent years.
Reference material:
Japan Tourism Agency Trends in handling amounts by major travel agencies
Additionally, there has been a noticeable decline in the number of Japanese tourists due to the declining birthrate and aging population, and these factors have made the industry unlikely to grow.
Advantages and disadvantages of PPM analysis
Let’s take a look at the advantages and disadvantages of performing PPM analysis.
Benefits of PPM analysis
The benefit of PPM analysis is that
it allows you to see the position of each of your company’s businesses and the position of your business’s competitors
.
This makes it possible to prioritize the investment allocation of management resources, making it easier to make business decisions such as strengthening, maintaining, or withdrawing from a business.
Disadvantages of PPM analysis
The disadvantage of PPM analysis is that it uses only a limited number of financial indicators, so it does not fully understand various aspects of the business.
For example, PPM analysis does not take into account indicators such as the experience curve from the production side at all, nor does it include the synergy effects of each business.
Also, since analysis is performed using only financial indicators, it is not suitable for starting a new business.
Due to these characteristics, business strategies based on PPM analysis are difficult to generate innovation.
Creating disruptive innovation in a company not only allows the company to influence the market and gain market share from competitors, but also contributes to raising the overall level of Japan’s technological innovation capabilities.
How to do PPM analysis
Let’s take a look at the analysis method of PPM analysis. The analysis method consists of the following four steps.
1. Calculate market growth rate
2. Calculate market share
3. Check the position of your business
4. Check where you stand against your competitors
Let’s check the details.
Calculate market growth rate
The market growth rate can be calculated by dividing the current year’s market size by last year’s market size.
Market growth rate = current year’s market size / last year’s market size
For market size data, statistical data published by public institutions and think tanks can be used.
If market size data is not available, you can estimate it (Fermi estimate) by dividing your company’s sales by its market share.
Calculate market share
Market share can be calculated by dividing sales by market size.
Market share = sales / market size
The important thing here is to calculate not only your own market share, but also that of your competitors.
Competitors’ sales figures can be obtained from the securities reports of some listed companies.
There are also sites that publish market share for each industry.
Check the position of your business
After calculating the market growth rate and market share, first display them in the PPM analysis coordinates for each of your businesses. This allows you to check the position of your business.
Check where you stand against your competitors
Next, for each business, display the PPM analysis coordinates between your company and your competitors. This allows you to see where you stand in the market compared to your competitors.
Examples of PPM analysis of companies
Below, we will explain an example of PPM analysis of an actual company from a third-party perspective. Please refer to it when actually performing PPM analysis of your company.
Kao’s PPM analysis example
At the University of Distribution Science, we analyze Kao’s management and competitive strategies using PPM analysis. Kao’s product status in 2012 is expressed as follows using PPM analysis.
Flower shape:
“Household/furniture detergent” “Soap” “Bath additives” “Shampoo/Body shampoo” “Make-up products”
Money tree:
“Powdered clothing detergent,” “antiperspirants,” “hair care,” and “skin care products.”
Problem child:
“Mild incontinence products” “Baby diapers” “Hand soap” “Toothbrushing” “Sanitary products” “Liquid laundry detergent”
Loser:
“Dish detergent” “Men’s cosmetics” “Adult disposable diapers”
Based on this product status, it can be seen that household and furniture detergents account for 50% of the market share, and it is analyzed that the company maintains a competitive advantage over its competitors.
On the other hand, analysis shows that men’s cosmetics account for only about 15% of the market share.
By analyzing the product status using PPM, you can determine where to spend management resources.
Reference material:
University of Distribution Sciences Kao’s business strategy and competitive strategy research through PPM analysis
Uniqlo PPM analysis example
In 1994, Uniqlo became a hit selling fleece, which became the “money tree.” Using the funds from this time, in the fall of 2002, we launched a new business called “SKIP,” which handles everything from production to sales of fresh vegetables.
Mr. Yuzuki, who was in charge of the vegetable business at the time, judged that “UNIQLO has a chance of winning because of its know-how,” and he expected first-year sales of 1.6 billion yen.
However, once the business started, sales did not increase as expected, and the company withdrew from the business after just one and a half years, and was classified as a “loser.”
After this failure, we changed the focus of management resources to overseas expansion that leveraged our company’s strengths and the launch of the low-priced apparel business “GU,” which successfully turned into a “money tree” and contributed to profitability. It was successful.
PPM analysis example of a famous entertainment agency
You can also understand the position of idols and celebrities through PPM analysis. For example, it can be classified as follows.
Flower shape:
This is a state in which you have momentum as a group or as an individual, and you can make a profit by selling. They are not as well-known as the talents classified as “money trees,” and there is a lot of competition, so they are competing for appearances. Competition will intensify as there is room for growth.
Money tree:
Their characters are already recognized by the public, and there is no need to carry out activities to raise their profile. Since personal branding is also possible, the industry often requires that “it only be that person,” and there are few new entrants. You can make a lot of money just by appearing on TV, radio, etc.
Problem child:
Problem children include talents who have recently debuted, and talents who have a long career but are not well-known. Unfortunately, the industry still doesn’t need it that much.
Although it has the potential to become a “star” or a “money tree,” it has a limited fan base, so it can be said that it is difficult to make a profit if you continue to invest aggressively.
Loser:
Talents who are not in demand from the industry and have few loyal fans are the losers. Their special skills and talents are not sought after by the industry, and they do not have the opportunity to appear on TV programs. With no growth expected as an idol or comedian, it would be safer to withdraw from the industry.
In this way, by performing PPM analysis on idols and celebrities, you can understand their respective positions.
Frameworks useful for formulating other basic strategies
In addition to PPM analysis, we introduce a framework that can help you set your basic strategy.
SWOT analysis
SWOT analysis is one of the business frameworks. It was originally used as a strategy-making tool in the United States, and is said to have been established at Stanford University.
SWOT is an acronym for “Strength, Weakness, Opportunity, and Threat.”
The details of SWOT analysis are explained on the following page, so please refer to it.
3C analysis
3C analysis is an analysis method that serves as a guideline when developing marketing strategies.
The details of 3C analysis are explained on the following page, so please refer to it.
PEST analysis
PEST analysis is a method often used in marketing planning. It is believed to be useful for considering medium-term policies such as “what direction should your company take in the industry?”
The details of PEST analysis are explained on the following page, so please refer to it.
Summary: Understand the characteristics and incorporate PPM analysis into your marketing strategy
What is PPM (Product Portfolio Management) analysis? By classifying businesses, products, and services on coordinates consisting of two axes, “market growth rate” and “market share,” the investment allocation of management resources is determined. It’s a method for making decisions.
PPM analysis classifies your business into four positions: Star, Cash Cow, Problem Child, and Dog, and assesses the future potential of your business. At the same time, you can visualize the disparity in sales with your competitors.
The advantage of PPM analysis is that it allows you to see the position of each of your company’s businesses and the position of your business’s competitors. The disadvantage is that the analysis uses only a limited number of financial indicators, so it does not cover all aspects of the business.
After understanding the characteristics of each, incorporate PPM analysis into your marketing strategy.
Please use the template below when performing PPM analysis. Although analysis can be done using Excel, it is also convenient to print out the template below and write the product information by hand.