Product Management: Product Levels, Product Hierarchy, Product Mix!

We will discuss about how a company manages its products. Marketers must determine the assortment of products they are going to offer consumers.

Some firms sell a single product; others sell a variety of products. A product item refers to a unique version of a product that is distinct from the organisations other products.

Product Levels:

Theodore Levitt proposes that in planning its market offering, the marketer needs to think through 5 levels of the product. Each level adds more customer value and taken together forms Customer Value Hierarchy.

i. Core Benefit or Product:

This is the most fundamental level. This includes the fundamental service or benefit that the customer is really buying. For example, a hotel customer is actually buying the concept of “rest and sleep”

ii. Basic or Generic Product:

The marketer at this level has to turn the core benefit to a basic product. The basic product for hotel may include bed, toilet, and towels.

iii. Expected Product:

At this level, the marketer prepares an expected product by incorporating a set of attributes and conditions, which buyers normally expect they purchase this product. For instance, hotel customers expect clean bed, fresh towel and a degree of quietness.

iv. Augmented product:

At this level, the marketer prepares an augmented product that exceeds customer expectations. For example, the hotel can include remote-control TV, fresh, flower room service and prompt check-in and checkout. Today’s competition essentially takes place at the product-augmentation level. Product augmentation leads the marketer to look at the user’s total consumption system i.e. the way the user performs the tasks of getting, using fixing and disposing of the product.

Theodore Levitt pointed out that the real competition is not what the companies have manufactured in the factories, but between what they add to their factory output in the form of packaging, services, advertising, customer advice, financing, delivery arrangements, warehousing and other things that people value.

Some things should be considered in case of product-augmentation strategy.

i Each augmentation adds cost. The extra benefits available in hotels add cost

ii. Augmented benefits soon become expected benefits. The unexpected additions like flower, remote-controlled TV soon become very much expected by the customers from the hotel.

iii. As companies raise the price of their augmented product, some companies may offer a stripped- down” i.e. no-augmented product version at much lower price. There are always a set of low- cost hotel are available among the 5-star hotels.

v. Potential Product:

This level takes into care of all the possible augmentations and transformations the product might undergo in the future. This level prompts the companies to search for new ways to satisfy the customers and distinguish their offer. Successful companies add benefits to their offering that not only satisfy customers, but also surprise and delight them. Delighting is a matter of exceeding expectations.

Product Hierarchy:

Each product is related to certain other products. The product hierarchy stretches from basic needs to particular items that satisfy those needs. There are 7 levels of the product hierarchy:

1. Need family:

The core need that underlines the existence of a product family. Let us consider computation as one of needs.

2. Product family:

All the product classes that can satisfy a core need with reasonable effectiveness. For example, all of the products like computer, calculator or abacus can do computation.

3. Product class:

A group of products within the product family recognised as having a certain functional coherence. For instance, personal computer (PC) is one product class.

4. Product line:

A group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same channels or fall within given price range. For instance, portable wire-less PC is one product line.

5. Product type:

A group of items within a product line that share one of several possible forms of the product. For instance, palm top is one product type.

6. Brand:

The name associated with one or more items in the product line that is used to identity the source or character of the items. For example, Palm Pilot is one brand of palmtop.

7. Item/stock-keeping unit/product variant:

A distinct unit within a brand or product line distinguishable by size, price, appearance or some other attributes. For instance, LCD, CD- ROM drive and joystick are various items under palm top product type.

Product Mix:

An organisations product line is a group of closely related products that are considered a unit because of marketing, technical or end-use considerations. In order to analyse each product line, product- line managers need to know two factors. These are.

i. Sales and profits

ii. Market profile

A product mix or assortment is the set of all products and items that a particular seller offers for sale. A company’s product-mix has some attributes such as.

1. Width:

This refers to how many different product lines the company carries.

2. Depth:

This refers to how many variants, shades, models, pack sizes etc. are offered of each product in the line

3. Length:

This refers to the total number of items in the mix.

4. Consistency:

This refers to how closely the various product lines are related in end use, production requirements, distribution channels or some other way.

Let us take example of partial product assortment of HLL in its Home and Personal Care (HPC) division:

So you see that there are three product lines of detergent, bathing soaps and shampoos in our example. The list is illustrative and not exhaustive as HLL has many more product lines. Hence, in the example the product width is 3. If Sunsilk has 3 different formulations (oily, dry and normal hair) and 3 variations (sachet, 50 ml and 100 ml), then the depth of Sunsilk is 3 X 3 = 9.

The average depth of HLL’s product mix can be calculated by averaging the depths of all brands, which signifies the average depth of each product. For example if Surf, Lifebuoy, Surf Excel, Lux, Clinic Plus, Sunsilk, Wheel, Liril, Rexona, Dove and Hamam have depths of 3, 2, 1, 3, 6, 9, 2, 3, 2, 1 and 2 respectively (all are hypothetical figures), then the average depth of HLL’s HPC division is (3+2+l+3+6+9+2+3+2+l+2)/11i. e. 34/11 i.e. 3.1. The length of HPC division is 11. The average length of line is determined by dividing the total length by the width (i.e. the number of lines), which signifies the average number of products in a product line. In this case, the average length is 11/3 i.e. 3.67.

Product-Line Length:

Product-line managers are concerned with length of product line. If adding items to the product line can increase profits, then we can say that the product line is too short. On the contrary, the line is too long if dropping items can increase profits. They have to consider these two extremes of the product line and have to strike a balance between them.

Company objectives influence product-line length. Companies seeking high market share and market growth will carry longer lines. Companies that emphasise high profitability will carry shorter lines consisting of carefully chosen items.

A company can lengthen its product line in 2 ways viz. a) line stretching and b) line filling.

Line Stretching:

This occurs when a company lengthens its product line beyond its current range. This is a frequent measure taken by companies to enter new price slots and to cater to new market segments. The product may be stretched by the addition of new models, sizes, variants etc. The company can stretch in 3 ways:

1. Down-market stretch:

A company positioned in the upper market may want to introduce a lower price line. They offer the product in the same product line for the lower end markets. A company can take this strategy for 3 reasons:

i. Strong growth opportunities in the down-market

ii. Tie-up lower-end competitors who might try to move up-market

iii. Stagnating or declining middle market

The company has 3 choices in naming its down-market products.

i. Same name Eg: Sony

ii. Sub-brand name: Eg: Maruti 800

iii. Different name: Eg: Panasonic and JVG from Matshushita

ii.Up-market stretch:

Companies may wish to enter the high end of the market for more growth, higher margins or simply to position themselves as full-line manufacturers. So they offer the products in the same product line and cover the upper end market. For example, most of the car companies in India have cars in premium segments like GM (Chevrolet Forester), Ford (Endeavour), Hyundai (Terracan), Mitusubishi (Pajero), Maruti (Grand Vitara XL-7), Honda (CR-V) and Mercedes Benz (M-Class)

iii.Two-way stretch:

Companies serving the middle market may decide to stretch their line in both directions. Tata Motors had Multi-purpose Utility Vehicles (MU V) like Sumo and Safari targeted for middle segment of the market. It had launched Indica for lower segment of the market as well as Indigo Marina and Indigo Estate for up-market consumers.

a) Line filling:

As the name applies, filling means adding a product to fill a gap in the existing line. The company wants to portray itself as full line company and that customers do not go to competitors for offers or models in particular price slots. There are several motives of line filling as follows:

i) Reaching for incremental profits

ii) Trying to satisfy dealers who complain about lost sales because of missing items in the line

iii) Trying to utilise the excess capacity

iv) Trying to be the leading full-line company

v) Trying to plug holes in the product-line to keep out the competitors

Line Modernisation:

Product lines need to be modernised continuously. Companies plan improvements to encourage customer migration to higher-valued, higher-priced items. For instance, Intel upgraded its Celeron microprocessor chips to Pentium 1, 2, 3 and now 4.

Line Featuring:

The product-line manager selects one or few items in the line to feature. Sometimes, a company finds one end of its line selling well and the other end selling poorly. Then the company may try to boost demand for the short sellers especially if they are produced in a factory that is idled by lack of demand.

Line Pruning:

At times a company finds that over the years it has introduced many variants of a product in the product line. This was required may be because of the changing market situations. In this process the product lines become unduly complicated and long with too many variants, shapes or sizes. In the present situation it mind find out that efforts behind all these variants is leading to non-optimal utilisation of resources. In other words it might be profitable for the company to leave behind some of the variants.

So when the products are not satisfactorily performing, the product managers need to drop them form the product line. This may lead to increase in profitability. Thus line pruning is consciously taken decision by the product manager to drop some product variants from the line. For example Heads and Shoulders is a well-known brand of shampoo from P&G, which had 31 versions. They went for line pruning and now they have around 15 versions.