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Product Portfolio Management – The six Levels of Typical Products and Services Hierarchy

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(This article is part of a series about Product Portfolio Management, Product Information Management, Product Master Data Management, and Ideal Commercial Product Management solution.)

Product Portfolio management is an analysis and decision-making process that aims to ensure the long-term growth and profitability of the company (Tolonen, 2016). Before going in-depth into product portfolio management, it is important to first understand the concept of a product portfolio and what it consists of. Therefore, our first article will concentrate on the typical products and services hierarchy as defined by Haines (2014).

Product hierarchy is a classification method for modeling the product into its essential components. Based on Haines (2014) the typical products and services hierarchy has six levels, as described in figure 1.

Figure 1. Typical products and services hierarchy. (Haines, 2014).

1. Product Portfolio

A product portfolio is a collection of all the products, product lines, services or other groupings within a business unit or business division. Product portfolios include existing and incoming products and they can be categorized in different ways depending on the organization’s needs. Used criteria for categorization can, for example, be customer segments, product lines, product families, product types, or technology generations, and services. Service products are typically viewed as heterogeneous products because of the customer’s involvement during the rendering of the services. (Tolonen et al., 2016; Haines, 2014).

2. Bundle and Solution

A bundle is a group of individual products or components that are combined to be sold as one combined product (Haines, 2014). A good example of a bundle is a mobile phone that is sold with a subscription. This combination can be classed as a bundle because both components can be bought separately.

Solutions, on the other hand, are aimed at solving complex business problems that usually have a high degree of integration and may require customization. Solutions offer a full range of problem resolution including analysis, recommendation, implementation, and integration and the components cannot be bought separately when a genuine solution is provided. (Haines, 2014).

3. Product line

The product line is a collection of the organization’s related products that are aimed to solve a similar customer problem, are produced using similar methods, or are targeted to similar markets. The product line can be seen as a small product portfolio and companies typically sell multiple product lines under different brand names. (Haines, 2014; Twin, 2019).

Product lines are usually part of marketing strategy and they are used to attract buyers. The rationale behind this is that buyers are more likely to buy from the brand they know and trust and therefore, a company can increase their sales by adding products to the product line or introducing a new product line.

4. Product

“Product is a term used to describe all goods, services, and knowledge sold. Products are bundles of attributes (features, functions, benefits, and uses) and can either be tangible, as in the case of physical goods; intangible as in the case of those associated with service benefits; or can be a combination of the two.” (Kahn, 2013).

The challenge with the aforementioned definition is that when inspected within a business context a product is not always single, standalone item, but organizations can have a hierarchy of products and services (Haines, 2014).

5. Product Element, Modules, or Terms

Product elements or modules, in the context of tangible products, are entities within a product. A good example of a product element is an electric motor that is procured from a subcontractor and is installed into the product. Products can also have intangible elements such as terms. A common denominator for product elements is that they are the building blocks that require oversight in their definition, design, and integration with a larger product or solution (Haines, 2014).

6. Product Platform or Base Architecture

Product platforms are a set of common elements such as technology frameworks, base architectures, parts, and interfaces on top of which products can be built. Product platforms are shared across the range of the company’s products. Product platforms help to provide economies of scale, speed up new product development, reduce development costs and reduce the amount of testing. Good examples of product platforms are car floor systems and gear systems (Haines, 2014; MBASkool).

Kari Kinnunen
Product Manager, Business Development

References:

Haines, S. 2014. The Product Manager’s Desk Reference. McGraw-Hill Education.

Kahn, K.B. 2013. The PDMA Handbook of New Product Development. John Wiley & Sons, Inc.

MBASkool. N.d. Product Platform. MBASkool

Tolonen, A. 2016. Product portfolio management over horizontal and vertical portfolios. University of Oulu.

Twin, A. 2019. Product Line. Investopedia.

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