Product Decisions: Levels, New Products and the Life Cycle

Two phones have almost the same chip, camera and price. Buyers still pick one because its service centre is in their town, or because it comes with free backup. What people buy is more than the object in the box.

Products include physical goods, services, experiences, events, places and ideas. Buyers see a product at several levels, and each level adds customer value.

Five levels. Kotler and Keller describe a five-level customer-value hierarchy. Take a guest at a hotel:

1. Core benefit: rest and sleep.
2. Basic product: a room with a bed, bathroom and towels.
3. Expected product: what guests normally expect, such as clean sheets and a quiet room.
4. Augmented product: more than they expect, such as an airport pickup.
5. Potential product: all the changes the offer might undergo in future.

Competition increasingly takes place at the augmented level. Some texts call the actual product the formal product.

Classifying consumer products. Products are grouped by how people buy them. A kirana store lives on convenience products; a family visits three showrooms before buying a refrigerator, a shopping product.

Don't confuse the core product with the actual product. The core is the benefit, staying connected. The actual product is the thing that delivers it: the phone, its brand and its box. Also keep the two models apart: Kotler and Armstrong use three levels, Kotler and Keller five.

Where it breaks. The classes describe buyers, not goods. A watch is a shopping product for one buyer and a specialty product for another. In services, the actual and augmented levels often blur.

In practice. When rivals' actual products look alike, compete on the augmented level: delivery, installation, warranty and service. For exams, expect a level matched to an example, or the five levels in order.

Core benefit, actual product, augmented product.

A consumer-goods firm wants to grow. It can enter a new category, add brands to a category it already sells in, or add sizes and flavours to a brand. Each move stretches a different dimension of its product mix.

A product item is a specific version of a product: one model, brand or size. A product line is a group of closely related products made or sold by the same firm.

Working it out. For the food company in the diagram, width is 3 and length is 7. Its average line length is length ÷ width = 7 ÷ 3 ≈ 2.3 brands per line. If biscuit brand 1 comes in two flavours and three pack sizes, its depth is 2 × 3 = 6.

These four dimensions give the firm four ways to grow: add lines (width), lengthen lines, add variants (depth), or make the mix more or less consistent.

Don't confuse length with depth. Length counts items across all lines. Depth counts the variants of one product inside a line. Nor is a product line the product mix: the mix is all the lines together.

Where it breaks. The counts depend on what the firm calls an item: a brand, a variant or each pack size. Compare two firms only on the same basis. A long line also costs more to stock and can confuse buyers.

In practice. A line is too short if adding items would raise profit, and too long if dropping items would (Kotler and Armstrong). Firms lengthen a line by stretching it up-market or down-market, or by filling gaps within its present range.

Width: lines. Length: items. Depth: variants. Consistency: relatedness.

A dairy cooperative's staff suggest 25 new products in a year. Launching each one would cost crores, and most would not sell. The firm needs a sequence that drops weak ideas while they are still cheap to drop.

Kotler and Armstrong describe NPD in eight steps. Follow the dairy's idea for a packaged masala chaas, a spiced buttermilk, as an illustration.

Adoption. After launch, buyers do not all arrive at once. Everett Rogers (Diffusion of Innovations, 1962) grouped adopters by how early they take up an innovation.

So of every 1,000 eventual buyers of the chaas, about 25 would be innovators and 135 early adopters. Another 340 would be the early majority, 340 the late majority and 160 laggards.

Don't confuse concept testing with test marketing. A concept test shows customers a description before the product exists. A test market sells the real product, with its real marketing, in a few places. Also, many study notes list seven steps and leave out step 4, marketing strategy development; Kotler and Armstrong give eight.

Where it breaks. In practice the steps overlap, and fast-moving firms run several at once. Test marketing costs time and money and lets competitors see the product early. Rogers's shares come from a normal curve, so a real product's adopters rarely split exactly that way.

For exams. Know the eight steps in order, the step short lists drop, and Rogers's five groups with their shares.

Go deeper for practitioners

What speeds adoption. Kotler and Keller list five traits of an innovation that affect how fast it spreads:

• Relative advantage over what it replaces.
• Compatibility with buyers' values and habits.
• Complexity, which slows adoption.
• Divisibility: whether it can be tried in small amounts.
• Communicability: whether its benefits can be seen or described.

The chasm. Geoffrey Moore (Crossing the Chasm, 1991) argued that many technology products stall between early adopters and the early majority. The two groups buy for different reasons: the first for a breakthrough or an edge over competitors, the second for proven, practical value.

A decision. Your concept test is strong, but a test market would take a full summer and show rivals your recipe. Skipping it saves a season but risks a state-wide flop. The cost of a failed full launch, against the cost of a lost season, decides it.

Links. The product life cycle (next) picks up where commercialisation ends: innovators buy in the introduction stage, the majorities in growth and maturity.

Generate, screen, test the concept, plan the strategy, analyse, develop, test-market, launch.

A new snack sells only through heavy advertising in its first year. Ten years later it sells by habit, while rivals undercut its price. The same product needs different marketing as it ages.

Each stage calls for a different strategy. Theodore Levitt's “Exploit the Product Life Cycle” (1965) is a classic account. Before the cycle starts, the product is in development: sales are zero and the firm is only spending.

Reading the table down one column. In maturity, sales are at their peak but growing slowly, and many rivals compete for the same buyers. So the snack maker adds new flavours and pack sizes, matches rivals' prices, pushes into more outlets, and advertises what makes its brand different.

Not every product follows the smooth curve. Styles come and go in cycles, fashions rise slowly and decline slowly, and fads rise and collapse quickly.

Don't confuse a product class, a product form and a brand. The PLC can describe any of them, but they age differently. A class, such as packaged snacks, can stay mature for decades; a form, such as baked chips, or a single brand moves through the stages faster. Nor is a fashion a fad: a fashion declines slowly, a fad collapses.

Where it breaks. It is hard to tell which stage a product is in, or when the next one starts. The PLC can also fulfil itself: a manager who decides a product is declining cuts its support, and sales then fall. Many products are revived rather than left to decline.

In practice. Use the stage to set the objective, then check every element of the mix against it. For exams, expect a stage matched to a strategy row, and the difference between styles, fashions and fads.

Go deeper for practitioners

Three ways out of maturity. Kotler and Armstrong suggest modifying the market (new users, new uses, more use per buyer), modifying the product (quality, features, style) or modifying the marketing mix (price, channels, promotion).

The critique. Nariman Dhalla and Sonia Yuspeh's “Forget the Product Life Cycle Concept!” (1976) argued that the stages are not fixed and that the PLC can lead managers to drop products too early. Treat the curve as a description of the past, not a forecast.

A decision. A ten-year-old snack's sales fell 5% this year. Is it declining, or did a rival's discount take share for a season? Check whether the whole category fell or only your brand. A falling category points to decline; a falling brand in a steady category points to a fixable problem.

Links. Skimming and penetration are explained in Pricing decisions; intensive and selective distribution in Place: distribution channels, logistics and supply chains.

Introduce, grow, mature, decline: change the mix at each stage.