The 5 Product Levels Model (Kotler)

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The 5 Product Levels Model (Kotler)

PRODUCT
What is a Product really? It is anything that a firm offers to satisfy the needs or wants of the market. This could include physical goods, services, person, place, information, experiences, etc.
Customers judge the product/service offering based on the quality, features, and price, and then choose a product based on the perceived value.

PRODUCT DIFFERENTIATION
Product differentiation plays a key role in strategically positioning the firm's product/service differently vis-à-vis the competitors's products, and helps in transitioning the product from the customer's consideration set to the choice set (actual purchase).

KOTLER'S 5 PRODUCT LEVELS MODEL
Philip Kotler developed this model, which proposed that any product may have up to 5 product layers (in the form of concentric circles) based on the amount of differentiation provided – Core, Basic (or Generic), Expected, Augmented and Potential Product.

1. CORE NEED LEVEL: This level fulfills the very basic need of the customer.
   For example, a Word processing software such as Microsoft Word can be thought as 'a medium to type and store text'.
2. BASIC PRODUCT LEVEL: This level delivers the core benefit along with some additional features that enable the product to function. At this level, there is hardly any differentiation among other available products; however, competition may be driven by price.
   For example, Microsoft develops an application comprising of space to type in the text, tools to format the input text, and a function to save the text (at required location).
3. EXPECTED PRODUCT LEVEL: This level sets the bar for the minimum requirements in the product for the customer to purchase it – additional features along with the Basic product. A few product differentiations are visible at this level.
   For example, Microsoft may add options to include icons, photos, and tables along with the text, a grammar check function, word count function, options to save the text in various file formats.
4. AUGMENTED PRODUCT LEVEL: The Expected product is augmented with additional features (which the customer might not have thought about) that help to differentiate from the competition. However, over a period of time, the Augmented features (Points-of-Differences) turn into Expected features (Points-of-Parity). Augmented products are a sign of a mature market or sophisticated customers. Each augmentation to the product increases the cost of the product; some customers might value a slightly stripped-down product (of lesser cost) over an augmented product (of higher cost).
   For example, Microsoft adds in options to automatically create an Index using the Headings and Subheadings within the text, ability to track changes to the document, a time-based Autosave feature, ability to sync the document with your account (on Cloud).
5. POTENTIAL PRODUCT LEVEL: This product level includes all augmentations that the product might undergo in the future, in order to attract and retain the customers on a continuing basis.
   For example, Microsoft keeps on rolling out frequent updates to the software, by adding in new features that enhance the customer usage, and remove the bugs and redundant features.

Sources:
Kotler, P. & Keller, K. L. (2016) "Marketing Management", 2016, pp. 395-396
Levitt, T. (1980) "Marketing Success through Differentiation - of Anything", Harvard Business Review, 1980, January
Hughes, K. (2019) "Beyond Customer Expectations: The 5 Layers of Product", Ken Hughes

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		3 Simon Raistrick Business Consultant, New Zealand
	Defining 'Basic Product Needs' is Hard! I spent 10 years working on an international standard in this area. Even after that time, with a decade of the best experts in the world, we couldn't come up with an easy definition of what basic needs are for a product. It's harder than you think, especially with complex products and service-products. And what if the user base shifts over time? Are they the needs you design for or the actual needs of actual users?... These questions quickly undermine simple models like this and you realize such models are only useful at the most basic level and quickly fall apart on inspection.

		2 Jaap de Jonge Editor, Netherlands
	Defining Product Needs and Levels @Simon Raistrick: Thanks for sharing and agreed; if someone ever thought that marketing or management is simple, think again. That's why we build, document, and use models and instruments. And we discuss them here on 12manage to perhaps get a bit closer to management practice/reality. However the reality is quite often considerably more complex. But, as a Dutch saying goes: "It's better than nothing".

		2 Devendra Vyavaharkar Manager, India
	Kotler's 5 Product Levels Model in Changing Market Dynamics @Simon Raistrick thanks for reaction to the post. I agree with you about how the borders defining the various levels tend to distort with the new and complex products/services in the market today. The definitions that I have quoted have been derived from those given by notable Marketing Gurus - Phillip Kotler, Kevin Keller, and Theodore Levitt. Focusing on the changing needs of the market, I would like to draw light on the concept of Points-of-Parity and Points-of-Difference. The first three layers in the 5 Product Levels model resemble the POPs, while the last two are PODs for the firm's offering. Changing market dynamics often cause some of the PODs to convert to POPs. So the firm has to constantly innovate and find new features for the offering. Thus the POPs (the actual needs of actual users) and PODs (the needs the firm wishes to fulfill in addition to the basic needs) keep on changing with time. Pointing to what @Jaap de Jonge said (thanks for giving your insights), the simplicity of the model makes it flexible to have a wider application across industries (with their own nuances). This model finds application even in today's context, as it forms the underlying proposition for the optional feature pricing strategy (which is extensively used in Airlines and Consumer Durables). Finally, indeed the VUCA world we live in today is analogous to disruptions across industries. But in such dynamic world, leaders and managers SHOULD often take a step back to look at the Core and Basic needs that the firm fulfills. This helps them in deciding on their future strategies. I would be curious to hear about your perspective on the various product levels, through your experience across industries!

		2 Maurice Hogarth Consultant, United Kingdom
	A Model of Fitness @Simon Raistrick: Agreed. Didn't the people wanting a definition for "quality" have a similar difficulty? To paraphrase: are the basic needs for a product what makes the product "fit for the intended ...