We work across a variety of businesses and sectors, and our clients come to us with a wide range of questions. But we are starting to see a common thread that is underlying some of these diverse challenges: a lack of an effective portfolio strategy.
This isn’t always immediately obvious. The issues our clients are facing don’t always present as relating to their portfolios. Rather, they are asking us to help with sluggish growth, lack of clarity about direction or a general inefficiency in how the brand or the business model is performing. But in many of these cases, we find that portfolio strategy is an underlying issue.
What do we mean by a portfolio?
Broadly speaking, a portfolio is a way of organising the various components of a brand or a business for commercial outcomes. There are three main levels at which portfolios can be organised:
- Total business portfolio: some businesses work across diverse categories with business units or brands that sit within a broad vision or set of operating principles. For example, Nestle has more than 2,000 brands in categories as diverse as bottled water, baby food and pet care.
- Brands: others operate within a defined category (perhaps including adjacent categories) but with a portfolio of multiple brands. For example, Heineken has beverage brands including Heineken, Birra Morretti, Fosters, Amstel and Strongbow.
- Ranging: others still have one overarching brand but with a range of propositions that spans diverse segments within one or several categories. Dove is a great example of this with ranges for different types of skincare, haircare and deodorant all under one brand name.
What does a strong portfolio look like?
At The Forge, our guiding belief is that a strong portfolio should be as simple as possible, but as complex as needed. In general, the fewer brands or products in a portfolio, the better for efficiencies and to stimulate growth.
Effective simplicity does depend on drivers of choice in a category, so understanding this is key. For example, in some categories format is a primary parameter – so Unilever’s ice-cream portfolio is broadly anchored to format – the Cornetto cone, the Ben and Jerry’s tub, the Magnum on a stick.
But in other categories, too many brands will cause confusion. Coca-Cola famously changed their portfolio strategy, unifying the previously separate brands of Coca-Cola, Diet Coke and Coca-Cola Zero as different versions of one top-level brand; research had shown that consumers didn’t understand all the variants.
There are some situations in which it may be advantageous to have a larger set of brands or products. For example, it may be that retailers give you more shelf space when you have more brands, although it is equally likely that they’ll insist on you trading brands off against each other, which can leave you vulnerable.
Beyond simplicity, there are three key principles that define the stronger portfolios we see. A strong portfolio should be:
- Distinct: all components should have an incremental role, defined according to the discriminating aspects of choice within the category, such as target consumers, channels, price-points or needs. For example, Johnnie Walker’s portfolio of whiskies is powerfully dramatised through colour-coding, with each variant targeted at a different consumer segment, from entry-level whisky drinker to sophisticated connoisseur.
- Future focused: designed to reflect a view on how the category and consumer is likely to evolve. For example, Twinings has a diverse portfolio of teas that clearly delivers on the category fundamentals but also pays attention to emerging spaces with, for example, teas for wellness, sleep and energy, cold infusion teas and sparkling teas.
- Anchored in value: brands and products should not make the portfolio cut if they are designed according to theories or hunches about the consumer. They should be based on solid consumer understanding and positioned against specific competitors to deliver commercial growth.
What can go wrong?
Part of the problem is that most portfolios are messy. At whatever level, business unit, brand or range, rather than being purposefully designed, portfolios have usually been assembled, disassembled and re-assembled over time. They are built by default through acquisitions and through decisions about individual products or brands, usually for good reasons, but without considering the impact on the mix.
The weaker portfolios we see typically have one or more of the following issues:
- Duplication: many brands effectively playing the same or similar roles from the perspective of retailers or consumers, often despite the host business defining them on paper as having different roles.
- Lack of horizon planning: the portfolio is rooted in past needs and doesn’t take account of evolution – of the consumer, of needs, of innovation – over time.
- Inadequate investment balance: an overly complex portfolio can be dilutive, meaning that there is less A&P budget to go around – and overlap and lack of focus means that communications impact is not a given.
- Lack of discipline: unwillingness to make clear choices about each component, leading to unclear boundaries between components, resulting in perpetual internal renegotiation and turf wars.
Why is it so hard to get it right?
Portfolio strategy affects every part of the business. It’s not just about making rational decisions about the components and configuration to choose – there are many other forces at work under the surface. Portfolio strategy is about people and politics and as such is affected by how the company is structured and how easy it is to challenge the status quo. Individuals each have their own personal ambitions and hunger for resources for their own area. There can be political issues to combat such as assumptions about the true priorities of the business and about brands or products which are seen as ‘golden children’ and are therefore untouchable.
On top of this there are legacy issues to confront – portfolios that have been optimised against a view of the market that is no longer accurate or were the pet project of a leader who has long left the business. And with complexity there is often a lack of clarity about ownership and a failure to embed decisions into frameworks for future decision making and resource allocation.
What next?
A portfolio strategy project isn’t for the faint hearted. There’s lots to consider (see our forthcoming article for a ‘how to’), not least managing company politics and personalities. But like most things that are a big challenge, there is a big pay off when you get it right. An aligned portfolio is the foundation of long-term business success. It might just be the strategic change that you didn’t know you needed.
