Many people think a product is tangible, but technically a product is anything that can be offered to a market to satisfy a want or need, including physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.
1. PRODUCT LEVELS: THE CUSTOMER-VALUE HIERARCHY
In planning its market offering, the marketer needs to address five product levels (see Figure 13.2).2 Each level adds more customer value, and together the five constitute a customer-value hierarchy.
- The fundamental level is the core benefit: the service or benefit the customer is really buying. A hotel guest is buying rest and sleep. The purchaser of a drill is buying holes. Marketers must see themselves as benefit providers.
- At the second level, the marketer must turn the core benefit into a basic product. Thus a hotel room includes a bed, bathroom, towels, desk, dresser, and closet.
- At the third level, the marketer prepares an expected product, a set of attributes and conditions buyers normally expect when they purchase this product. Hotel guests minimally expect a clean bed, fresh towels, working lamps, and a relative degree of quiet.
- At the fourth level, the marketer prepares an augmented product that exceeds customer expectations. In developed countries, brand positioning and competition take place at this level. In developing and emerging markets such as India and Brazil, however, competition takes place mostly at the expected product level.
- At the fifth level stands the potential product, which encompasses all the possible augmentations and transformations the product or offering might undergo in the future. Here companies search for new ways to satisfy customers and distinguish their offering.
Differentiation arises and competition increasingly occurs on the basis of product augmentation. Each augmentation adds cost, however, and augmented benefits soon become expected benefits and necessary points-of-parity in the category. If today’s hotel guests expect large-screen HD TVs, wireless Internet access, and a fully equipped fitness center, competitors must search for still other features and benefits to differentiate themselves.
As some companies raise the price of their augmented product, others offer a stripped-down version for less. Thus, alongside the growth of expensive luxury hotels such as Four Seasons and Ritz-Carlton, we see lower-cost discount hotels and motels emerge such as Motel 6 and Comfort Inn, catering to clients who want simply the basic product. Marketers must be sure, however, that consumers not see lower quality or limited capability versions as unfair.3
Great companies make great products and services, as evident by Lego.4
LEGO LEGO may have been one of the first mass-customized brands. Every child who has ever had a set of the Danish company’s most basic blocks has built his or her own unique creations with it, brick by plastic brick. Although LEGO defines itself as being in the “business of play,” parents like the idea of buying LEGO’s products as a means of also enhancing their children’s motor skills, creativity, and other cognitive capabilities. Some bricks and systems are exactly the same as 50 years ago, but the company is always developing new product offerings. Popular play sets tied in with the Pirates of the Caribbean and Star Wars film franchises also include video games. LEGO Design byME lets customers design, share, and build their own custom products by downloading free Digital Designer 3.0 software. The creations that result can exist—and be shared with other enthusiasts—solely online, or, if customers want to build them, the software tabulates the pieces required and sends an order to LEGO’s Enfield, Connecticut, warehouse. Customers can request step-by-step building guide instructions and even design their own box to store the pieces. The success of The LEGO Movie in 2014 further underscored the widespread popularity of the brand.
Timeless toy manufacturer Lego constantly innovates so that its brand stays relevant with kids of all ages.
2. PRODUCT CLASSIFICATIONS
Marketers classify products on the basis of durability, tangibility, and use (consumer or industrial). Each type has an appropriate marketing-mix strategy.5
DURABILITY AND TANGIBILITY Products fall into three groups according to durability and tangibility:
- Nondurable goods are tangible goods normally consumed in one or a few uses, such as beer and shampoo. Because these goods are purchased frequently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and build preference.
- Durable goods are tangible goods that normally survive many uses: refrigerators, machine tools, and clothing. They normally require more personal selling and service, command a higher margin, and require more seller guarantees.
- Services are intangible, inseparable, variable, and perishable products that normally require more quality control, supplier credibility, and adaptability. Examples include haircuts, legal advice, and appliance repairs.
CONSUMER-GOODS CLASSIFICATION When we classify the vast array of consumer goods on the basis of shopping habits, we distinguish among convenience, shopping, specialty, and unsought goods.
The consumer usually purchases convenience goods frequently, immediately, and with minimal effort. Examples include soft drinks, soaps, and newspapers. Staples are convenience goods consumers purchase on a regular basis. A buyer might routinely purchase Heinz ketchup, Crest toothpaste, and Ritz crackers. Impulse goods are purchased without any planning or search effort, like candy bars and magazines. Emergency goods are purchased when a need is urgent—umbrellas during a rainstorm, boots and shovels during the first winter snow. Manufacturers of impulse and emergency goods will place them where consumers are likely to experience an urge or compelling need to purchase.
Shopping goods are those the consumer characteristically compares on such bases as suitability, quality, price, and style. Examples include furniture, clothing, and major appliances. Homogeneous shopping goods are similar in quality but different enough in price to justify shopping comparisons. Heterogeneous shopping goods differ in product features and services that may be more important than price. The seller of heterogeneous shopping goods carries a wide assortment to satisfy individual tastes and trains salespeople to inform and advise customers.
Specialty goods have unique characteristics or brand identification for which enough buyers are willing to make a special purchasing effort. Examples include cars, audio-video components, and men’s suits. A Mercedes is a specialty good because interested buyers will travel far to buy one. Specialty goods don’t require comparisons; buyers invest time only to reach dealers carrying the wanted products. Dealers don’t need convenient locations, though they must let prospective buyers know where to find them.
Unsought goods are those the consumer does not know about or normally think of buying, such as smoke detectors. Other classic examples are life insurance, cemetery plots, and gravestones. Unsought goods require advertising and personal-selling support.
INDUSTRIAL-GOODS CLASSIFICATION We classify industrial goods in terms of their relative cost and the way they enter the production process: materials and parts, capital items, and supplies and business services. Materials and parts are goods that enter the manufacturer’s product completely. They fall into two classes: raw materials and manufactured materials and parts. Raw materials in turn fall into two major groups: farm products (wheat, cotton, livestock, fruits, and vegetables) and natural products (fish, lumber, crude petroleum, iron ore).
Farm products are supplied by many producers, who turn them over to marketing intermediaries, who provide assembly, grading, storage, transportation, and selling services. The perishable and seasonal nature of farm products gives rise to special marketing practices, whereas their commodity character results in relatively little advertising and promotional activity. At times, commodity groups will launch campaigns to promote their product—potatoes, cheese, and beef. Some producers brand their products—Dole salads, Mott’s apples, and Chiquita bananas.
Natural products are limited in supply. They usually have great bulk and low unit value and must be moved from producer to user. Fewer and larger producers often market them directly to industrial users. Because users depend on these materials, long-term supply contracts are common. The homogeneity of natural materials limits the amount of demand-creation activity. Price and reliable delivery are the major factors influencing the selection of suppliers.
Manufactured materials and parts fall into two categories: component materials (iron, yarn, cement, wires) and component parts (small motors, tires, castings). Component materials are usually fabricated further—pig iron is made into steel, and yarn is woven into cloth. The standardized nature of component materials usually makes price and supplier reliability key purchase factors. Component parts enter the finished product with no further change in form, as when small motors are put into vacuum cleaners and tires are put on automobiles. Most manufactured materials and parts are sold directly to industrial users. Price and service are major marketing considerations, with branding and advertising less important.
Capital items are long-lasting goods that facilitate developing or managing the finished product. They fall into two groups: installations and equipment. Installations consist of buildings (factories, offices) and heavy equipment (generators, drill presses, mainframe computers, elevators). Installations are major purchases. They are usually bought directly from the producer, whose sales force includes technical staff, and a long negotiation precedes the typical sale. Producers must be willing to design to specification and to supply postsale services. Advertising is much less important than personal selling.
Equipment includes portable factory equipment and tools (hand tools, lift trucks) and office equipment (desktop computers, desks). These types of equipment don’t become part of a finished product. They have a shorter life than installations but a longer life than operating supplies. Although some equipment manufacturers sell direct, more often they use intermediaries because the market is geographically dispersed, buyers are numerous, and orders are small. Quality, features, price, and service are major considerations. The sales force tends to be more important than advertising, though advertising can be used effectively.
Supplies and business services are short-term goods and services that facilitate developing or managing the finished product. Supplies are of two kinds: maintenance and repair items (paint, nails, brooms) and operating supplies (lubricants, coal, writing paper, pencils). Together, they go under the name of MRO goods. Supplies are the equivalent of convenience goods; they are usually purchased with minimum effort on a straight-rebuy basis. They are normally marketed through intermediaries because of their low unit value and the great number and geographic dispersion of customers. Price and service are important considerations because suppliers are standardized and brand preference is often not high.
Business services include maintenance and repair services (window cleaning, copier repair) and business advisory services (legal, management consulting, advertising). Maintenance and repair services are usually supplied under contract by small producers or from the manufacturers of the original equipment. Business advisory services are usually purchased on the basis of the supplier’s reputation and staff.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.