1

Product levels: The Customer-Value Hierarchy

 The fundamental level is the Core benefit

 The marketer than turns the core benefit into a basic product

 At the third level, the marketer prepares an expected product

 At the fourth level the marketer prepares an augmented product which exceeds
customer expectations.

 At the fifth level stands the potential product

Marketers classify products into two groups according to durability and tangibility

1. Nondurable goods: tangible goods normally consumed in one or a few uses (a bread)

2. Durable goods: are tangible goods that normally survive many uses (a car)

In the consumer-goods category, products are convenience goods, shopping goods,

specialty goods, or unsought goods. In the industrial-goods category, products fall
into one or three categories: materials and parts, supplies and business services, and
capital items.

A company can lengthening its products via line stretching in order to change the product
component of its marketing mix. This can be done down-market, up-market, or both or by line
filling, by modernizing its products, by featuring certain products, and by pruning its products
to eliminate the least profitable.

Brands are not rarely sold together with other brands. Ingredient brands and co-brands can
add value, assuming they have equity and are perceived as fitting appropriately.

The packaging can be quite important. Well designed packages can create promotional value
for producers and convenience value for customers. They can act as five-second
commercials.

Product and Branding

Marketing Mix – the set of marketing tools the organization uses to pursue its marketing
objectives in the target market. The most important element in the marketing mix is the
product.

The Product:

A product – is anything that can be offered to a market to meet a consumers’ want or need.
(Includes services, experiences, physical goods, events, properties, persons, places,
organizations, information, and ideas.)
 2

Product Levels – Are the levels of the product through which the marketer needs to
think when planning its market offering. There are 5 product levels:

1. The core benefit: The fundamental service or benefit that the customer is really buying
(E.g. In a hotel, the quest buys “rest and sleep”).

2. The basic product: For a hotel, this includes a bed, bathroom, towels, dresser, desk,
and a closet.

3. The expected product: The attributes and conditions buyers normally expect when
they buy a product. (E.g. A hotel guest expects a clean bed, fresh towels, working
lamps, etc.)

4. The augmented product: These are benefits that exceed the customer’s expectations.
(E.g. A hotel service can include a remote-control television set, fresh flowers, rapid
check-in, etc,).

5. The Potential product: This includes the possible augmentations and transformations
the product might undergo in the future. That is, new ways to satisfy customers and
differentiate the offer.

Product Hierarchy – The products position relative to other products. There are seven
levels of the product hierarchy:

 Need family: The core need that underlies the existence of a product family. E.g.
security.

 Product family: All the product classes that are able to satisfy a core need with
reasonable effectiveness. E.g. savings and income.

 Product class: A group of products within the product family recognized as having a
certain functional coherence: E.g. financial instruments.

 Product line: A group of products within a product class that are closely related
because they perform a comparable function, are marketed through the same
channels, are sold to the same customer groups, or fall within given price ranges. E.g.
life insurance.

 Product type: A group of items within a product line that share one of several possible
forms of the product. E.g.: term life policy

 Item (stock keeping unit or product variant): A distinct unit within product line or brand
distinguishable by price, size, appearance, or some other attribute. E.g. Prudential
renewable term life insurance.
 3

Product System – e.g. Mobile now comes with camera, games, radio, etc. It is a group of
related but diverse items all functioning in one compatible manner.

Product Classifications - There are many different ways of classifying products;

By durability and tangibility, as non-durable goods, durable goods, and services.

Customer-Goods Classification:

 Consumer goods are classified on the basis of shopping habits as: shopping goods,
specialty goods, convenience goods, or unsought goods.

 Industrial-Goods Classification: Industrial goods are classified depending on how they

enter the production process: materials and parts, capital items, supplies and business
services.

The Product Mix:

A product mix – the set of all the products and items offered by a particular seller.

Dimensions of the Product Mix:

 Width – Number of different product lines the firm carries

 Length – total number of items in the mix

 Depth – how many variants are offered of each product in the line.

 E. g. If Crest comes in three sizes and two formulations (regular and mint) Crest has a
depth of six.

 Consistency - how closely related the various product lines are in production
requirements, distribution channels, end use, or some other way. E. g. P & G product
lines are consistent insofar as they are consumer goods that go through the same
distribution channels.

Product Line Decisions

Product lines – make up the product mix, and must be periodically evaluated for growth
potential and profitability.

Product items – items that make up the product lines.

Product-line analysis – Involves studying the profit and sales contributions of items to the
product lines, as well as their ways of positioning against competitors items. The latter is done
using a product map which shows which competitors’ items are competing against the
company’s items and identifies market segments.
 4

The product line analysis can help managers make various decisions on product line domain
(line filling), length, modernization, featuring, and pruning (trimming) of the line:

Product-line length – Product-line managers have to decide on the length of the product line
(the number of items). If profits can be increased by dropping items the product line may be
too long. The line may be too short if profits can be increased by adding items.

Company objectives and how long the product line exists influence product-line length.

Ways of lengthening a product line:

Line Stretching – lengthening a product line beyond its current range through:

 Down-market stretching – introducing a lower priced line.

 Upmarket stretching – Introducing a higher priced line

 Two-Way stretching – Stretching the line both upwards and downwards, e.g. Marriott
Hotel group introduced JW Marriott line in the upper upscale segment, Courtyard in the
upper mid-scale segment, and Fairfield Inn in the lower mid-scale segment.

Line Filling

 Adding more items within the present range of the line. Here it is important to
differentiate.

Product-line modernization – Modernizing the product line by giving it a new look and
timing of the installation of the new look.

Product-line featuring – Featuring specific items in promoting the line.

Product-line pruning (trimming) – Detecting and removing weaker items from the line.

Brand Decisions

Branding – A major issue in product strategy.

A brand – is a name, sign, term, design, symbol, or a combination of them, intended to

identify the goods or services of one seller or group of sellers and to differentiate them from
the products of competing firms.

Levels of meaning a product brand (symbol) can convey: benefits, attributes, values,
personality, culture, user.

Researching the position of the brand in the mind of consumers can be done through:
brand personification (with kinds of persons or animals), word association questions, and
laddering up to find deeper motives of consumers.
 5

Building brand identity – can be done through brand bonding, which happens when
customers experience the company as delivering on its’ promised benefit.

 Brands are built by brand experience, not by advertising

 Everyone in the company lives the brand

 Ways to carry on internal branding – Employees must understand, desire, and deliver
on the brand promise

To build brands in the new economy – means to:

 Clarify the firm’s basic values

 Use brand managers to carry out tactical work

 Create positive customer experiences by developing a more comprehensive brand-

building plan.

 Define the brand’s essence everywhere.

 Use brand value as key to company strategy

 Measure brand building by customer-perceived value, satisfaction, retention, share of

wallet, and advocacy.

Brand equity – refers to the degree of brand-name recognition, strong mental and emotional
associations, perceived brand quality, and other assets such as patents, trademarks, and
channel relationships.

Brand equity involves Brand awareness, Brand acceptability, and Brand preference.

Aaker’s five levels of customer attitude:

 No brand loyalty; the customer will change brands, especially for price reasons.

 Customer is satisfied. There is no reason to change brands.

 Customer is satisfied and would incur cost by changing brand.

 Customer values the brand and sees it as a friend.

 Customer is fully devoted to the brand.

High brand equity (an important asset) yields the following competitive advantages:

 Trade leverage in channel bargaining

 6

 Higher price

 Line extensions earlier

 Defense against price competition

Branding challenges: The activity of branding poses several challenges/confrontations to

marketers. Among the challenges are:

 “To brand or not to brand” – whether to develop a brand name for the product.

 Brand-sponsor decision – the problem of launching the product as a manufacturer

brand, a distributor brand, or a licensed brand name.

Brand-name decision – strategies for manufacturers who do brand their products in picking
brand names include: individual name strategy (General Mills Bisquik), blanket family name
strategy (Heinz and GE), separate family names for all products (Sears Kenmore and
Kraftsman), and company trade name combined with individual product names (Kellogg Rice
Krispies).

Brand building tools – Tools that attract attention to the firm’s brands:

Sponsorships, public relations and press releases, clubs and consumer communities, trade
shows, factory visits, public facilities, event marketing,high value for the money, social cause
marketing, founder’s or a celebrity personality, and mobile phone marketing.

Brand-strategy decision – depends on whether the brand is functional brand (satisfies a

functional need, e.g. to shave), image brand (difficult to differentiate between brands e.g.
Mont Blanc pens), or experiential brand (consumer involvement e.g. Disneyland).

Developing brands can be done through:

 Line extensions – additional items in the same product category.

 Brand extensions – new brand names in a new product category.

 Multibrands – additional brand names in the same product category.

 New brands – new brand names in a new product category.

 Cobrands – two well-known brand names combined in one product offering.

Brand asset management – involves many areas beyond advertising and public relations,
e.g. training and encouraging distributors and dealers to serve customers well, training
employees to be customer-centered.
 7

Brand auditing and repositioning – organizations need to periodically audit their brand’s
strengths and weaknesses, through using, for example, a brand report card, which may cause
a company to discover it should reposition the brand.

Packaging and Labeling

Packaging – includes the activities of designing and producing the container of a product.

Factors that have contributed to packaging’s growing use as a marketing tool are:

 Self-service: For this purpose, the package can perform many sales tasks including –
attract attention, create customer confidence, describe the product’s features, and
make a positive overall impression.

 Consumer affluence: Consumers are willing to pay a little more for the appearance,
convenience, prestige, and dependability of better packages.

 Company and brand image: Packages contribute to instant recognition of the company
or brand.

 Innovation opportunity: Innovative packaging can bring large benefits to consumers and
profits to producers.

Labeling: This may be an elaborately designed graphic that is part of the package or a simple
tag attached to the product.

Functions performed by labeling:

1. A label identifies the product or brand.

2. A label might grade a product.

3. A label might describe a product: I.e. where it was made, who made it, what it contains,
when it was made, how it is to be used, and how to use it safely.

4. The label might promote the product through its attractive graphics.
 8

Product
A product is anything that can be offered to a market to satisfy a want or need.
We can see around us that physical goods (food items, televisions), services (taxi rides, film
shows), persons (models, film actors), places (various tourist destinations), organizations
(religious organizations, voluntary organizations), and ideas (family planning, safe driving are
among the products that are marketed.
Five levels of a product
The marketer needs to understand that a market offer of a product can be made five levels.
1. Core benefit
2. Basic product
3. Expected product
4. Augmented product
5. Potential product.
1. Core benefit
Core benefit is the fundamental service or benefit that the customer is really buying.
Marketers must be benefit providers. They try to sell or market products that deliver core
benefit to the customer.
Every product is bought by buyers because it serves a core benefit to them. Companies have
to design their product to deliver a core benefit. (This series of management articles are being
written by me to facilitate revision of management knowledge. If no person is interested in
revising and updating his knowledge of management subjects, this product will not have a
market).
2. Basic product
The basic product is the product designed by a firm to deliver the core benefit. The firm has
understood or noticed a need and then designed a product that delivers the need existing in
the market.
3. Expected product
At the third level is the expected product. As a need is being satisfied by various products
offered in the market place, people develop expectations about products. When the marketer
finds these expectations about products that fulfill particular needs and designs his offering, it
will be an expected product. Normally, expected product needs to be offered to have a
presence in the market.
4. Augmented product
 9

The customer can design features that positively surprises customers. This requires
additional effort by the marketer to find features which are valued by customers and then
offering them.
Kotler says today's competition takes place at the augmented product levels. To find
augmentation opportunities, marketers have to find out how customers are using the products
that satisfy the core need. This will give ideas to that will provide additional convenience and
utility.
Theodore Levitt said, today's competition occurs over many features added to the
manufactured product like warehouses, delivery arrangements, customer advice etc.
It is to be noted that augmented features have to bring incremental benefit or profit to the firm.
5. Potential product.
While product augmentation refers to use of existing technology to augment products,
potential product refers to development of new technology to enhance the product to provide
new ways to satisfy customers. Companies that offer potential products invest a lot on
research and development activities.
Delighting customers
Firms are now trying to exceed customer expectations and delighting them with unanticipated
benefits. It is not any more customer satisfaction.
Product Hierarchy
Product hierarchy is another concept of product. Seven levels of product hierarchy are
recognized.
1. Need family
2. Product family
3. Product class
4. Product line
5. Product type
6. Brand
7. Item
The example of a need family is products satisfying the core need of security of income. The
product family is savings and income. The product class is financial instruments. The product
line is mutual funds. The product type is systematic investment plan. The brand is prudential.
The item is an index fund.
 10

Product system is another concept related to product. This refers a group of diverse but
related items that function in a related manner. Home theater systems could be an example.
Product mix (or product assortment) is the set of all products that a particular seller offers for
sale to buyers.
Product Classifications
It is usual to refer to certain product classifications and explain marketing issues related to
these classifications
Classification based on durability and tangibility
1. Nondurable goods.
2. Durable goods
3. Services
Classification based on use
1. Consumer goods
2. Industrial goods
Classification of consumer goods
1. Convenience goods
Staples
Impulse goods
Emergency goods
2. Shopping goods
Homogeneous shopping goods
Heterogeneous shopping goods
3. Specialty goods
4. Unsought goods
Classification of industrial goods
1. Materials and parts
Raw materials – farm products, natural products
Manufactured materials – component materials and component parts
2. Capital items
 11

Installations
Equipment
3. Supplies and business services
Operating supplies
Maintenance and repair items
Product Mix Decisions
The term product mix was already defined. In the area of product mix, marketing decisions
are width, length, depth and consistency.
Width refers to number of product lines (Refer the new product management article).
Length refers to the total number of items in a product line (different brands in a line).
Depth refers to variants of each product in a line (different pack sizes of a brand).
Consistency refers to how closely related the various product lines are in end use, production
requirements, distribution channels, or some other way.
Kotler says explicitly that product mix planning is largely the responsibility of the company’s
strategic planners. The top management has to assess with the information supplied by
company’s marketers, which the product mix. Hence the product mix is a shared decision by
various functions of the company and not that of marketing department alone.
Product line analysis
Marketers have the need to know the current and potential sales and profits of each item in a
line in order to determine which items to build, sustain, harvest, or divest.
They need to analyze the effect of increasing the length. Can more profit be made by
increasing the length?