Kotler and Keller's Five Product Levels

Exceeding Customer Expectations

(Also known as the Customer-Perceived Value Hierarchy and the Extended Products Model.)

Kotler and Keller's Five Product Levels - Exceeding Customer Expectations

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Nikada

Exceed customer expectations by taking your products to the next level.

When you're developing a new product or service, it's clearly important that you meet your customers' wants and needs. But it's also vital that you significantly exceed your customers' expectations, so that you can stand out from the competition.

However, this can be difficult. For instance, how can you actually define customer expectations? How can you keep ahead of your competitors? And which features should you highlight as part of your marketing strategy?

One tool that can help with this is Kotler and Keller's Five Product Levels model. In this article, we'll look at this model, and we'll discuss how you can use it to develop new products that exceed your customers' expectations.

About the Five Levels

Marketing experts Philip Kotler and Kevin Lane Keller published the Five Product Levels model in their 2003 textbook, "Marketing Management." The model is based on Kotler's earlier research, and on a 1980 Harvard Business Review article by Theodore Levitt.

The model highlights five ways that you can add value to a product. The higher up the levels you go, the more value you provide to customers, the more you will exceed their expectations, and the more you will differentiate your product from those of your competitors.

The Five Product Levels are:

  1. Core Benefit.
  2. Basic Product.
  3. Expected Product.
  4. Augmented Product.
  5. Potential Product.

You can use the model to develop new products and improve existing ones. You can also use it to refine your marketing message.

Tip:

Kotler and Keller say that a product is "anything that can be offered to a market to satisfy a want or need." This can include services, people and ideas, as well as physical goods.

Bear this in mind as you think how to apply the model – it's relevant to a wide range of situations.

Let's look at each of the levels in greater detail.

1. Core Benefit

This is the benefit that your customers are getting from the product, at its most basic level.

For instance, when you buy a raincoat, the core benefit is that you'll stay dry in the rain. When you buy a car, the core benefit is that you'll be able to get from place to place.

2. Basic Product

At the second level, you turn the core benefit into an actual product, and you define the basic features that the product must have.

So, if we continue with our examples above, the raincoat must be waterproof and may have a hood to keep your head dry. A car must have doors, an engine, wheels, and a solid frame so that you can get into it and drive it.

3. Expected Product

The Expected Product is the set of attributes or features that customers expect when they purchase the product. This is in addition to Basic Product features identified at the second level.

For instance, you might expect a raincoat to be made of breathable material, so that you don't sweat, and for it to be cut in a presentable style.

Similarly, you might expect a new car to have airbags, anti-lock brakes, an up-to-date media player, and a built-in navigation system. You'd also expect it to be reliable, and to have a fair warranty.

4. Augmented Product

Here, you identify any features that will exceed customer expectations. This is where you can really start distinguishing your product from your competitors' products.

In our raincoat example, the manufacturers could offer an Augmented Product by offering a free map case, or by using top-of-the-line lightweight materials.

In our car example, the manufacturers could offer side airbags, top-of-the-range tires, or a self-defrosting windshield.

5. Potential Product

With the "Potential Product," you think about the possible transformations the product could go through in the future, and the features and value that you could add.

For our raincoat, a potential product extension could be a small bag that people could carry their folded raincoat in, so that it can easily fit into a bag or briefcase, or a new design that allows you to see more around you when using the hood.

For our car, potential product extensions could include apps for smartphones that allow you to open and start your car without a key, a new engine design that consumes less fuel, or a navigation system that uses voice recognition.

Tip:

In many cases, the Potential Product will include features that aren't ready for the market yet. However, this can also include things that you're "holding back" to give your product an edge in the future.

Using the Tool

You can use the Five Product Levels model to develop products that exceed your customers' expectations.

Tip:

Before you use the tool, you may find it useful to create a Value Proposition– this will help you highlight the value that you offer to your target customers, and explain why they will buy from you and not your competitors.

Levels 1, 2, and 3 (Core Benefit, Basic Product, Expected Product)

The first three levels of the model identify what your product must have to at least meet your customers' expectations.

If you're developing a new product, look at your product from your customers' perspective to make sure that it meets their basic needs and wants. If it doesn't, you'll need to address these issues before you can move onto levels 4 and 5 – you can't exceed customer expectations if you don't actually meet them in the first place.

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If you're developing a marketing strategy, are there any basic features or benefits that you'll need to highlight to reassure customers? For example, is a certain safety feature crucial, or do you need to tell them about something that's particularly important to them?

Level 4 (Augmented Product)

It's here where you can really add value to your product, and start to differentiate it from the competition.

If you're developing a product, identify how you can add extra value to exceed customer expectations. For instance, could you upgrade your product to include more features? Or could you bundle your product with other goods or services – for example, accessories, finance or maintenance?

You'll have more chance of exceeding customer expectations and beating the competition if you're able to offer features and benefits that you are uniquely able to provide. Use tools such as USP Analysis and Core Competence Analysis to do this.

If you're developing a marketing strategy, identify the benefits and features that exceed customer expectations, and highlight these in your marketing communications.

Tip:

Remember that most, if not all, of these additional benefits come with a cost. You may want to conduct a Cost/Benefit Analysisto make sure that the benefits are worth the increased price to your organization or to the customer.

Level 5 (Potential Product)

This is where you identify features and benefits that you could add to your product in the future.

This is key, because Augmented Products (level 4) can quickly become Expected Products (level 3) as customer expectations change. So, you'll need to innovate to stay ahead of the competition.

Conjoint Analysis helps you identify and prioritize the features that are most important to customers, while Kano Model Analysis helps you think about features that will delight them.

Key Points

Philip Kotler and Kevin Lane Keller published the Five Product Levels in their 2003 textbook, "Marketing Management." The model is based on ideas by Kotler and Theodore Levitt.

The model highlights five ways that you can add value to a product. This helps you exceed your customers' expectations and differentiate yourself from the competition.

The five levels are:

  1. Core Benefit.
  2. Basic Product.
  3. Expected Product.
  4. Augmented Product.
  5. Potential Product.

Use the model to develop new products and improve existing ones, and to define your marketing message.

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Comments (3)
  • Over a month ago Michele wrote
    Hi Raagz,

    Welcome to the club and thank you for your feedback on the article. This model can be applied to many different scenarios and wherever someone produces and provides a product or service to someone else (internal and external customers).

    As you are new, come on over to the Forums and introduce yourself. We'd love to get to know you better and learn about your career goals.

    https://www.mindtools.com/forums/viewforum.php?f=12

    Michele
    Mind Tools Team
  • Over a month ago Raagz wrote
    Great article, I work in project management in the public sector and our core business is providing services to our clients (the greater community), so I can relate to The Five Product Levels, particularly the initial three.
    cheers mate
  • Over a month ago zuni wrote
    Terrific article! I use to work in marketing, but have since changed disciplines and now work in HR. You may find it odd that I can find an application for this concept in my work, but I can!

    I am currently working with a vendor to design two web applications: one for use by all employees to assist them in assessing their competence for leadership competencies and providing solutions to develop them; and a second application that will support managers in differentiating the performance of their employees on these leadership competencies. The employees and the managers are my internal customers. In the same way that a product manager needs to consider the five product levels to develop new products and services for external customers in the marketplace, I need to do the same for my internal customers. Employees and managers are my two "markets".

    Thank you for this article. I now plan to apply it as I create my requirements for the web application designs.

    Zuni