Monday, 30 June 2014

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“There is no such thing as commodity”, said Ted Levitt in one of his 1980 articles in HBR (Marketing Success Through Differentiation – of Anything). “All goods are differentiable.” Modern markets operate by differentiation. Even such generic products like steel, coffee etc. are sold by differentiation today.
Selling and Marketing: Differentiation, Tangible and Intangible Products Management Masala V K Talithaya
Selling and Marketing: Differentiation, Tangible and Intangible Products

Tangible products:

Tangible products are evident – we can see them, feel them, smell them and even taste them. The quality or the satisfaction the products provides is judged from what we see, feel, smell etc. But how is the tea sold by Uniliver different from Tetley? Apparently one may not be able to make any difference. This is where the intangibles make a difference even in tangible products.  
Companies selling consumer and industrial goods seek competitive distinction by incorporating product features. Some of these features are visible and measurable (tangible) and some are implied (intangible).
Commodities which are undifferentiated are presumed to be price sensitive. If walking down the road a few yards can get a fractionally better price, the customer would rather walk. This is the concept of perfect competition found only in rarefied text books on Economics. In reality, even walking that few yards has a cost, and the customer evaluates it. That is, however, another matter. To come back to our point, companies do create features in tangible goods, that is, differentiation by adding other considerations.  Therefore, going beyond Economics text books, in the real world there will always be other considerations (tangible and intangible differentiation) in making a buying decision.
Selling and Marketing: Differentiation, Tangible and Intangible Products Management Masala V K Talithaya
Selling and Marketing: Differentiation, Tangible and Intangible Products

Intangible products:

Ted Levitt succinctly puts it: “The most important thing to know about intangible products is that the customers usually don’t know what they are getting until they don’t get it. Only then do they become aware of what they bargained for; only on dissatisfaction do they dwell”. Satisfaction’s existence is affirmed only by its absence.
That is a curious situation where the customer will be aware only through negative input of failure and dissatisfaction, not of satisfaction. This makes the company’s marketing vulnerable to competition unless it makes effective differentiation.
Selling and Marketing: Differentiation, Tangible and Intangible Products Management Masala V K Talithaya
Selling and Marketing: Differentiation, Tangible and Intangible Products

Infusing tangibility to intangible and intangibility to tangible products:

All products have elements of tangibility and intangibility. To differentiate intangibles, companies have to create surrogate or metaphors for tangibility – how people dress in the Bank’s office, how the marketing person articulates, writes or present etc. To remind customers of what they are getting there is need to continuously convey the message. This will ensure that rare occasions of dissatisfactions don’t get overblown.

Selling and Marketing: Differentiation, Tangible and Intangible Products Management Masala V K Talithaya
Selling and Marketing: Differentiation, Tangible and Intangible Products
Just as tangible products have to be intagibilised to differentiate, intangible products need to be tangibilised for “managing the evidence” – that is, give an impression that the product, indeed, is different. This should be systematically done. Some of the examples Levitt gives are interesting: hotels wrap their drinking glasses in fresh bags or neatly shape the end-pieces of the toilet tissues into a fresh looking arrowhead, or put on the toilet seat a “sanitized” paper band. All these actions say with silent affirmation clearly that the room has been specially readied for you – no words spoken. Those tangible messages of intangible service would be much more convincing than many spoken words; and in any case, how are you sure your staff will tell the customer every time?

Keeping customers for an intangible product requires constant reselling efforts while things go well lest customers get lost when things go badly. Relations with customers are managed much more carefully by tangibilising.

Similarly tangible products are differentiated by intangibles. To quote Levitt again, “An automobile is not simply a machine for movement visibly or measurably differentiated by design, size, color, options, horsepower, or miles per gallon. It is also a complex symbol denoting status, taste, rank, achievement
Selling and Marketing: Differentiation, Tangible and Intangible Products Management Masala V K Talithaya
, aspiration, …” Therefore, “A product …is the total package of benefits the customer receives when he or she buys it.”

It is the marketing process: Products are always combinations of tangible and intangibles.
Differentiation is not of the product per se, it is the process of marketing itself.
Differentiation is most readily apparent in branded, packaged consumer goods; in the design, operating character, or composition of industrial goods; or in the features or service intensity of intangible products.

Notwithstanding all the skills in differentiating anything, and the carefully created marketing process, the experience since the time Levitt wrote this piece is that all differentiated products have the tendency to become commodities. This whole process of differentiated products becoming commodities can be likened to a pyramid – a small tip of the pyramid belongs to the reign of highly differentiated products. As you go down ‘managing the evidence’ is less clear, irrespective of tangibility or intangibility. At the bottom the large mass of price sensitive undifferentiated products reign (though the companies marketing them claim their different qualities). This is not to deny that differentiation depends on how powerfully one operates the business. In the way the marketing process is managed successfully, to rise to higher levels in the pyramid, may still reside the opportunity for many companies, especially those that offer generally undifferentiated products and services, to escape the commodity trap.   

                                                                   
By V.K.Talithaya (vktalithaya@managementmasala.com)
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On 6/30/2014

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