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No matter how well costs are driven or held down, no product can be profitable unless it sells. Therefore all products must satisfy customer needs and wants. As all customers are different and seek different benefits from products, businesses would ideally tailor their products to satisfy each customer's wants and needs. However, for many businesses this is not achievable, so they need a way of classifying products in a structure aligned to customer segments, as defined by their needs and wants. The more flexibility a business has to configure products to different customer segments at minimal cost, the more segments they can target with the core product. Which is why it is vital to develop new products with flexibility as a key feature. Philip Kotler, an economist, devised a model that recognises customers have five levels of need, ranging from functional or core needs to emotional needs. The model also recognises that products are merely a means to satisfy customers' varying needs or wants. He distinguished three drivers of how customers attach value to a product:
Customers will choose a product based on their perceived value of it. Satisfaction is the degree to which the actual use of a product matches the perceived value at the time of the purchase. A customer is satisfied only if the actual value is the same or exceeds the perceived value. Kotler attributed five levels to products:
The five product levels are:
What benefits does the model provide?Kotler's Five Product Level model provides businesses with a proven method for structuring their product portfolio to target various customer segments. This enables them to analyse product and customer profitability (sales and costs) in a structured way. By organising products according to this model, a business' sales processes can be aligned to its customer needs and help focus other operational processes around its customers – such as design and engineering, procurement, production planning, costing and pricing, logistics, and sales and marketing. Grouping products into product families that align with customer segments helps modelling and planning sales, as well as production and new product planning. Implementing Porter's Five Forces analysis? Questions to consider
What five forces determine industry structure?These forces include the number and power of a company's competitive rivals, potential new market entrants, suppliers, customers, and substitute products that influence a company's profitability. Five Forces analysis can be used to guide business strategy to increase competitive advantage.
When all five threats are very high competition in an industry begins to approach what economists call?Within the five forces framework, when all five threats are very high, competition in the industry begins to approach a monopoly. Monopolistically competitive industries consist of only a single firm. Incumbent firms may have a whole range of cost advantages compared to new competitors.
What kinds of competitive forces are industry members facing?5 Forces of Competition. Threat of new entrants.. Bargaining power of suppliers.. Bargaining power of buyers.. Threat of substitute products.. Intensity of rivalry among competitors.. What forces drive change within an industry quizlet?Driving forces are the major underlying causes of change in industry and competitive conditions. Shifts in industry growth up or down have the potential to affect the balance between industry supply and buyer demand, entry and exit, and the character and strength of competition.
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Each of the five forces in the five forces model represents a threat to industry ______.
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