There is no such thing as a commodity. All goods and services are differentiable. Though the usual presumption is that this is more true of consumer goods than of industrial goods and services, the opposite is the actual case.
In the marketplace, differentiation is everywhere. Everybody—producer, fabricator, seller, broker, agent, merchant—tries constantly to distinguish his or her offering from all others. This is true even of those who produce and deal in primary metals, grains, chemicals, plastics, and money. Says Theodore Levitt in his marketing piece in Harvard Magazine in January 1980.
In most cases, these differences are not salient. More important are the characteristics of the expected components of the product.
The Augmented Product
Differentiation is not limited to giving customers what they expect. What they expect may be augmented by things they have never thought about. When a computer manufacturer implants a diagnostic module that automatically locates the source of failure or breakdown inside his equipment (as some now do), the product goes beyond what was required or expected by the buyer. It has become an augmented product. When a securities brokerage firm includes with its customers’ monthly statements a current balance sheet for each customer and an analysis of sources and disposition of funds, that firm has augmented its product beyond what was required or expected by the buyer. When a manufacturer of health and beauty aids offers warehouse management advice and training programs for the employees of its distributors, that company too has augmented its product beyond what was required or expected by the buyer.
These voluntary or unprompted “augmentations” to the expected product are shown in Exhibit 1 by the irregular band that surrounds the expected product.
In every case, the supplier has exceeded the normal expectations of the buyer. In the steel example, it can be done by developing better ways of fabricating and coating the product or by reducing thickness to cut weight. The seller may provide other unexpected but moderately helpful aids, such as new delivery scheduling ideas, more “interesting” terms, different ways of delivering batches so as to reduce the buyer’s handling problems and costs, and invoicing systems that give more information about the use patterns of the generic product by the buyer’s various plants, divisions, or brands.
Not all customers for all products and under all circumstances, however, can be attracted by an ever-expanding bundle of differentiating value satisfactions. Some customers may prefer lower prices to product augmentation. Some cannot use the extra services offered. Steel users, for instance, once dependent on mills for applications help and engineering support, gradually grew sufficiently sophisticated to free themselves of that dependence—a freedom which, incidentally, led to the rapid growth of independent steel distribution centers in competition with the mills.
(Now the centers, which have distinguished themselves from the mills by faster delivery on standard grades and sizes, a wider item mix, and ability to handle small orders, have augmented their product by doing more minor fabricating and adding certain specialty steel application services.)
As a rule, the more a seller expands the market by teaching and helping customers to use his or her product, the more vulnerable that seller becomes to losing them. A customer who no longer needs help gains the flexibility to shop for things he or she values more—such as price.
At this point, it makes sense to embark on a systematic program of customer-benefiting, and therefore customer-keeping, product augmentation. The seller should also, of course, focus on cost and price reduction. And that’s the irony of product maturity: precisely when price competition heightens, and therefore when cost reduction becomes more important, is when the seller is also likely to benefit by incurring the additional costs of new product augmentation.
The augmented product is a condition of a mature market or of relatively experienced or sophisticated customers. Not that they could not benefit from or would not respond to extra services; but when customers know or think they know everything and can do anything, the seller must test that assumption or be condemned to the purgatory of price competition alone. The best way to test a customer’s assumption that he or she no longer needs or wants all or any part of the augmented product is to consider what’s possible to offer that customer.
References
Marketing Success Through Differentiation by Harvard Business Review
