AberdeenGroup Research Brief
November 2006
Product Value Assessment and Monitoring: Delivering a Substantial Margin Advantage
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Key Finding
Research for Aberdeen Group’s Product Portfolio Management Benchmark Report shows that a majority of manufacturers command at least 11 % higher margins for new products – those on the market for less than two years – than for older products However, companies that are best in class at product portfolio management (PPM) receive, on average, a 30% sales margin increase for new products. Just as important, they are four times as likely as others to command a margin advantage on new products of 75% or higher (Figure 1).
One key reason for this success is their ability to assess and monitor product value throughout the product selection and product development processes. As a result, they can evaluate whether value is being developed and realized as projects and products mature and market dynamics evolve. With this information, they can take corrective action to maximize product value during new product development (NPD) or kill projects that won’t deliver sufficient returns.
Research Results and Recommendations
Product Portfolio Management – a Key to Product Profitability
Aberdeen Group’s Product Innovation Agenda Benchmark Report indicates that most manufacturers are aggressively seeking top-line growth through product innovation. In particular, they see the top actions for growth as improving the fit of products to customer and market needs (72%) and increasing the value of new products chosen (70%). In other words, product portfolio-related improvements are viewed as high priority drivers to help deliver revenue growth. However, while they are adopting project management, product data management, and collaboration technologies to improve project execution, manufacturers have neglected or are hampered in their PPM activities involving properly evaluating, selecting, and managing product opportunities based on value.
The Product Portfolio Management Benchmark Report discloses the implications for companies that are not embracing much-needed portfolio improvements:
- Average companies meet revenue targets for new products on less than 80% of their products, and as few as 40% – indicating that they are not realizing the full profitability potential of their product portfolios.
- Best in class companies hit these same targets 80% or more of the time and typically receive higher margins on new products than their lower-performing peers.
The difference is PPM. Aberdeen research shows that best in class product development companies execute PPM strategies 64% more frequently than laggards – and are two times more likely to have been doing so for two or more years. As a result, they typically receive an additional margin advantage for products on the market less than two years (Figure 1).
Figure 1: Margin Advantage for Products on the Market Less Than Two Years
Source: AberdeenGroup, August 2006
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