Marketing consultant Philip Kotler developed the Five Product Levels model. He asserted that a product was not just a physical object but also something that satisfied a wide range of consumer needs. According to that Kotler identified five types of products: core product, generic product, expected product, augmented product, and potential product.
Understanding the Five Product Levels model
Kotler defined a product as anything that could meet consumer needs or wants. It’s important to note that a lot of needs and wants are not related to product functionality.
That is, the needs and wants of the consumer are more abstract.
Offering products with abstract value should be the goal of any business. Since the consumer receives this value on top of the functional value of the product, they tend to be more satisfied after making a purchase.
Satisfaction also increases when the perceived value of a product matches the actual value of owning it.
Once a product has high perceived value, the brand behind the product forms an emotional bond with the consumer.
This increases brand equity and ensures that a business is top-of-mind the next time a consumer needs to make a purchase.
In the next section, we’ll look at each of the five levels in more detail.
The five basic levels of all products
1. Core level products
Core products address fundamental consumer needs such as food, water, or shelter.
A consumer who rents a hotel room has a core need for sleep.
Others buy cars because of their core need to get from one place to another in a satisfactory amount of time.
2. Generic level products
Generic products do offer some benefits over and above their functionality, but they lack differentiation.
Therefore, businesses offering generic-level products are often competing on price instead of building brand equity.
Generic products are often thought of as commodities and have the bare minimum of features required to make them functional.
Examples include bottled water, insurance, mirrors, and beds.
3. Expected level products
Expected level products have value-adding features that seek to differentiate them both in the marketplace and from core and generic products.
The danger with expected-level products is that they become normalized over time and potentially revert to core-level products.
When Wi-Fi was first offered in hotels, it created a high amount of value and was priced accordingly.
Nowadays, Wi-Fi is so ubiquitous as to be free in most establishments – therefore relegating it to a core or generic product at best.
4. Augmented level products
Augmented products are truly differentiated in their respective markets.
A consumer may not directly seek out the extra features that make a product augmented, but these features do contribute to competitive advantage, nonetheless.
For example, a new laptop bundled with Microsoft Office and a five-year warranty for no extra cost adds abstract value in the form of consumer peace of mind and value for money.
5. Potential products
Potential products are simply the transformations an augmented product might undergo in the future.
Businesses must aim to surprise and delight consumers to sustain brand equity through innovation.
This also ensures that augmented products are continually updated so that they avoid falling to lower levels of the model.
Adobe’s photo editing software is one such example, with engineers constantly adding new features and ensuring that the software is compatible with new camera releases.
Five Product Level model examples
The Coca-Cola Company Five Product Level Model Example
Below is a look at how Coca-Cola stacks up in terms of Kotler’s model:
Core product – at the core level, Coca-Cola drinks aim to quench a consumer’s thirst.
Generic product – drinks are either carbonated or non-carbonated and come in various flavors, types, and packages.
Expected product – in terms of value-adding, Coca-Cola sells some drinks cold to entice consumers. Low or no-calorie drinks are another form of expected product that has become increasingly prevalent in recent years. In fact, these drinks are so commonplace that they may transition to a generic product at some point.
Augmented product – it could be argued that Coca-Cola sold in glass bottles is an example of an augmented product in regions where plastic bottles are the norm. The ‘Share A Coke’ campaign, which printed the most popular 150 names on bottles, was another initiative that differentiated the company’s drinks in the market.
Potential product – due to significant brand equity and value, there is little risk of Coca-Cola’s augmented products falling to lower levels of the model. But this has not caused the company to become complacent. In 2019, Coca-Cola launched a holiday theme promotion with its first-ever large-scale augmented reality experience. Consumers could scan Coke bottles and cans with a mobile app to view the immersive, computer-generated world of the company’s polar bear mascot called “arctic home”.
Nike Five Product Level Model Example
Let’s now take a look at sports footwear and apparel company Nike.
Core product – in terms of Nike footwear, the core product aims to make all forms of physical exercise comfortable and safe for consumers.
Generic product – Nike’s generic products are the range of footwear and sports apparel it sells, including running shoes, sneakers, t-shirts, socks, hats, backpacks, and balls.
Expected product – where Nike starts to excel is in the expected product. Nike is known for its superior quality, with its running shoes in particular associated with flexibility, support, cushioning, protection, and reliability. Nike’s swoosh logo, which is estimated to be worth $30 billion, is also a significant value-adding feature.
Augmented product – according to the company, 60% of its customers are wearing the wrong shoe size. To solve this problem, Nike augments its running shoes with Nike Fit, a feature that utilizes computer vision, data science, and artificial intelligence to properly measure the shape of both feet. Using this approach, the company claims it can measure accurate foot size to within 2 millimeters, As more consumers shop for clothing and apparel online and are wary of purchasing the wrong size, Nike Fit is one augmented product that seems likely to provide a competitive advantage.
Potential product – Nike By You is an initiative that allows consumers to design and personalize their own Nike merchandise, whether that be footwear or sportswear. This can be achieved online or in several studios around the world. In 2017, rival brand Adidas launched its own personalization service in an attempt to close the gap on Nike.
Key takeaways:
The Five Product Levels model shows that consumers have as many five different levels of need for a single product. These needs are based on psychological, emotional, and perceptual factors.
The Five Product Levels model argues that consumers must derive value from a product that is not directly related to its functionality.
The Five Product Levels model explains how a product may move through five levels of development, according to the degree of market differentiation and subsequent consumer benefits.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
