How to Make Smarter Product Portfolio Decisions Through Rationalization

Most B2B businesses are proud of the products or services they’ve built. But over time, even great companies can find themselves offering too much—too many products, too many versions, and with companies with configured products, too much complexity.

That’s when it may be time for product rationalization.

Put simply, product rationalization means stepping back and asking:
"Do all of our products in every product category still make sense?"

This isn't about cutting for the sake of cutting. It's about being smart—focusing your energy, resources, and teams on the products that truly matter to your customers and your bottom line.

Let’s walk through what product rationalization is, why it matters, and a practical way to approach it to drive growth—not just reduction.

Why Do Product Lines Get So Bloated?

As businesses grow, it's natural to add more products. You’re trying to reach new customers, fill gaps, and respond to competitors. Sometimes, you launch a new version or special configuration of a product just for one of your important clients.

But without regular check-ins, these additions can pile up over time and result in:

• Products overlapping with each other with limited differentiation

• SKUs increasing, creating supply chain and inventory headaches

• Marketing teams having to spread their attention to generate demand across more products

• Salespeople struggling to stay fluent in all the offerings

• Customers getting confused, or worse—overwhelmed

This product “creep” might seem harmless, but over time it quietly eats away at profitability and focus.

What Is Product Rationalization, Really?

Product rationalization is the process of analyzing your product portfolio—everything you sell—and making informed decisions about what stays, what goes, and what needs attention.

Done right, it can:

• Improve profits by cutting underperforming products

• Streamline operations and reduce complexity

• Refocus sales and marketing on high-potential offerings

• Help customers understand your brand more clearly

In short, it’s about simplifying to strengthen.

How to Approach Product Rationalization

The key to success isn’t just a spreadsheet analysis, or worse, making a gut decision—it’s a process that blends data, input, and cross-functional insight. Here's how to do it well:

1. Start with a Full Portfolio Audit

Begin by cataloging all your products or SKUs within their distinct product categories. For each, gather basic metrics:

• Revenue over the past 24-36 months

• Profit margin and cost to serve

• Sales volume and average sales price (ASP) trends

• Operational or supply chain complexity

• Customer usage or adoption levels

Even this baseline can quickly highlight products that are dragging performance or creating unnecessary cost.

2. Don’t Do It Alone: Involve the Right Stakeholders

One of the most common mistakes in rationalization is treating it like a siloed business decision. But your product portfolio touches every corner of the business.

Bring in teams from:

• Operations – to assess complexity, production efficiency, and delivery challenges

• Finance – to analyze margins, overhead, and financial performance

• Engineering/Product – to evaluate technical feasibility, roadmaps, and future dependencies

• Customer Support – to weigh in on what causes friction or confusion for customers

These teams often have insights that will never show up on a spreadsheet. Their input ensures you don’t make cuts that save money in the short term but cause bigger issues down the road.

3. Segment and Score the Portfolio

Use a basic scoring system to classify your products:

• Stars – High revenue and margin, strong market fit, highly differentiated

• Workhorses – Steady, moderate performers that serve important customer needs

• Deadweight – Low revenue, high cost, limited or no differentiation

• Question Marks – Underperforming but possibly strategic

But don’t stop there. For products within the same category, analyze pricing segments. Are you offering multiple products that serve the same function but at different price points? Are the differences meaningful to the customer—or just internal variations?

Sometimes, the answer isn’t to cut a product—but to better define its pricing and positioning within the lineup.

4. Validate with Market Insight

It’s tempting to make decisions based solely on internal data. But without customer input, you risk misreading what actually drives purchasing.

Consider conducting market research, especially for products that are closely related or overlapping. Learn from customers:

• Which features matter most?

• What do they view as essential vs. nice-to-have?

• Which model or version do they prefer and why?

• How would they feel if a product were phased out?

This doesn’t need to be a months-long effort. Even a small round of customer interviews can reveal what’s driving preference—and where consolidation could actually increase customer satisfaction.

5. Decide: Keep, Cut, Fix, or Replace

Now, categorize each product with a clear action:

• Keep: Top performers in the category and portfolio that align with strategy

• Cut: Low-value or duplicate offers that no longer serve the business or customer

• Fix: Products with potential that need cost, pricing, or design adjustments

This isn’t just subtraction. It’s about refining your product portfolio to better serve your goals and your customers.

6. Plan the Transition Carefully

Removing or changing products affects more than just a line item—it can impact sales relationships, customer trust, and internal systems.

Make the transition smooth by:

• Giving teams and customers advance notice

• Offering alternative or upgraded solutions

• Training sales and support teams on what’s changing and why

• Updating messaging across marketing and digital channels

Handled thoughtfully, rationalization enhances clarity—not confusion.

The Benefits Are Bigger Than You Think

Done well, product rationalization doesn’t just save money. It creates:

• Stronger, more profitable product portfolios

• Simpler and more efficient operations

• More focused teams

• Higher customer satisfaction

It’s also a strategic discipline. Companies that regularly assess and shape their portfolios stay nimble and aligned—even as markets shift.

Final Thought: Smart Simplification Is a Competitive Edge

Rationalization isn’t about taking things away—it’s about making room for what matters most. It’s about aligning your energy and investment around the products that bring the most value—to both your business and your customers.

And in a world of constant change and limited resources, that kind of clarity is a true advantage.