Define Setting Product Strategy

Unit III: Product Decisions

This unit explores the exciting world of products and how companies make smart choices to succeed.

Setting Product Strategy

# Product Classification

Why Classify?

• Understand Consumer Behavior: How people search, evaluate, and buy.
• Target Marketing: Tailor messages to specific needs.
• Set Prices: Reflect perceived value and buying habits.
• Distribution: Get products where they need to be.
• Develop New Products: Meet market demands effectively.
• Manage Inventory: Stock the right amount at the right time.

I. Consumer Goods: Bought for personal use.

• A. Convenience Goods: Grab and go! Low effort, frequent purchase.
  • 1. Staples: Essentials always on hand.
    • Groceries: Milk, bread, eggs
    • Household: Toilet paper, cleaning supplies
    • Personal care: Soap, shampoo
  • 2. Impulse: Spur-of-the-moment buys.
    • Candy, gum, magazines at checkout
    • Small toys, phone accessories
  • 3. Emergency: Urgent needs, price less important.
    • Umbrellas in a storm
    • Over-the-counter medicine
    • Batteries during a power outage
• B. Shopping Goods: More thought, comparison shopping.
  • Examples:
    • Clothing: Style, fit, quality matter
    • Furniture: Durability, looks, comfort
    • Electronics: Research brands, features, reviews
• C. Specialty Goods: Unique, strong brands, loyal customers.
  • Examples:
    • Luxury cars: Ferrari, Lamborghini
    • Designer clothes: Gucci, Chanel
    • High-end electronics: Top audio, cameras
    • Collectibles: Rare stamps, coins, art
• D. Unsought Goods: Need to create awareness and need.
  • Examples:
    • Life insurance: Sold through agents
    • Funeral services: Pre-need arrangements
    • Blood donations: Campaigns to encourage giving
    • New inventions: Solving problems people don't know they have

II. Industrial Goods: Bought for business use.

• A. Materials and Parts: Building blocks of other products.
  • 1. Raw Materials: Unprocessed, from nature.
    • Agricultural: Wheat, cotton
    • Minerals: Iron ore, crude oil
    • Timber
  • 2. Manufactured: Processed, ready for assembly.
    • Components: Engines, tires
    • Processed materials: Steel, plastics
• B. Capital Goods: Big investments, aid production.
  • Examples:
    • Installations: Buildings, factories, heavy machinery
    • Equipment: Computers, servers, vehicles, tools
• C. Supplies and Services: Support operations, not in final product.
  • Examples:
    • Operating supplies: Office supplies, cleaning supplies
    • Maintenance and repair: Keeping things running
    • Business services: Consulting, legal, accounting

Product Levels

A product is more than just the physical item or service—it has multiple levels that satisfy the customer’s needs. These five levels, introduced by Philip Kotler, are:

1. Core Product

The core product is the fundamental benefit or value that the customer is buying.

• It answers the question: What is the customer really buying?
• It is not a physical product but the basic need or solution the product fulfills.

Examples:

• A smartphone’s core product is communication and connectivity.
• A hotel room’s core product is providing rest and shelter.

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2. Basic Product

The basic product refers to the physical or tangible product that provides the core benefit.

• It includes the essential components and features that make the product functional.

Examples:

• For a smartphone: The device itself with its touchscreen, battery, and calling features.
• For a hotel room: The bed, bathroom, and lighting.

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3. Expected Product

The expected product encompasses all the attributes or features that customers typically expect when they buy the product.

• These are the minimum requirements that the product must meet to satisfy customer expectations.

Examples:

• A smartphone: Customers expect good battery life, a clear screen, and basic apps like a camera and messaging.
• A hotel room: Customers expect clean sheets, a comfortable mattress, hot water, and basic amenities like soap and towels.

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4. Augmented Product

The augmented product includes additional features, services, or benefits that differentiate the product from competitors.

• It goes beyond customer expectations to create added value and improve customer satisfaction.
• This is a key area for product differentiation.

Examples:

• A smartphone: Free cloud storage, extended warranties, customer service, or pre-installed premium apps.
• A hotel room: Free Wi-Fi, complimentary breakfast, swimming pool access, or personalized services like concierge assistance.

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5. Potential Product

The potential product represents all future improvements or innovations that could be made to enhance the product and satisfy customers further.

• It is about what the product could become to meet evolving customer needs or take advantage of new technology.

Examples:

• A smartphone: Future updates like foldable screens, enhanced AI assistants, or holographic displays.
• A hotel room: Virtual reality tours, automated room service using robots, or AI-powered guest preferences.

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Summary Table for Better Understanding:

Level	Definition	Example (Smartphone)	Example (Hotel Room)
Core Product	The fundamental benefit or solution the product provides.	Communication and connectivity.	Rest and shelter.
Basic Product	The tangible product providing the core benefit.	The phone itself, with basic hardware.	Bed, bathroom, and lighting.
Expected Product	The minimum features or attributes expected by customers.	Touchscreen, good battery life, basic apps.	Clean sheets, hot water, soap, towels.
Augmented Product	Additional features that add value and differentiate the product.	Free cloud storage, extended warranties.	Free Wi-Fi, complimentary breakfast.
Potential Product	Future improvements and innovations.	Foldable screens, holographic displays.	Automated room service, VR experiences.

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Importance of Understanding Product Levels:

1. Customer Satisfaction: Recognizing these levels helps companies meet and exceed customer expectations.
2. Differentiation: By focusing on the augmented and potential levels, companies can stand out in competitive markets.
3. Innovation: Considering the potential product encourages businesses to anticipate customer needs and stay ahead of industry trends.

Product and Services Differentiation

In a crowded market, standing out is key. Companies differentiate their products and services by:

• Unique features: Offering something special that competitors don't have.
• Quality: Building a reputation for superior quality.
• Design: Creating an appealing and functional design.
• Branding: Building a strong brand identity that resonates with customers.