value insights

Product/Service Differentiation Audit- Valutrics

The products/services delivered by corporations can be aligned with the corporate strategy and customers or not. They can be targeted broadly (dolls, aimed at every child) or narrowly (symphony concerts, aimed at the few remaining classical music lovers). They can be high quality, well designed, and expensive or lower quality, adequately designed, and inexpensive. And the company that produces and sells the products can be seen (rightly or wrongly when compared with facts) as community minded and green or profit minded and nasty to workers.

In cases where companies have produced products that did not match, such as Apple’s Newton, introduced in the early 1990s, the product quickly sinks from sight. Customers (and software developers) were not yet ready for a small, hand – held computer of the type now known as a personal digital assistant (PDA). Results in many of these cases have spelled disaster for the company. Other examples include Gillette’s shampoo named and boldly labeled For Oily Hair Only. Customers didn’t want to be seen pushing shopping carts with this public announcement of a personal grooming problem on display. Or a toothpaste introduced by Listerine in 1979. Even though the toothpaste was labeled Cool Mint, it was marketed under the Listerine brand, which customers associated with a strong medicinal taste. Both of these grooming products were a flop, and they lost their organizations all the money invested in development and promotion.

Understanding organization’s Product Strategy is essential because it impacts how you solve every business problem you are called on to solve. In a manner related to corporate culture, the corporate image and market focus dictate the kind of solutions you can propose. If you are developing training for the Omega watch company, it should have the same feel of prestige and expense and exclusivity that the product has or it will not be accepted. If you are developing training for Apple products, it will have to have the same level of design and simplicity that its products have, or its employees will laugh at it (one of the authors knows this firsthand, having spent a week being “ Apple – ized ” before being allowed to begin work on a project).

Product/Service Differentiation Hierarchy
There is a seven – level product differentiation hierarchy. We will use General Motors (GM) as an example for cars.

1. Family Need: The need the product family fills — GM ? personal transportation
2. Product family : All the product classes that can satisfy the need — GM ? automotive vehicles
3. Product class : A group within a product family that has a similarity of function —GM ? cars, trucks, etc.
4. Product line : A group within a product class that has a similar function or similar customers — GM ? sedans, sports cars, vans, SUVs, etc.
5. Product type : A group within a class that share one of several possible forms of the product — GM ? full – size and minivans
6. Brand : The name associated with several items in a product line — GM ? Chevrolet, Cadillac, etc.
7. Item : A distinct item within a brand or product line — GM ? Malibu, Escalade

Thus, often when we use the term product , we may be referring to an item — a specific distinct item within a product line. Or we may be referring to a whole product line, a product type, or a brand. Since the kinds of performance problems we are called on to solve are frequently product specific, we need to be clear at which of the seven levels the problem is occurring. Be aware: You will not always encounter all seven levels. For a simpler business, or one with fewer products and services, the categories may collapse into each other a bit.
The GM example is for a product, but this applies to a service in much the same way. For example, here is a quick look at FedEx. FedEx consists of several lines of business: FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services. We will focus on one need family: to send, create, or receive documents and packages.
1. Need family : The need the product family fills — Sending, creating, or receiving documents and packages
2. Product family : All the product classes that can satisfy the need — Delivery services, document creation
3. Product class : A group within a product family that has a similarity of function — FedEx Express, FedEx Ground, FedEx Office
4. Product line : A group within a product class that has similar function or similar customers — Delivery service options within FedEx Express (before eight, before noon, next day, second day, Saturday); document creation/duplication options at FedEx Office (e.g., document duplication, document binding, chart creation)
5. Product type : A group within a class whose members share one of several possible forms of the product — The same as product line in this case
6. Brand : The name associated with several items in a product line — In this case, subsumed under the product class that carries the brand name
7. Item : One single item within product line and type — Priority Overnight package or duplicated documents

Products and services can be differentiated in several ways that repeat the general list at the beginning of the chapter: “ Quality, Design, Features, Brand Name, Packaging, Sizes, Services, Warranties, Returns ” . Some of these refer to products, some to services, and others to the company image (which we will discuss in the next section).

Product Differentiation Categories
Products can be differentiated in the following ways according to Kotler:

  • Features. The elements that the basic model has to perform the product’s basic function, as well as additional features that allow the product to perform either the basic function better or more functions. For example, as of early 2009, the basic iPod (an “ item ” ) has the features of storing music, playing it back, moving from track to track (with no visual cues about what is on a track), volume control, and on/off switch. Other items in the same product line have additional features that allow for seeing what is on tracks, increasing memory, including video, and performing other functions.
  • Performance. How well a product’s basic features allow it to perform. For example, computers with more memory and cable connections to the Internet can surf the Web faster than computers with less memory and dial – up connections.
  • Conformance. A term close to what we would call quality, how close a product’s design and operation come to its specifications for performance. If, for example, you are paying your cable company for a 10 MGPS Internet connection, you expect your connection to conform to that standard, and if the connection only provides you 3 MGPS speed, the connection does not conform.
  • Durability. For what length of time will the product continue to function, and whether the product will conform for its whole life or begin to degrade at a certain point. Cell phone and computer batteries all come with stated lifetimes (anywhere from one to five years), but conformance begins to degrade over that time, and batteries need more frequent charging toward the end of the their lives.
  • Reliability. How likely a product is to fail or function improperly during its lifetime. Consumer Reports continues to rate Honda as the most reliable automobile sold in the United States based on its needing the fewest repairs throughout its lifespan.
  • Repairability. If a product does break or function improperly, how easy it is to fix the problem. One of the major complaints about computer hardware and software is that they are very hard to repair; hence the numerous helplines and Geek Squad – like companies that make a living repairing them.
  • Style. What are the look and feel of the product? Apple and Google are renowned for having vice presidents of design who can veto any hardware or software product based on how easily it looks, feels, and operates from the point of view of the customer.
  • Design. The integrating force. How do all the seven factors fit and work together in a product to achieve the goals of each, rather than focusing on one or two to the exclusion of others. If all seven are not optimized, what trade – offs are made to fit the Customer Strategy of the company? For example, look at the different approaches of two high – tech companies that provide software to the same markets. Company A’s products optimize all seven, so you can buy version 1.0 of a new software product and it will work very well. Version 1.5 will have more enhanced features, but verson 1.0 will work. Company B’s products, on the other hand, are renowned in the industry for version 1.0 not working well because there are too many bugs and having to issue updates to patch the bugs. Many people do not like Company B’s most recent large product release because of the many ways in which it doesn’t work as expected. Some computer vendors even expect buyers to pay extra to get an older program installed when they purchase a new computer, along with a disk to install Company B’s program later when they feel it has been fixed well enough.

Services Differentiation Categories
Services can be differentiated in the following ways, according to Kotler.

  • Delivery. How well the product or service is delivered to the customer. For product – based organizations, it includes criteria like accuracy, speed, reliability, and lack of breakage. For example, a rug company in Chicago promises next – day installation, and lets the customer make the delivery decision for themselves — for a price. Reliability ( “ when it absolutely has to be there overnight ” ) is the criterion on which FedEx, UPS, and USPS Overnight compete. (Given the number of yellow and black “ we could not deliver because you were not home ” notices the authors have received, we see a definite difference between reliably delivering the package and reliably leaving a note saying one tried to deliver the package.) For service – based organizations, delivery includes additional criteria, including the fit between consultant and client personalities and styles, how feedback meetings are conducted (discussed in detail in Block, 2000), and how deliverables (reports, PowerPoint presentations, etc.) are designed and presented.
  • Installation. How the product is made to work in the customer’s environment. For product – based organizations, the most familiar criterion to home consumers is the electronics slogan that everything is plug and play; for those involved in the installation of large – scale system applications, however, criteria may include number of years, number of data revisions, or number of complaints. For service – based organizations, installation is usually referred to as implementation and is widely recognized as the most difficult part of any consulting project. Criteria frequently used include amount of executive support, amount of change required, amount of support available to workers during the implementation, acceptability of the change to the majority of workers, and the like.
  • Customer training. How customers receive the skills and knowledge needed to operate the new product successfully. Since this is business many of us are in, we discuss this in more detail in Structural Strategy.
  • Consulting service. How organizations offer advice to a customer. For product based companies, this advice is usually focused on the optimal use of the product, and it may come packaged with the product or may be an add – on feature (see the Features item under Product Differentiation) available at an additional charge. For some product – based companies, this service may be more than just an add on feature. The company may use the product sale as an entre into a customer company, and then try to sell additional and more profitable consulting services to solve additional problems the customer has. Information technology and training companies frequently use this sales strategy. Some service – based companies may provide consulting services as the major part of their business but have resulting or ancillary products. A training development company may provide consulting services in analyzing and defining the problem, for example, but also develop a training product as part of its solution to the problem (part of the same consulting project). A different strategy is used in some sales, information technology, and management consulting. The consulting company does the analysis and provides advice about the solution, but it just so happens that part of the solution is a product the company has developed and sells (a process, a system, a course, etc.)
  • Repair. Despite the reliability and repairability built into the product (see Product Differentiation), if it does fail, what is the speed, cost, and quality of the repair service available? This service is frequently offered as an add – on feature to some products (e.g., Dell Computers next – day on – site repair), or it is built into the price of the car (e.g., BMW and Mercedes 100,000 – mile warranties).


Possible Product Measures

Products Differentiation:

  • Features (number, novelty, time)
  • Performance (number of days, percentage on time, percentage right address, percentage delivered first try)
  • Conformance/durability/reliability (returns [number, percentage], defects [number, percentage] number of accidents)
  • Repairability and repairs (number, time, repeats)
  • Style (percentage customers rating 4 out 5, percentage favorable reviews by critics, novelty)
  • Design (percentage alignment of other 5 elements according to customers, critics, internal design monitors, percentage returns for any of the other 5 elements)


  • Delivery (speed, accuracy, reliability, fit, number of days, percentage on time, percentage right address, percentage delivered first try)
  • Installation/implementation (time, cost, number of referenceable accts)
  • Customer training (volume, number complaints/rework, number preventable repairs)
  • Consulting service (percentage utilization, referenceable accounts)
  • Availability (percentage of time available when needed)
  • Team rapport (number of arguments, problem-solving speed)
  • Contracting (number of steps, hassles, arguments)
  • Drive out costs (number innovative ideas presented)
  • Helpful (number problems solved, number problems welcomed)
  • Speedy service (cycle time, time OOS)
  • Quality service (number revisions, number callbacks)

Customer Relationship:

  • Convenient (steps involved [number, complexity, hassle])
  • Responsive (problems solved [number, percentage, time])
  • Welcome given (customer feelings [number, percentage, degree])
  • Thanks given (percentage, timeliness)
  • Guarantee (amount, ease)
  • After-sale service (number of questions answered, loaners)


Challenges of Product/Service Differentiation
Two challenges are related to product differentiation: the product definition and proper differentiation balance.

Product Definition. In trying to understand Product differentiation, it is very easy both the organizations and its employees to get confused between (a) product class, line, type and item, and (b) product – focused and service focused organizations. For example, if we are told there are too many defects in the electronic games our company is producing, we have to find out if it is all games, all games of one type, all games with certain functions, or just one specific game.
The second type of problem occurs when the organization is unclear itself, or unclear to its customers, about the nature of its product/service mix. Is the company primarily a product company that offers some ancillary services? Is the company really a services company that offers products as entrees to the customer? Is the company really a product company that uses services as an enter to sell more products?

Improper differentiation Balance. This issue arises when the product differentiation factors and the service differentiation factors are not aligned in the Design: The Integrating factor. For example, as you add more Features, they may be designed correctly (an analogy would be that as you add more software and data to your home computer, you also add more memory) or incorrectly (you add more software and data, but not enough memory).
If designed incorrectly, while Features and Style may increase, the Performance, Conformance, Reliability and Repairability decrease to unacceptable levels – leading to decreases in Repair Service level. An example where features and repairability clash (at least in the minds of customers) is the non replaceable battery in some Apple products. It is a Feature, and it Performs and Conforms. But it can only be repaired by shipping the product to Apple for battery replacement, which, in the minds of customers, makes the factor of Repairability unacceptable.
There are many other possible ways in which the differentiation elements can be out of balance (e.g., excellent features, performance etc., but ugly style). The key thing to remember is that, like the Project Management triangle (you can only have two out of the three variables [good, fast, cheap]), organizations have to compromise on one or more of these differentiators to produce a profitable product—unless they raise the price of the product, or charge extra for some of the differentiators (as Dell does for extended warranty service).

Action Steps for Product/Service Differentiation Audit
You should take five actions for this element of Product Strategy:
1. Identify all seven levels of the product hierarchy for your company so that you understand the product lines, classes, items, and whatever else is necessary.
2. For the product line or class with which you are most associated, and for all of them if you work for all of them, identify all seven elements of product differentiation.
3. For the service line or class with which you are most associated, or for all of them if appropriate, identify the five elements of service differentiation.
4. Given the elements of product and service differentiation, identify any disconnects you see within Product Strategy itself (e.g., promised high reliability, but also frequently used repair service).
5. Identify any disconnects you see between the Product and the Customer and Strategy .