THREE LEVELS OF PRODUCT – CORE VALUE, ACTUAL PRODUCT, AUGMENTED PRODUCT
If you think of a product, you most likely think of only one level of the three levels of product. If you think of a car, you probably think of the car: how it looks like, how it drives and so on. But a product is much more than what you think. We will investigate the three levels of product.
Three levels of product can be identified. Each level adds more customer value. The first and most basic level is called the core customer value. The first one of the levels of product, the core customer value, answers the question: What is the buyer really buying? When a marketer designs a product, he should first think of the core problem. What does the consumer really seek? If you buy a car, the most basic core value you seek is transportation. For others, it might be status or glamour. If you buy a smartphone, the core customer value might be communication. Likewise, if you buy an iPad, you buy more than a mobile computer or a personal organiser. The core customer value you buy is freedom and on-the-go connectivity. A woman buying a lipstick seeks more than just a colourful cosmetic. In fact, she might seek hope. You see that already the first one of the three levels of product is much more than the product itself. Always ask yourself first when developing a product: What benefit does the customer really seek? What is the problem that needs to be solved?
The second one of the three levels of product is the actual product. Marketers should turn the core benefit, the core customer value they identified into an actual product. This involves developing product features, design, a quality level, a brand name and even a packaging. The smartphone you finally buy as well as the car are actual products. You buy the phone, the packaging, the functionality and so on. All these factors at the second one of the levels of product relate to the core customer value. This reveals that the levels of product build up on each other. The smartphone’s name, parts, styling, features, packaging and other attributes all have been carefully combined to deliver the core customer value of staying connected.
Finally, the levels of product are completed with the augmented product. The augmented product rounds of the three levels of product, being built around the core value and the actual product. It simply offers additional consumer services and benefits. If you buy an iPad, you get more than the core customer value (e.g. communication), and also more than the actual product. These are only two levels of product. The augmented product you get is the complete solution to your connectivity problems as defined by the core customer value. This complete solution might take the form of a warranty, after-sale service, product support, instructions on how to use the device and so further.
As we have learned, a product is more than what you actually see when you buy it. Three levels of product are involved in any purchase. The levels of product include the core customer value, the actual product and the augmented product. What you buy is a complex bundle of benefits that aim to satisfy your needs. This also means that when marketers develop products, they first must identify the core customer value. What does the customer really need and want, what problem does he have? Then, they must design the actual product and in addition find ways to augment it in order to create customer value and the most satisfying experience.
Read reference
The market is divided into mainly three types of competition. At the macro level, these are the only three types of competitors that matter. These competitors are applicable to all industries, and all business entities.
In another example, a movie theatre will consider cable television and DVD’s as its indirect competitors. This is because people might not be visiting theatres when they can watch the same movie at home.
In case of indirect competition, your strategy should be to give offers and conduct promotions so that the customer does not ignore you. In above savings account example, bankers can increase the percentage returns on opening savings account with them (Like Kotak Mahindra has done) and thereby attract more customers. Similarly, the movie theatre can give promotional offers of free popcorn, show classic movies, or do some promotional activity to attract customers to the movie theatre. Such activities help in tackling the indirect type of competition.
For example – In the above movie theatre example, customer does watch movie in the theatre or at home, he simply chooses to read books, go trekking or visit friends instead of wasting his time on the movie. Similarly, in the savings account example, someone who is poor or someone else who trades with black money (possible, isn’t it), is not going to use any financial options the bank or any other financial institution gives. These guys are simply not in the frame of mind to purchase anything from your industry.
Your offers will not work on these guys because they are not used to your products and the services you are offering. Due to the presence of phantom competitors, market feasibility studies are done. This is because, marketers like to know the average consumption of the market before launching the product.
They are aware of the direct and indirect competitors, but if a product has too many phantom competitors, and if the product is going to be ignored, then the product will have a very short product life cycle. Against phantom competitors, you need large scale action and involvement of entities like the government, or a change in trend and people movement.
So the above are the three types of competitions that exist. You can defeat one of them, tackle the second, but against the third, any action taken by you will not necessarily give positive results.
Companies must use effective pricing strategies to sell their products in a competitive marketplace so they can make a profit. Business managers need to consider a range of factors, such as prices offered by competitors, costs for production and distribution, product image positioning in the minds of consumers, and determining the demographics of potential buyers.
Premium pricing is most effective in the beginning of a product's life cycle. Small businesses that sell goods with unique properties are better able to use premium pricing.
To make premium pricing palatable to consumers, companies try to create an image in which consumers perceive that the products have value and are worth the higher prices. Besides creating the perception of a higher quality product, the company needs to synchronize its marketing efforts, its product packaging and even the decor of the store must support the image that the product is worth its premium price.
Although this lower price strategy may result in losses for the company -- at first -- but marketers expect that after achieving a stronger market penetration that they will raise prices to a more profitable level.
Bundle pricing works well for companies that have a line of complimentary products. For example, a restaurant could offer a free dessert with an entree on a certain day of the week. Older video games that are reaching the end of their lives are often sold with a Blu-ray to sweeten the deal.
Companies need to study and develop pricing strategies that are appropriate for their goods and services. Certain pricing methods work for introducing new products whereas other strategies are implemented for mature products that have more competitors in the market.
This pricing strategy is a difficult one for small businesses to maintain, because it provides very narrow profit margins that make it challenging for the business to achieve enough momentum to grow.
Grocery store sales utilize the loss leader pricing strategy on a regular basis. They discount one or more items on their shelves to the point of taking a loss of profit, with the intention of getting customers into their stores. Once there, the customers are likely to buy more than just those products that are on sale.
Ref: chron.com
The three levels of product
The second one of the three levels of product is the actual product. Marketers should turn the core benefit, the core customer value they identified into an actual product. This involves developing product features, design, a quality level, a brand name and even a packaging. The smartphone you finally buy as well as the car are actual products. You buy the phone, the packaging, the functionality and so on. All these factors at the second one of the levels of product relate to the core customer value. This reveals that the levels of product build up on each other. The smartphone’s name, parts, styling, features, packaging and other attributes all have been carefully combined to deliver the core customer value of staying connected.
Finally, the levels of product are completed with the augmented product. The augmented product rounds of the three levels of product, being built around the core value and the actual product. It simply offers additional consumer services and benefits. If you buy an iPad, you get more than the core customer value (e.g. communication), and also more than the actual product. These are only two levels of product. The augmented product you get is the complete solution to your connectivity problems as defined by the core customer value. This complete solution might take the form of a warranty, after-sale service, product support, instructions on how to use the device and so further.
As we have learned, a product is more than what you actually see when you buy it. Three levels of product are involved in any purchase. The levels of product include the core customer value, the actual product and the augmented product. What you buy is a complex bundle of benefits that aim to satisfy your needs. This also means that when marketers develop products, they first must identify the core customer value. What does the customer really need and want, what problem does he have? Then, they must design the actual product and in addition find ways to augment it in order to create customer value and the most satisfying experience.
Read reference
Direct competitors
This type of competition is observed when other businesses within the same sector, offering the same products compete with each other. Competition on the basis of geography covered and price given to customers, is the most common in direct competition. In case of direct competition, your relationship management plays a major role in wooing customers and taking away market share. If a customer gets excellent service from your organisation, he is unlikely to move to a competitor.Indirect competitor
This type of competition is observed when any small business is taking the customer away from you, by offering a product which does not exist in your portfolio. For example – For bankers who are offering savings account only, indirect competition will be the stock market, mutual funds and other savings accounts, where the customer invests his money instead of keeping it in savings account. So an executive responsible for selling savings accounts, will consider the above options as indirect competition.In another example, a movie theatre will consider cable television and DVD’s as its indirect competitors. This is because people might not be visiting theatres when they can watch the same movie at home.
In case of indirect competition, your strategy should be to give offers and conduct promotions so that the customer does not ignore you. In above savings account example, bankers can increase the percentage returns on opening savings account with them (Like Kotak Mahindra has done) and thereby attract more customers. Similarly, the movie theatre can give promotional offers of free popcorn, show classic movies, or do some promotional activity to attract customers to the movie theatre. Such activities help in tackling the indirect type of competition.
Phantom competitors
This phenomenon is observed when instead of buying your service or your product, customer chooses to purchase something else altogether. This type of competition involves business entities which do not exist in the typical frame of mind of customers. Tackling such competitors is very difficult because it is completely in the hand of the customers.For example – In the above movie theatre example, customer does watch movie in the theatre or at home, he simply chooses to read books, go trekking or visit friends instead of wasting his time on the movie. Similarly, in the savings account example, someone who is poor or someone else who trades with black money (possible, isn’t it), is not going to use any financial options the bank or any other financial institution gives. These guys are simply not in the frame of mind to purchase anything from your industry.
Your offers will not work on these guys because they are not used to your products and the services you are offering. Due to the presence of phantom competitors, market feasibility studies are done. This is because, marketers like to know the average consumption of the market before launching the product.
They are aware of the direct and indirect competitors, but if a product has too many phantom competitors, and if the product is going to be ignored, then the product will have a very short product life cycle. Against phantom competitors, you need large scale action and involvement of entities like the government, or a change in trend and people movement.
So the above are the three types of competitions that exist. You can defeat one of them, tackle the second, but against the third, any action taken by you will not necessarily give positive results.
PRICING STRATEGIES
Companies must use effective pricing strategies to sell their products in a competitive marketplace so they can make a profit. Business managers need to consider a range of factors, such as prices offered by competitors, costs for production and distribution, product image positioning in the minds of consumers, and determining the demographics of potential buyers.
Premium Pricing
Businesses use a premium pricing strategy when they're introducing a new product that has distinct competitive advantages over similar products. A premium-priced product is priced higher than its competitors.Premium pricing is most effective in the beginning of a product's life cycle. Small businesses that sell goods with unique properties are better able to use premium pricing.
To make premium pricing palatable to consumers, companies try to create an image in which consumers perceive that the products have value and are worth the higher prices. Besides creating the perception of a higher quality product, the company needs to synchronize its marketing efforts, its product packaging and even the decor of the store must support the image that the product is worth its premium price.
Penetration Pricing
Marketers use penetration pricing to gain market share by offering their goods and services at prices lower than those of the competitors. Marketers want to get their products out in the market so that the products raise consumer awareness and induce buyers to try the products.Although this lower price strategy may result in losses for the company -- at first -- but marketers expect that after achieving a stronger market penetration that they will raise prices to a more profitable level.
Economy Pricing
An economy pricing strategy sets prices at the bare minimum to make a small profit. Companies minimize their marketing and promotional costs. The key to a profitable economy pricing program is to sell a high volume of products and services at low prices. Large companies, such as Walmart, are able to take advantage of this low-price strategy, but small businesses will have difficulty selling enough products at low prices to stay in business.Price Skimming
Price Skimming is a strategy of setting prices high by introducing new products when the market has few competitors. This method enables businesses to maximize profits before competitors enter the market, when prices then drop.Psychological Pricing
Marketers use psychological pricing that encourages consumer to buy products based on emotions rather than on common-sense logic. The best example is when a company prices its product at $199 instead of $200. Even though the difference is small, consumers perceive $199 as being substantially cheaper. This is known as the "left-digit effect."Bundle Pricing
Businesses use bundle pricing to sell multiple products together for a lower price than if they were purchased separately. This is an effective strategy to move unsold items that are simply taking up space. Bundling also creates the perception in the mind of the consumer that he's getting a very attractive value for his money.Bundle pricing works well for companies that have a line of complimentary products. For example, a restaurant could offer a free dessert with an entree on a certain day of the week. Older video games that are reaching the end of their lives are often sold with a Blu-ray to sweeten the deal.
Companies need to study and develop pricing strategies that are appropriate for their goods and services. Certain pricing methods work for introducing new products whereas other strategies are implemented for mature products that have more competitors in the market.
Pricing Strategy Examples
Starting a new business or launching a new product or service requires detailed thought and planning. A critical piece of that planning is deciding how you should price your products and services. The pricing strategy you choose dramatically impacts the profit margins of your business, and determines the pace at which your business can grow. Several pricing strategies exist for products and services, and choosing the best for your business depends greatly upon your overall long-term business strategy.Competition Based
Competition-based pricing strategies focus solely on what the competition is charging, and strive to meet or beat those prices. Sometimes this strategy is referred to as a rock-bottom pricing strategy, or a low price leader strategy. The goal is to best your biggest competitors based on pricing alone. As Web Marketing Today exhibits, the competition-based pricing strategy is used by many large retailers on the Internet. Because the same products are available from multiple sources, the consumer buying decision is simply to select the retailer with the lowest price.This pricing strategy is a difficult one for small businesses to maintain, because it provides very narrow profit margins that make it challenging for the business to achieve enough momentum to grow.
Penetration Strategy
A penetration pricing strategy is used as a loyalty-building or market-entry tool. The penetration pricing strategy offers a high-quality product at a much lower than expected price. This combination helps the business enter a new market even when strong competitors exist, and it builds loyalty with new customers from the beginning. The penetration strategy can dramatically increase the lifetime value of customers, because they're "hooked" with the outstanding first product offering and--assuming future products are just as high quality--they are more willing to buy additional products from the company long into the future.Loss Leader
Also known as a promotional pricing strategy, the goal of the loss leader pricing strategy is to get new customers even if you do not make a profit from the initial sale. By taking a loss on the first sale, businesses can offer related products or upsells at normal prices. Despite loosing profits on the promotional product or loss leader, enough profits are normally made from the additional regular-priced products and services to sustain the strategy for the long term.Grocery store sales utilize the loss leader pricing strategy on a regular basis. They discount one or more items on their shelves to the point of taking a loss of profit, with the intention of getting customers into their stores. Once there, the customers are likely to buy more than just those products that are on sale.
High End
Premium pricing takes advantage of a segment of consumers who believe high quality comes at a premium price. Instead of trying to have the lowest price amongst competitors, businesses who use the premium pricing strategy attempt to price their products and services at the highest in their market. This strategy limits the customer base available to market products and services to, but also provides much higher profit margins for each sale.Ref: chron.com
Comments
Post a Comment