If you're looking to understand the product hierarchy and how it affects your go-to-market strategy, this article is for you.
As companies grow and develop their product offerings, it becomes increasingly important to have a clear understanding and organization of what they are offering to customers. This is where product hierarchy comes in. In this article, we will explore the ins and outs of product hierarchy and how it influences go-to-market strategy.
Product hierarchy is the way in which products are organized within a company's portfolio, with each product occupying a specific level within the hierarchy. The hierarchy can be thought of as a pyramid, with the most general categories at the top and the most specific products at the bottom. Product hierarchy helps in sorting out the company's products in a way that makes sense, simplifying management and strategic decision-making.
For example, let's consider a company that produces smartphones. At the top of the hierarchy, we have the general category of "Electronics". Underneath that, we have "Mobile Devices", which is further divided into "Smartphones" and "Tablets". Under "Smartphones", we have "Android" and "iOS" operating systems, and under those, we have specific models such as "Samsung Galaxy" or "iPhone X".
Product hierarchy plays a crucial role in go-to-market strategy. With a well-organized hierarchy, companies can ensure that their products are aligned with their brand strategy and that each product is easily understood by the target market. By understanding where each product fits within the hierarchy, companies can better identify core products, align pricing strategy, and determine which distribution channels are most appropriate for each product.
For example, a company may have a premium product line that is targeted towards high-end consumers. By understanding where these products fit within the hierarchy, the company can ensure that the pricing strategy is aligned with the target market and that the distribution channels are appropriate for reaching that market.
A typical product hierarchy will have four key components:
By understanding these key components and how they relate to each other, companies can create a well-organized product hierarchy that simplifies management and decision-making.
Product hierarchy is a way for companies to organize and categorize their products in a logical and meaningful way. It helps companies to better understand their product offerings and how they relate to each other, and also enables them to target specific customer segments more effectively. There are several different types of product hierarchy, each with its own unique characteristics and benefits.
Brand hierarchy is the top level of the product hierarchy, and describes how a company's brands relate to each other. At the top of the brand hierarchy is the parent brand, with sub-brands or brand extensions listed below. Companies use brand hierarchy to establish relationships between their various brands and sub-brands and to ensure that each brand is properly positioned in the market relative to other brands.
For example, consider a company that produces a range of personal care products. The parent brand might be the company name, with sub-brands such as "Luxury Care" and "Everyday Essentials" listed below. Each of these sub-brands might then have its own brand extensions, such as "Luxury Care Shampoo" and "Everyday Essentials Body Wash". By using brand hierarchy, the company can ensure that each brand and product is clearly defined and positioned in the market.
Product line hierarchy outlines how different products relate to each other based on their function or target audience. For instance, a company may have a product line that serves the budget-conscious customer, as well as a higher-end product line for more discerning customers. By grouping products in this way, companies can better understand how each product fits into the overall portfolio and target specific types of customers.
Continuing with the personal care products example, the company might have a product line for luxury products and another for everyday products. The luxury product line might include high-end shampoos, conditioners, and body washes, while the everyday product line might include more basic versions of these products at a lower price point. By grouping products in this way, the company can target customers who are looking for either luxury or affordability.
Product range hierarchy is an extension of product line hierarchy, with even more specific types of products identified within a product line. For example, within a product line that targets budget-conscious customers, a company may have a range of products at different price points and with different features or characteristics. This allows the company to target specific customer segments within a broader product line.
For instance, within the everyday product line for personal care products, the company might have a range of shampoos at different price points and with different features. There might be a basic shampoo for the most budget-conscious customers, a mid-priced shampoo with added moisturizers and vitamins, and a premium shampoo with all-natural ingredients. By offering a range of products within a product line, the company can appeal to a wider range of customers.
SKU hierarchy is the most specific level of the product hierarchy, with each individual product identified by a unique SKU code. This is necessary when companies have a large number of products within their portfolio, as the SKU code can help with inventory tracking and management.
For example, within the personal care product line, the company might have dozens of different shampoos, conditioners, and body washes. Each of these products would have its own unique SKU code, which would be used to track inventory levels and manage stock. By using SKU hierarchy, the company can ensure that each product is properly tracked and managed, which can help to reduce waste and improve efficiency.
A strong product hierarchy is essential for companies to effectively organize and market their products. It involves identifying core products, organizing them based on functionality and features, aligning the hierarchy with brand strategy, and ensuring consistency across product lines.
Identifying core products is the first step in building a strong product hierarchy. This involves conducting market research and analyzing the competition to determine which products are critical to the success of the company. By doing so, companies can focus their resources on the products that will make the biggest impact and differentiate themselves from the competition.
For example, a company that sells skincare products may identify their core products as their anti-aging line, as it is a highly competitive market and the success of the company relies heavily on the success of this product line.
Once core products have been identified, companies can begin organizing their products based on functionality and features. This involves grouping products together based on their similarities and differences, and determining which products belong to which product lines and ranges.
For example, a company that sells outdoor gear may organize their products into product lines such as camping gear, hiking gear, and water sports gear. Within each product line, they may have ranges such as tents, sleeping bags, and backpacks for camping gear.
Brand strategy is a critical component of product hierarchy. Companies must align their product hierarchy with their brand strategy to ensure consistency in messaging and branding across the portfolio.
For example, a company that prides itself on being eco-friendly may ensure that all of their product lines and ranges reflect this value. This may involve using sustainable materials, minimizing packaging waste, and partnering with environmentally-focused organizations.
Finally, companies must ensure that there is consistency across all of their product lines, in terms of messaging, features, and functionality. By doing so, customers will have a clearer understanding of what the company offers and how each product relates to the others within the portfolio.
For example, a company that sells athletic apparel may ensure that all of their product lines and ranges have consistent messaging around performance and comfort. They may also ensure that their products have consistent features such as moisture-wicking fabric and breathable materials.
In conclusion, building a strong product hierarchy involves identifying core products, organizing them based on functionality and features, aligning the hierarchy with brand strategy, and ensuring consistency across product lines. By doing so, companies can effectively market their products and differentiate themselves from the competition.
Product hierarchy can have a significant impact on pricing strategy. By understanding where each product fits within the hierarchy, companies can better determine the appropriate price point for each product. For example, a premium product within a product line will likely have a higher price point than a more basic product within the same line.
Product hierarchy can also guide decisions around distribution channels. By understanding the target audience for each product line, companies can determine which distribution channels are most appropriate for each product. For example, a high-end product line may be better suited for upscale retailers, while a budget-conscious product line may be better sold through discount retailers.
Product hierarchy can also be a valuable tool for marketing and promotion. By organizing products in a clear and concise way, companies can better promote their products and target specific audiences. For example, a company may run a promotion for a specific product range or SKU code, highlighting the unique features and benefits of that product.
Finally, when expanding into international markets, companies must adapt their product hierarchy to suit local customs and preferences. This may involve creating new product lines or ranges, or simply tweaking existing products to better align with the local market.
Product hierarchy is a critical component of any company's go-to-market strategy. By understanding the key components of product hierarchy and how it influences pricing, distribution, and promotion decisions, companies can better position their products and build a successful portfolio. By following the tips outlined in this article, companies can build a strong product hierarchy and stay ahead of the competition.
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