Use this framework to add value to a product or service
This is an important business model for adding value to a product (or service).
Philip Kotler, in his book Marketing Management, published in 1967, describes five levels of a product. He noted that competition takes place more at the augmented level than at the core level. It is the things that "wrap around" the core product such as packaging, delivery, promotion, and advice that people value above all else and that differentiate.
Customers choose products that they value. If that value is met or exceeded, then the customer will be satisfied. The customer must be satisfied on all of the product levels.
Kotler proposes five levels of a product:
Core product: The starting point of Kotler's concept is the core product. This is the product with its benefits as seen by the customer. An airline passenger would see the core product as the ticket to fly from A to B.
Generic product: This represents the qualities that are associated with a product. In the case of the airline customer, the generic product includes that the airline keeps to the schedule and it is safe.
Expected product: These are the things that customers anticipate they will receive when they buy a product. The airline customer will expect a degree of comfort. They may also hope and expect that they will enjoy a friendly experience.
Augmented product: These are the things that add value to a product and are often intangible. They set the product apart from the competition. Most notably the augmented product is the brand and the perceptions that come with it.
Potential product: This is the product of the future. Note that the potential product is assumed to be a better product but it could also be a stripped down version of the existing product.
This is a really important concept. It doesn't matter what the product is, there is nearly always a few levels that deliver additional values. A company's "offer" is always supported by some other services. Commodities are the most basic of products and yet they have additional value that arise from the company that sells them, the speed and reliability of their deliveries, their ability to sort out problems when they arise etc. At the other end of the spectrum there are luxury goods such as perfumes where the products are supported by the packaging, the brand and the emotions they generate.
All products have a price.This should be based on their perceived value though often prices are simply built on costs plus a margin. The product (in its broadest sense) and the price have to be in equilibrium if the company is to be successful.
This framework helps us see how innovation and new product development should go beyond the core product. It is just as important to improve the augmented product.
A couple of things to think about:
Improvements that are made to a product are unlikely to be around core needs or the generic product. The improvements will be to features or services that enhance the product.
All products can be enhanced. In order to work out what the enhancement should be, it is worth considering ethnographic research to see how customers actually use the product.