1. Context
Companies that make products, especially software products, tend to focus on the number of features with the ambition to meet all the requirements of customers using the product. However, with limited resources as well as the production capacity of competitors, they will quickly catch up to copy products; Determining the optimal value of each product and feature when offered to customers has special meaning for businesses when deciding on their product strategy.
In 1967, Philip Kotler came up with a model that describes 5 levels of product value to help companies gauge exactly how their products create value for customers. This model helps companies make products, instead of focusing too much on technology, they will focus on how technology benefits customers. By being user-oriented, offering added values to satisfy customer needs by different levels, a company will be competitive in the market.
This article aims to introduce readers such as Product Owners and Business Analysts to understand Philip Kotler's "5 product levels" model and reflect his model to the software industry.
2. Philip Kotler's "5 product levels" model
Kotler argues that a product beyond existence and tangible values has abstract values, and he classifies these values into 5 levels of development from low to high that derive from consumer perception and use. And customers will only be satisfied when the value they receive is identical to or higher than their expectations. These 5 levels are:
Level 1. Core benefit — What is the purpose? (What is the core benefit, what is the purpose of the product)
At this lowest level, the value of the product must serve the most basic and essential needs of consumers, if at a lower level, the product is worthless.
For example:
- The value of a restaurant is to eat and help fight hunger.
- Value hotel is for sleeping.
- Shirts are valuable to wear.
- Point of Sale Software for retail selling
Level 2. Generic product — What is the qualities? (Generic product, what are the attributes of the product)
This level describes all the features of the product.
For example:
- The restaurant has different dishes, at level 1 to fight hunger, you don't need to have more than one dish, but having a few rich dishes is still better.
- The hotel has a bed, mattress, at level 1 to sleep may not need a mattress bed, but with a mattress bed, it is still better to sleep.
- Warm, water-resistant, wrinkle-resistant shirt.
- Point of Sale software with calendar review features
Level 3. Expected product — What is customer expectation? (What is the product to expect, what is the customer's expectation of the product)
This level describes the product properties that consumers expect.
For example:
- Restaurants need good food
- The hotel has soft beds, clean mattresses, and international television.
- The shirt is light and comfortable to wear.
- Point of Sales software with high speed, the ability to transact even when the network connection is lost
Level 4. Augmented product — What is apart from competition? (Product enhances, what sets the competition apart)
This level describes the product with additional elements that set the product apart from the competition, regarding brand identity and image. Other factors such as customer service and warranties also fall under this category with the goal being to deliver something beyond an expected product.
For example:
- Restaurants with Kobe beef, or food made from gold
- The shirt has a characteristic fashion style, trendy colors and is produced by a famous brand.
- The most luxurious five-star hotel with gym, swimming pool, massage services
Level 5. Potential product — What transformations may your product undergo in the future? (Potential product, what the product brings in the future)
This degree has all the enhancements and transformations that a product can experience in the future. To ensure customer loyalty, a business must aim to nurture long-term amazement and delight by continuing to add value to its products, perhaps even with features that are ahead of its time. grand.
For example:
- Point of Sales software with after-sales programs for loyal customers when they return to use products and services.
- A warm coat is made of fabric as thin as paper and therefore as light as a feather that allows the rain to automatically slide down.
- Hotel with smart technology experiences.
3. The product's value decline
Over time, people's needs also change very differently, if in the past the need to fight hunger was basic, now eating well has become a basic need, so eating well is an open value at level 3. It will probably become level 1, meaning that restaurants that don't eat well can't sell if the customers they serve are high-end customers.
With the development of science and technology, previously a feature that made the product different at level 5, now that feature was quickly copied and became common in all competitors' products, which brought the value of the product back to level 3.
For example, it is easy to see when the outstanding features of the iPhone create the formerly distinct position was quickly copied and found in other feature phones. If technology advances to the point of making it so cheap and widespread to make that feature, it can lead to customers defaulting to seeing the feature as basic and standard in all products and it return to level 1.
Therefore, it is important to reinvest in R&D to continuously add value to the product.
4. How to use this "5 product levels" model
Application 1. In terms of sales
Kotler's model provides businesses with a proven method for structuring product portfolios targeting different customer segments. This allows them to analyze product profitability in a structured way, thereby organizing products and services into product families tailored to customer segments for sales planning and modeling, and such as production and planning of new product development.
Application 2. In terms of competition
Competition between businesses focuses mainly on product differentiation at the Augmented level according to Philip Kotler, referring to the perception that consumers experience when purchasing a product, according to Kotler, competition is defined as not so much by what companies produce, but by what they add to their products in the form of packaging, service, advertising, consulting, delivery.
Application 3. In terms of production
Products at each level add value to the customer, the more efforts that manufacturing companies put in at all levels, the more opportunities they have to differentiate themselves and sales well.
At the Augmented level when the market is fiercely competitive, the race for product features will be quickly copied by other parties, making it increasingly difficult for consumers to determine the product's distinctiveness. To stay ahead of the competition, manufacturing companies need to focus on the elements that consumers want to add value to such as extreme packaging, surprising advertising, customer-oriented service and favorable terms. reasonable payment. This is not only about pleasing customers and exceeding their expectations, but surprising them (WOW moments).
4. Model examples in the field of software
Consider Point of Sale software for use by merchants to record sales transactions at a retail store.
- Level 1: There is a check-out feature to help sellers declare transactions every time they sell.
- Level 2: Has the feature of reporting revenue by day, month and year.
- Level 3: Check-out feature, summary report with fast speed, beautiful and convenient interface.
- Level 4: High-quality, intelligent, easy-to-use software.
- Level 5: Has market forecast analysis features to have a proactive purchase and replenishment plan.
Consider another example software like Google Map
- Level 1: Display the map, the user's current location.
- Level 2: Ability to navigate, find places, find directions.
- Level 3: Nice interface, convenient, friendly, find your way.
- Level 4: The ability to find intelligent and optimal routes over time and cost.
- Level 5: Ability to update new features continuously, suggesting surrounding services according to user habits and preferences.
5. Reference
- Kotler, P. & Sidney J. Levy. (1969). Broadening the Concept of Marketing. Journal of Marketing, January 1969, Vol. 33, Issue 1, pp.10–15. (Winner of the 1969 Alpha Kappa Psi Foundation Award for the best 1969 paper in the Journal of Marketing.)
- Kotler, P. (1967). Marketing Management: Analysis, Planning and Control. Prentice Hall.
- https://www.toolshero.com/marketing/five-product-levels-kotler/
- https://www.enlightedinc.com/blog/the-five-product-levels-of-building-iot/