CHAPTER 2 | Company and Marketing Strategy 67

Business portfolio company. The best business portfolio is the one that best fits the company’s strengths
The collection of businesses and and weaknesses to opportunities in the environment.
products that make up the company. Most large companies have complex portfolios of businesses and brands. Strategic
and marketing planning for such business portfolios can be a daunting but critical
task. For example, ESPN’s brand portfolio consists of more than 50 business entities,
ranging from multiple ESPN cable channels to ESPN Radio, [Link], ESPN The
Magazine, and even ESPN Zone sports-themed restaurants. In turn, ESPN is just one
unit in the even more complex portfolio of its parent company, The Walt Disney
Company. The best business portfolio is the one that best fits the company’s strengths
and weaknesses to opportunities in the environment (see Real Marketing 2.1).
Business portfolio planning involves two steps. First, the company must analyze its
current business portfolio and determine which businesses should receive more, less, or no
investment. Second, it must shape the future portfolio by developing strategies for growth
and downsizing.

Analyzing the Current Business Portfolio

Portfolio analysis The major activity in strategic planning is business portfolio analysis, whereby manage-
The process by which management ment evaluates the products and businesses that make up the company. The company will
evaluates the products and businesses want to put strong resources into its more profitable businesses and phase down or drop
that make up the company. its weaker ones.
Management’s first step is to identify the key businesses that make up the com-
pany, called strategic business units (SBUs). An SBU can be a company division, a
product line within a division, or sometimes a single product or brand. The company
next assesses the attractiveness of its various SBUs and decides how much support
each deserves. When designing a business portfolio, it’s a good idea to add and sup-
port products and businesses that fit closely with the firm’s core philosophy and
competencies.
The purpose of strategic planning is to find ways in which the company can best
use its strengths to take advantage of attractive opportunities in the environment. For
this reason, most standard portfolio analysis methods evaluate SBUs on two impor-
tant dimensions: the attractiveness of the SBU’s market or industry and the strength
of the SBU’s position in that market or industry. The best-known portfolio-planning
method was developed by the Boston Consulting Group, a leading management con-
sulting firm.5

Growth-share matrix
A portfolio-planning method that
The Boston Consulting Group Approach
evaluates a company’s SBUs in terms of Using the now-classic Boston Consulting Group (BCG) approach, a company classifies
market growth rate and relative market all its SBUs according to the growth-share matrix, as shown in Figure 2.2. On
share. the vertical axis, market growth rate provides a measure of market attractiveness. On the

FIGURE | 2.2
Star Question mark
The BCG Growth-Share Matrix
The company must
High
Market growth rate

decide how much it will

Under the classic BCG portfolio planning approach, invest in each product
the company invests funds from mature, successful or business (SBU). For
products and businesses (cash cows) to support each SBU, it must
promising products and businesses in faster-growing decide whether to build,
markets (stars and question marks), hoping to turn hold, harvest, or divest.
them into future cash cows.
Low

Cash cow Dog

High Low
Relative market share
 68 |
PART 1 Defining Marketing and the Marketing Process

2.1 Red Bull: The Global Market Leader in

Real Marketing

Energy Drinks Skillfully Manages Its

Business Portfolio
There’s no question: Coca-Cola
and PepsiCo dominate the global
beverage industry. So how does a
small company breaking into the
beverage business compete with
such global powerhouses? The best answer:
It doesn’t—at least not directly. Instead, it
finds a unique market niche and runs where
the big dogs don’t.
That’s what Red Bull does. When Red
Bull first introduced its energy drink in Austria
in 1987, few imagined that it would become
the 5 billion-dollar-a-year success that it
is today. Red Bull found a new beverage
niche that the market leaders had over-
looked: energy drinks. Although Coca-Cola
and PepsiCo have followed Red Bull into
the energy drinks market, the company still
owns 44 percent of the energy drink cat-
Red Bull sponsored extreme sports events and athletes who were
egory it created. Despite hefty investments,
overlooked by big beverage competitors but were spiking in popularity with
Coca-Cola and PepsiCo are yet to make a
Red Bull’s target customers.
dent in the category. This is because Red
speedpix/Alamy Stock Photo
Bull was first in the market and in defining the
new category, but more importantly because
of the company’s ability to engender and only slogan—“Red Bull Gives You Wings”— set records for consumer brand engagement.
foster a deep customer loyalty. For example, communicated the product’s energy-inducing Felix Baumgartner’s dive from space fit per-
Red Bull’s Facebook Fan Page has more benefits. More important, it tapped into the fectly with Red Bull’s brand message. More
than 44 million likes, whereas Coca-Cola’s forces that moved the brand’s narrow tar- than 8 million people watched the event live
Facebook page for its NOS energy drink only get niche: customers seeking to live in the on 40 TV stations and 130 digital channels.
registers 380,000 likes and Pepsi’s Facebook adrenalin-stoked fast lane. Red Bull’s niche marketing engages cus-
page for Amp only accounts for 48,000 likes, Red Bull shunned the big-budget mass- tomers in a way that big-budget traditional mar-
while the Kickstart brand barely even triggers media advertising common in the beverage keting by competitors like Coca-Cola or Pepsi
1,000 likes. Red Bull has energized a market industry at the time. Instead, it relied on can’t. For example, within 40 minutes of post-
niche with a unique product, brand personal- grassroots, high-octane sports and event ing photos of Baumgartner’s jump, Red Bull’s
ity, and marketing approach. marketing. It sponsored extreme sports Facebook page gained almost 216,000 likes,
Back in 1987, energy drinks simply didn’t events and athletes who were overlooked by 10,000 comments, and over 29,000 shares.
exist. Red Bull co-founder Dietrich Mateschitz big beverage competitors but were spiking in On Twitter, half of the worldwide trending topics
saw an unfilled customer need. He formu- popularity with Red Bull’s target customers. were related to Red Bull Stratos. By one esti-
lated a new beverage containing a hefty dose In the years since, Red Bull has turned event mate, 90 million people worldwide followed the
of caffeine that packed the right punch, pro- marketing into a science. Today, the brand campaign on social media, creating 60 million
ducing unique physical-energy and mental- holds hundreds of events each year in doz- trusted brand impressions.
clarity benefits. To make the new beverage ens of sports around the world. Each event Since its introduction, Red Bull has invested
even more distinctive, Mateschitz gave it a features off-the-grid experiences designed to deeply in building the brand, spending around
unique name: Red Bull. He packaged it in bring the high-octane world of Red Bull to 40 percent of revenue on marketing and pro-
a slim 8.3-ounce (250 ml) blue-and-silver its narrow but impassioned community of motion. As a comparison, Coca-Cola spends
can with a distinct red-and-yellow logo, and enthusiasts. But it’s not just about the events; 9 percent. As to its product portfolio, the com-
tagged it with a $2-per-can price. Thus, a it’s about creating tactile engagements where pany had one product to focus on until 2003,
whole new energy drink category was born, people can feel, touch, taste, and live the when a sugar-free version was added. On
with Red Bull as its only player. brand face-to-face rather than simply reading March 24, 2008, Red Bull introduced “Simply
The unique Red Bull product demanded about or watching it. Red Bull doesn’t just Cola,” or “Red Bull Cola.” In the summer of
equally unique brand positioning and per- sponsor an event—it is the event. 2009, the Red Bull Energy Shots were intro-
sonality, a declaration that this was no or- One example of Red Bull’s niche marketing duced globally. This is a small version of the
dinary beverage. The brand’s first and still genius is the Red Bull Stratos project, which regular drink.
 CHAPTER 2 | Company and Marketing Strategy 69
Red Bull also owns and operates a number Bull’s Media House unit has filmed movies, company’s strengths and weaknesses to op-
of lifestyle magazines, covering issues such as signed a deal with NBC for a show called portunities in the external environment. By
motor racing, celebrity gossip, and football. In Red Bull Signature Series, developed reality- focusing on a niche and mainly one product
addition, the company has established a “Red TV ideas with big-name producers, become only, the company displays what successful
Bull Music Academy,” the music label “Red Bull one of YouTube’s biggest partners in publish- business portfolio management in the form of
Records,” several “Red Bull Music Studios,” ing original content, and loaded its own web niche marketing is all about—a well-defined
“Red Bull Music Academy Radio,” and even and mobile sites with unique content features. brand engaging a focused customer com-
mobile phone service operations branded “Red Werner Brell, who heads the Red Bull Media munity with meaningful brand relationships
Bull Mobile” in a number of nations. In fact, the House Unit, stated that all of Red Bull’s events that even larger and more resourceful com-
company can be found in a number of busi- have been put on film or photographed. The petitors can’t crack. Through smart niche
ness sectors, from TV broadcasting to youth goal is to be able to tell engaging stories. and business portfolio management, Red
academies and football clubs. The company Since its early start, Red Bull has cre- Bull has given its customers—and itself—
has thus diversified into other businesses that ated a business portfolio which best fits the new wings and a whole new shot of energy.
have synergy with its brand image.
Red Bull today has become a close-knit
Sources: Travis Hoium, “Coke and Pepsi Up against a Young Monster—and Losing,” Daily Finance, March 26, 2013,
brand community that engages customers with
[Link] Janean Chun, “Bull Stratos May
both products and absorbing brand content. Change Future of Marketing,” Huffington Post, October 15, 2012, [Link]
Beyond its products, Red Bull produces a bull-Stratos-marketing_n_1966852.html; Brian Kotlyar, “7 Social Campaign Insights from Red Bull Stratos,” DG Blog,
steady stream of event and social media con- October 23, 2012, [Link] Teresa Iezzi,
tent that engages and entertains brand fans. “Red Bull Media House,” Fast Company, March, 2013, [Link]
During the last few years, for example, Red 2012/red-bull-media-house; and [Link] all Internet sources accessed October 2015.

horizontal axis, relative market share serves as a measure of company strength in the market.
The growth-share matrix defines four types of SBUs:
1. Stars. Stars are high-growth, high-share businesses or products. They often need
heavy investments to finance their rapid growth. Eventually their growth will slow
down, and they will turn into cash cows.
2. Cash cows. Cash cows are low-growth, high-share businesses or products. These estab-
lished and successful SBUs need less investment to hold their market share. Thus, they
produce a lot of the cash that the company uses to pay its bills and support other SBUs
that need investment.
3. Question marks. Question marks are low-share business units in high-growth markets.
They require a lot of cash to hold their share, let alone increase it. Management has
to think hard about which question marks it should try to build into stars and which
should be phased out.
4. Dogs. Dogs are low-growth, low-share businesses and products. They may generate
enough cash to maintain themselves but do not promise to be large sources of cash.
The 10 circles in the growth-share matrix represent the company’s 10 current SBUs.
The company has two stars, two cash cows, three question marks, and three dogs. The
area of each circle is proportional to the SBU’s dollar sales. This company is in fair
shape, although not in good shape. It wants to invest in the more promising question
marks to make them stars and maintain the stars so that they will become cash cows
as their markets mature. Fortunately, it has two good-sized cash cows. Income from
these cash cows will help finance the company’s question marks, stars, and dogs. The
company should take some decisive action concerning its dogs and its question marks.
Once it has classified its SBUs, the company must determine what role each will
play in the future. It can pursue one of four strategies for each SBU. It can invest more
in the business unit to build its share. Or it can invest just enough to hold the SBU’s share
at the current level. It can harvest the SBU, milking its short-term cash flow regardless of
the long-term effect. Finally, it can divest the SBU by selling it or phasing it out and using
the resources elsewhere.
As time passes, SBUs change their positions in the growth-share matrix. Many SBUs
start out as question marks and move into the star category if they succeed. They later
become cash cows as market growth falls and then finally die off or turn into dogs toward
the end of the life cycle. The company needs to add new products and units continuously
so that some of them will become stars and, eventually, cash cows that will help finance
other SBUs.
70 |
PART 1 Defining Marketing and the Marketing Process

Problems with Matrix Approaches. The BCG and other formal methods revolution-
ized strategic planning. However, such centralized approaches have limitations: They can
be difficult, time consuming, and costly to implement. Management may find it difficult to
define SBUs and measure market share and growth. In addition, these approaches focus on
classifying current businesses but provide little advice for future planning.
Because of such problems, many companies have dropped formal matrix methods in
favor of more customized approaches that better suit their specific situations. Moreover,
unlike former strategic planning efforts that rested mostly in the hands of senior managers
at company headquarters, today’s strategic planning has been decentralized. Increasingly,
companies are placing responsibility for strategic planning in the hands of cross-functional
teams of divisional managers who are close to their markets. In this digital age, such man-
agers have rich and current data at their fingertips and can adapt their plans quickly to
meet changing conditions and events in their markets.
Portfolio planning can be challenging. For example, consider GE, the giant $117 billion
industrial conglomerate operating with a broad portfolio of products in dozens of con-
sumer and business markets:6
Most consumers know GE for its home appliance and lighting products, part of the company’s
GE Lighting unit and former GE Appliances unit. But that’s just the beginning for GE. Other
company units—such as GE Transportation, GE Aviation,
GE Energy Connections, GE Power, GE Oil & Gas, GE
Healthcare, and others—offer products and services rang-
ing from jet engines, diesel-electric locomotives, wind
turbines, and off-shore drilling solutions to aerospace sys-
tems and medical imaging equipment. GE Capital offers a
breadth of financial products and services. However,
in recent years, GE has been dramatically shifting its vast
portfolio away from consumer products and financial
services toward the goal of becoming a more focused “in-
dustrial infrastructure company,” one that’s on a mission
to “invent the next digital industrial era, to build, move,
power, and cure the world.”
Currently, less than 8 percent of GE’s annual rev-
enues come from consumer products, and that percentage
continues to dwindle. The company is now in the midst
of selling off its huge GE Capital financial services arm,
and it recently sold its entire GE Appliances division to
Haier. Such portfolio decisions have huge implications for
the company’s future. For example, prior to the sale of its
appliances unit, GE’s appliance and lighting businesses
Managing the business portfolio: Managing GE’s broad portfolio of
alone generated more than $8.8 billion in annual revenues,
businesses and its mission to “invent the next digital industrial era, to build,
more than the total revenues of companies such as JetBlue,
move, power, and cure the world” requires plenty of skill and lots of GE’s
famous “Imagination at work.” This huge GE turbine weighs as much as a Netflix, Harley-Davidson, or Hershey. Thus, successfully
fully loaded Boeing 747 and can generate the power needed to supply more managing GE’s broad portfolio takes plenty of manage-
than 680,000 homes. ment skill and—as GE’s long-running corporate slogan
suggests—lots of “Imagination at work.”
GE

Developing Strategies for Growth and Downsizing

Beyond evaluating current businesses, designing the business portfolio involves finding
businesses and products the company should consider in the future. Companies need
growth if they are to compete more effectively, satisfy their stakeholders, and attract top
talent. At the same time, a firm must be careful not to make growth itself an objective. The
company’s objective must be to manage “profitable growth.”
Marketing has the main responsibility for achieving profitable growth for the com-
pany. Marketing needs to identify, evaluate, and select market opportunities and lay
down strategies for capturing them. One useful device for identifying growth opportu-
Product/market expansion grid nities is the product/market expansion grid, shown in Figure 2.3.7 We apply it
8
A portfolio-planning tool for identifying here to performance sports apparel maker Under Armour.
company growth opportunities through Less than 20 years ago, Under Armour introduced its innovative line of comfy,
market penetration, market development, moisture-wicking performance shirts and shorts with the mission “to make all athletes
product development, or diversification. better through passion, design, and the relentless pursuit of innovation.” Since then, it has
grown at a torrid pace. In just the past five years, Under Armour’s sales have more than