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A business model to add 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:

  1. 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.

  2. 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.

  3. 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.

  4. 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. 

  5. 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.

Kotler's five product levels.JPG

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.


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. 

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