Product levels classification product mix & pricing stratagies

P. VENKATA SUBBAIAH Marketing Management AITS, Rjp
Product Levels & Classification – Product Hierarchy – Product Systems & Mixes –
Product Line Analysis – Product Line Length – Concept of Brand Equity &
Branding Decisions. Pricing Views – Pricing Objectives – Pricing Methods –
Adopting the Price – Initiating & Responding to Price Changes.
Product:
According to Philip Kotler, who is an economist and a marketing guru, a product is more
than a tangible ‘thing’. A product meets the needs of a consumer and in addition to a
tangible value this product also has an abstract value. For this reason, Philip Kotler states
that there are five product levels that can be identified and developed. In order to shape this
abstract value, Philip Kotler uses five product levels in which a product is located or seen
from the perception of the consumer. These 5 Product Levels indicate the value that
consumers attach to a product. The customer will only be satisfied when the specified value
is identical or higher than the expected value.
Product levels:
In order to give benefits to customers, a marketer articulates the product concept.
The product concept defines the whole range of benefits a product offers to the customers.
The actual product offered is sub-divided into a number of levels relating to customer
needs. The marketer should plan his market offer by considering the various product
levels. The image below shows the important product levels in marketing.
Important product levels in marketing

The above image shows that an offer can be visualized as an atom with the nucleus (core)
surrounded by a series of both tangible and intangible features. Attributes and benefits
which cluster around the core product include packaging, advertising, financing,
availability, advice, warranty, reliability, etc. The offer of the product is viewed at four
important levels namely
 Core Level
 Expected Level
 Augmented Level
 Potential Level.
1. Core product level:
The core level consists of the basic product. It represents the fundamental benefit for which
the customer intend to buy.
Example for Core Product Level:
For example, the customer who buys an air ticket expects the benefit of a hassle-free travel
from the Airlines Corporation.
Purpose of Core Product:
The core product can also be referenced as generic product. In the context of international
marketing, though the physical product remains the same, the core product differs among
markets. The variation in the core product is due to the purpose for which the product is
used. In developing countries like India, bicycles are still used for transportation. But in
several advanced countries they are used in sports and for physical fitness. This necessitates
certain modifications of the product design of the physical product.
2. Expected Product level:
The expected product level consists of the common products that not only satisfies the
fundamental benefits of customers, but also their other expectations. Customers have a
minimum set of expectations about a product or service. The expected product is offered
to meet the minimal purchase conditions.

Example for Expected product level:
 A customer while buying an airline ticket expects in addition to a seat on the Aero
plane, a few benefits such as comfortable waiting area, prompt in-flight service,
quality food, clean toilets and punctuality of the flight.
 A hotel guest expects cleanliness, efficient room service, telephone service, etc.
Purpose of Expected product level:
To keep the customers contended, a marketer should satisfy the fundamental expectation
of them. If this aspect of the product is not properly considered in international markets, it
will only result in great dissatisfaction to customers.
3. Augmented product level:
This level consists of those benefits which distinguish the offers offered by company vs
competitors. It refers to offerings (product benefit or services in addition to what customers
expect).
The marketer differentiates by adding value to his core product in terms of reliability and
responsiveness. When the core product is surrounded by some ancillary benefits and extra
features, it becomes an augmented product. The international marketer is on the constant
lookout for more features and benefits which can be added on to the formal product. When
an intense competition prevails in the market, the augmented benefits become expected
benefit.
Augmented product is the way in which the marketer fine tunes the marketing mix to
differentiate his product to make it stand out from the competition. For example, credit
card issued by the bank has additional features of global operation at no extra cost.
4. Potential product level:
Potential level is higher than the augmented product level. This consists of all potential
features and benefits that were added.

Purpose of Potential product level:
The potential product is intended to capture new users by redefining its products. It also
comes as a pleasant surprise to the existing customers since the product benefits exceed the
augmented level. Potential product level builds a strong loyalty of the customers. It even
delights the customers.
Example for Potential product level:
For example, Cell phone users are highly satisfied by the offer of increased talk-time at no
extra cost. Such unexpected additions add to the loyalty of the customers.
Product Classification – Types of Products:
There are three fundamental types of product classification which are durable and
non-durable products and pure services. Durable products are those products, which are
used for longer period of time, such as Freezer, Car, Mobile Phones, Shoes, and TV, etc.
No durable products are those products, which we need to use quickly as these products
expired after some specific period of time. Such as all the vegetables, fruits, and juices, etc.
Pure services include those benefits that are intangible or inseparable in nature and are
offered for sale to customers. Ownership of nothing is transferred because these products
are experiential in nature. Accountant, Doctors, Lawyer, and Teaching, etc are the best
examples that indicates the term pure services.
These all products are purchased by either industrial buyer or final consumer. The
consumer products are purchased by final consumers for personal consumption. The
industrial products are purchased by the organizations for their usage in the processing
operations & administration. Moreover, the industrial products are used mostly which
includes consumables like raw materials or paper clips that can be transformed into finished
products.

Product Classification – Types of Products
Product classification that is also known as different types of products. These types of
products or product classification are as below in three different forms.
1. Consumer Products
2. Industrial Products
3. Persons, Organizations, Ideas & Places
Each one is discussed in detail below.
1. Consumer Products
Those products that are purchased by final consumers for personal consumption are called
consumer products. The way of purchasing these products provides the basis for the
marketer to further classify these products. The following is an important classification of
these consumer products on the basis of the manner of purchase & manner of marketing.
 Convenience Products
Those consumer products that are purchased immediately & frequently with little efforts
and comparison are called convenience products. Examples of convenience products
include the following.
 Candy
 Newspapers
 Soap
 Fast Food etc.
The convenience products are placed at the front locations of the stores in abundance
quantity so that they are easily available to the customers. The price of these products is
kept lower.
 Shopping Products:
This type of product is purchased less frequently & careful comparison is made by the
customer on the price, quality, sustainability & style. In case of purchase of shopping

products, increased time & effort is made by the customers in collection of information &
comparison making. Following are some of examples of shopping products.
 Clothing
 Furniture
 Major Appliances
 Used Cars
 Hotel & Motel Services
These products are distributed in fewer outlets by the marketer along with the strong sales
support services that assist customers in their comparison making.
 Specialty Products:
Specialty products are those consumer products that have brand identification or unique
characteristics and an important group of customers are happy to purchase these products.
Following are some of examples of specialty products.
 Specific brand & kinds of cars
 Photographic equipment with high price
 Designer clothes
 The services of legal or medical specialist
The customers of such products can make enough effort with them for reaching relevant
dealers. However, they do not compare the specialty products normally.
 Unsought Products:
Those consumer products that are either not known to the customers or they are known,
but customers do not usually consider them to purchase. The important innovations are
usually included in the category of unsought products because the customers get the
awareness through advertisement. Following are the examples of unsought products.
 Life Insurance
 Blood donation to Red Cross

A lot of personal selling, advertising & marketing efforts are required for unsought
products.
2. Industrial Products:
Those products that are purchased that are buying for further processing or for use in
operating a business are called industrial products. So the main difference between
industrial and consumer product is based on the purpose of purchase of the product. For
example, if a lawn mower product is purchased for use around the house, then this lawn
mower is categorized in the consumer product..
 Material & Parts:
Raw materials, natural products & manufactured materials are included in the category of
material & parts. Farm products & natural products are included in raw material part like
cotton, wheat, vegetables, fruits, fish, crude petroleum, iron etc. Component materials &
component parts are included in the manufactured area like yarn, wires, cement, iron,
tires, small motors etc.
 Capital Items:
Those industrial products that assist the production & operation of customer are called
capital items like accessory equipment’s & installations. Building & fixed equipment’s
are included in the installations. Office equipment & portable factory equipment are
included in the accessory equipment. Accessory equipment’s have much shorter lifetimes
& they are only helpful in the process of production.
 Supplies & Services:
Supplies contain repair & maintenance items and operating supplies like nails, paint,
lubricants, pencil, paper, coal etc. The supplies are regarded as the industrial convenience
products because they are purchased with little effort & time. Business advisory services
and repair & maintenance services are included in business services category. These
services are given under some contract.

3. Persons, Organizations, Ideas & Places:
The marketing entities named persons, organizations, ideas & places are also included in
the category of products recently. The organization sells itself by carrying out certain
activities like creating, maintaining & changing the behavior & attitude of customers for
an organization. Similarly, people also perform certain activities for development,
maintenance & change of behavior & attitude towards certain people through person
marketing. Similarly the ideas & places are also regarded as products.
4. Classification of products on the basis of Durability & tangibility Non-durable
goods:
Non-durable goods:
These are tangible goods that are low priced and normally consumed in one or few uses
every day or anytime of the day such as soaps, biscuits, shampoos, deodorants, etc. As
these goods are consume quickly and purchased frequently, the appropriate strategy is to
make them available in many locations, charge only a small mark up and advertise heavily
to induce trial and build preference.
Durable goods:
These are also tangible goods that remain in use months after months and year after year.
Normally, they require more personal selling and service, guarantee, higher margin, etc.
For example: couches or chairs, vacuum cleaners, washing machines, etc.
Services:
These are intangible, inseparable, variable and perishable products. As a result, they
normally require more quality control, supplier creditability and adaptability. Example-
haircut, legal advices, appliance repair, financing, etc.
Product Mix in Marketing:

Product mix, also known as product assortment, is the total number of product lines that a
company offers to its customers. The product lines may range from one to many and the
company may have many products under the same product line as well. All of these product
lines when grouped together form the product mix of the company.
The product mix is a subset of the marketing mix and is an important part of the business
model of a company. The product mix has the following dimensions.
Width
The width of the mix refers to the number of product lines the company has to offer.
For e.g., If a company produce only soft drinks and juices, this means its mix is two
products wide. Coca-Cola deals in juices, soft drinks, and mineral water and hence the
product mix of Coca-Cola is three products wide.
Length
Length of the product mix refers to the total number of products in the mix. That is if a
company has 5 product lines and 10 products each under those product lines, the length of
the mix will be 50 [5 x 10].
Width
The width of the mix refers to the number of product lines the company has to offer.
For e.g., If a company produce only soft drinks and juices, this means its mix is two
products wide. Coca-Cola deals in juices, soft drinks, and mineral water and hence the
product mix of Coca-Cola is three products wide.
Length
Length of the product mix refers to the total number of products in the mix. That is if a
company has 5 product lines and 10 products each under those product lines, the length of
the mix will be 50 [5 x 10].

Consistency
Product mix consistency refers to how closely products are linked to each other. Less the
variation among products more is the consistency. For example, a company dealing in just
dairy products has more consistency than a company dealing in all types of electronics.
Product Mix Example
Coca-Cola has product brands like Minute Maid, Sprite, Fanta, Thumbs up, etc. under its
name. These constitute the width of the product mix. There are a total of 3500 products
handled by the Coca-Cola brand. These constitute the length. Minute Maid juice has
different variants like apple juice, mixed fruit, etc. They constitute the depth of the product
line ‘Minute Maid’. Coca-Cola deals majorly with drinking beverage products and hence
has more product mix consistency.
Product Mix depends on many factors like
 Company Age
 Financial Standing
 Area of Operation

 Brand identity, etc.
Many new companies start with a limited width, length, depth and high consistency of the
product mix, while companies with good financial standing have wide, long, deep and less
consistency of the product mix. Area of operation and brand identity also affects its product
mix.
Product Line:
Product line is a group of product items that can satisfy the same needs and wants, they
have more or less similar features. For example, Bajaj Auto Ltd., in its two wheeler product
line, makes Discover, Boxer, Boss, Pulsar, Cub scooter, Bajaj Sunny, etc.
Philip Kotler:
“Product line is a group of products that are closely related because they function in a
similar way, are sold to same customer groups, are marketed through the same type of
outlets, or fall within given price range.” Thus, product line is the group of similar products.
The similarity may be seen in one or more ways. Product line consists of product items
belonging to same class.
The definition suggests following five ways the items are closely related:
a. They function in similar manner.
b. They offer similar benefits, or meet similar expectations.
c. They are sold to similar customer groups.
d. They are marketed by similar outlets.
e. They fall within same price range.
Characteristics of Product Line:
Main characteristics of product line can be listed as:
1. Product line consists of closely related product items. Difference is only found in terms
of color, size, shape, model, performance, weight, and capacity.
2. It is a compose of various similar items.

3. Product items are complementary to one another. For example, tube, tyre, and related
materials.
4. There is difference in price. For example, Hero Honda charges different price for
different models.
5. The purpose of offering similar items in each of the product line may be to attract
customers by offering more varieties, and to create a good image or reputation.
6. Different items of a product line can be manufactured using same technology and/or
inputs.
7. Product items in each of the product lines are distributed in same distribution channel.
That is, similar outlets market them.
8. Product items in each product line function in same manner. They need same technical
skills to use them.
9. They are sold to similar customer groups. They satisfy needs of the same groups.
10. They have more or less same use or utility. They are used for the same purpose.
Concept of Product Item:
Product items are various varieties offered within product line, which are similar in one or
other ways. Such varieties are based on quality, size, colour, capacity, price, model,
performance, and so on.

Product line stretching:
The product line length within a company keeps changing. Generally, there are three price
bands which exists in any market – Lower priced products, middle priced products and
premium products. One brand concentrate on one price brand.
Various types of line stretching.
1) Down Market product line stretching
2) Up Market Product line stretching
3) Two-way Product line stretching
Down Market product line stretching
This type of Market stretch is observed when a brand is present in the middle or the
upper premium markets but does not want to lose the lower-level markets which might
have a high level of consumption or which might pose a threat to the middle and upper
level of market. A brand can perform a down market stretch by either starting a
completely new brand name and building brand equity from scratch or using the same
brand name asthe one it has currently.
Example: Samsung Smartphones. Where Samsung has premium smartphones like
the Edge series, it also has the A series of cheaper smartphones so that it does not lose the
massive consumption which happens in cheap smartphones. Does, Samsung does a lot of
down-market product line stretching.
Up Market Product line stretching
Naturally, it is the exact opposite of down market stretching and, in this case,
companies which are from the lower market, introduce premium product range so as to
enter the premium market. This is the dream of any company because each company when
it starts, generally starts with the mass audience in mind, and then plans on introducing
niche and profitable products.
Example: There are similar cases of up market stretch observed in the Automobile
market. Volkswagen has some ultra-premium brands like Bentley & Lamborghini, Toyota

has Lexus, Honda has Acura, these are examples of up market stretches by companies
which otherwise manufacture mass level passenger cars.
Two-way Product line stretching:
A two-way product line stretch is observed when a brand tries to establish itself in
the premium as well as low level segments and in general wants to cover the complete
market. If a brand is covering a middle segment, and thinks that it needs to launch some
premium products as well as low-cost products for the lower classes, then it is free to do
so.
Example:
1) Volkswagen has the Polo and several brands for the masses and also has Beetle,
Audi and several others for the classes.
2) HUL has premium brands like Dove in beauty soaps & Magnum in Ice creams
whereas it has many brands in the middle and low level segment.
Product line filling
A more common approach to product line extensions is to introduce new products
that are consistent with the brand’s initial positioning. So rather than expanding into
the higher or lower quality end of the marketplace, the brand simply introduces more
variations. This is common in fast-moving consumer goods where, snack foods in
particular, have a variety of similar products.
Pricing concept:
An organization has various options for selecting a pricing method. Prices are based on
three dimensions that are cost, demand, and competition.
The organization can use any of the dimensions or combination of dimensions to set the
price of a product.

These two types of cost-based pricing are as follows:
I. Cost-plus Pricing:
Cost-based Pricing:
Cost-based pricing refers to a pricing method in which some percentage of desired profit
margins is added to the cost of the product to obtain the final price. In other words, cost-
based pricing can be defined as a pricing method in which a certain percentage of the total
cost of production is added to the cost of the product to determine its selling price. Cost-
based pricing can be of two types, namely, cost-plus pricing and markup pricing.
Refers to the simplest method of determining the price of a product. In cost-plus pricing
method, a fixed percentage, also called mark-up percentage, of the total cost (as a profit) is
added to the total cost to set the price. For example, XYZ organization bears the total cost
of Rs. 100 per unit for producing a product. It adds Rs. 50 per unit to the price of product
as’ profit. In such a case, the final price of a product of the organization would be Rs. 150.
Cost-plus pricing is also known as average cost pricing. This is the most commonly used
method in manufacturing organizations.
In economics, the general formula given for setting price in case of cost-plus pricing is as
follows:

P = AVC + AVC (M)
AVC= Average Variable Cost
M = Mark-up percentage
AVC (m) = Gross profit margin
Mark-up percentage (M) is fixed in which AFC and net profit margin (NPM) are
covered.
AVC (m) = AFC+ NPM
ii. For determining average variable cost, the first step is to fix prices. This is done
by estimating the volume of the output for a given period of time. The planned output or
normal level of production is taken into account to estimate the output.
The second step is to calculate Total Variable Cost (TVC) of the output. TVC
includes direct costs, such as cost incurred in labor, electricity, and transportation. Once
TVC is calculated, AVC is obtained by dividing TVC by output, Q. [AVC= TVC/Q]. The
price is then fixed by adding the mark-up of some percentage of AVC to the profit [P =
AVC + AVC (m)].
iii. The advantages of cost-plus pricing method are as follows:
a. Requires minimum information
b. b. Involves simplicity of calculation
c. c. Insures sellers against the unexpected changes in costs
d. The disadvantages of cost-plus pricing method are as follows:
e. a. Ignores price strategies of competitors
Markup Pricing:
Refers to a pricing method in which the fixed amount or the percentage of cost of the
product is added to product’s price to get the selling price of the product. Markup pricing
is more common in retailing in which a retailer sells the product to earn profit. For example,

if a retailer has taken a product from the wholesaler for Rs. 100, then he/she might add up
a markup of Rs. 20 to gain profit.
a. Markup as the percentage of cost= (Markup/Cost) *100
b. Markup as the percentage of selling price= (Markup/ Selling Price) *100
c. For example, the product is sold for Rs. 500 whose cost was Rs. 400.
The mark up as a percentage to cost is equal to (100/400) *100 =25. The mark up as a
percentage of the selling price equals (100/500) *100= 20.
Demand-based Pricing:
Demand-based pricing refers to a pricing method in which the price of a product is finalized
according to its demand. If the demand of a product is more, an organization prefers to set
high prices for products to gain profit; whereas, if the demand of a product is less, the low
prices are charged to attract the customers.
Competition-based Pricing:
Competition-based pricing refers to a method in which an organization considers the prices
of competitors’ products to set the prices of its own products. The organization may charge
higher, lower, or equal prices as compared to the prices of its competitors.
The aviation industry is the best example of competition-based pricing where airlines
charge the same or fewer prices for same routes as charged by their competitors. In
addition, the introductory prices charged by publishing organizations for textbooks are
determined according to the competitors’ prices.
Other Pricing Methods:
In addition to the pricing methods, there are other methods that are discussed as follows:
i. Value Pricing:
Implies a method in which an organization tries to win loyal customers by charging low
prices for their high- quality products. The organization aims to become a low cost
producer without sacrificing the quality. It can deliver high- quality products at low prices

by improving its research and development process. Value pricing is also called value-
optimized pricing.
ii. Target Return Pricing:
Helps in achieving the required rate of return on investment done for a product. In other
words, the price of a product is fixed on the basis of expected profit.
iii. Going Rate Pricing:
Implies a method in which an organization sets the price of a product according to the
prevailing price trends in the market. Thus, the pricing strategy adopted by the organization
can be same or similar to other organizations. However, in this type of pricing, the prices
set by the market leaders are followed by all the organizations in the industry.
iv. Transfer Pricing:
Involves selling of goods and services within the departments of the organization. It is done
to manage the profit and loss ratios of different departments within the organization. One
department of an organization can sell its products to other departments at low prices.
Sometimes, transfer pricing is used to show higher profits in the organization by showing
fake sales of products within departments.
Product Hierarchy:
Product hierarchy is the classification of a product into its essential components. It is
inevitable that a product is related or connected to another. The hierarchy of the products
stretches from basic fundamental needs to specific items that satiate the particular needs.
Product hierarchy is better understood by viewing the business as a whole as opposed to
looking at a specific product. Product hierarchy is usually mentioned in the same sentence
with product classification and therefore can be viewed as a way of product classification.
1) Product need – Product need is the basic reason because of which the product exists. So
the need for cars to exist is because people want to travel. This is the basic product need
which is fulfilled by Volkswagen cars.

2) Product family – The Product family defines the core need which the product satisfies.
When we are talking of the product family, we have to look at the complete business
market and not at the individual market. So, when travel is the basic requirement, then there
is an option of Plane travel, train travel, roadways travel, and travel via passenger cars or
transport vehicles. In this case, the Product family is passenger travel and the product
family of Volkswagen is Cars.
3) Product class – Product class and Product family are very similar in nature and can also be
treated as synonyms.
For example – Volkswagen also manufactures bus which is a multi-passenger transport
vehicle and it also manufactures 2-seater luxury cars. Thus when we categorize
different products within the company (and not outside the company like in Product family)
then it is known as product class. Mercedes, for example, exists in cars and buses both
predominantly. Thus, it has 2 common product classes where it is present.
4) Product line – The complete line of products within one class of products is known as the
product line. So, if we talk about Volkswagen passenger cars, then we have the
Volkswagen Polo and the Vento as well as different products within the Volkswagen
product line. At the same time, Audi is another brand owned by Volkswagen and is divided
into multiple product lines including the Q series. So, Q series is just one Product line and
there would be multiple such product lines of Audi. You can read more about product line
and product mix by clicking the link.
5) Product type – Within the Product line there are various product types. For example – If
we talk of Hyundai’s I20, then there is I20 Asta, I20 Magna as well as I20 Sportz. So I20
becomes a product type and the other models become product units (explained below)

Similarly, for any given series, within the series there are multiple models and these are
the product types. Audi’s Q6 or Q7 will also have various customized types on offer and
these are known as product types. They are offered to customers based on the budget of
customers and their requirement of features.
6) Product unit – The final aspect in the Product hierarchy is the product unit which is also
known as the SKU. Continuing the above example, the Hyundai I20 Asta is one Product
unit and so is the Hyundai I20 Magna. So, if the product is an independent product and
there is no other product type dependent on it, then it is an individual product unit.
*************The End ******************

Product levels classification product mix & pricing stratagies

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Product levels classification product mix & pricing stratagies

Similar to Product levels classification product mix & pricing stratagies (20)

More from Venkat. P

More from Venkat. P (15)

Recently uploaded

Recently uploaded (20)