The 5 Product Levels Model (Kotler)

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

		Simon Raistrick Business Consultant, New Zealand
	Defining 'Basic Product Needs' is Hard! I spent 10 years working on an international stand (...)

		Jaap de Jonge Editor, Netherlands
	Defining Product Needs and Levels @Simon Raistrick: Thanks for sharing and agreed; i (...)

		A Kahnesky Manager, Denmark
	Kotler's 5 Product Levels Model in Changing Market Dynamics @Simon Raistrick thanks for reaction to the post. (...)

		Maurice Hogarth Consultant, United Kingdom
	A Model of Fitness @Simon Raistrick: Agreed. Didn't the people wantin (...)