[MUSIC] So let's start by defining what actually is a product or a service. Let's look at the definition from the American Marketing Association. In principle it is a bundle of attributes whether those be features, functions or benefits and uses that are capable of exchange or use. Usually a mix of tangible and intangible forms as we have described already. Once we describe what the value proposition consists of. Thus a product may be an idea, a physical entity or a good or a service. Or any combination of the three. It really exists for the purpose of exchange and the satisfaction of individual or organizational objectives. Whereas this is actually the academic definition. What I really think is going to help you more is how to think about a product. And typically you should think about a product or a service, thinking on multiple levels of what the products consist of. At the very center is what fundamental need does your customer buy the products. Meaning, what fundamental need are you covering? So that's the main product benefits. But in addition to that, you may need to come up with more product benefits to actually make it viable, differentiable, or even be able to market the product, as a lot of the product or services will not completely differentiate at the core. In addition, because of substitutes, or compliments, or other offerings in the market, the customer may have come to expect certain performance, certain features, or certain attributes which is what the product must fulfill. Because if you don't succeed or if you don't fulfill customer expectations, it is very unlikely that you will actually come up with a profitable business. And finally at the higher level we can think of the augmented product, which is additional benefits or additional services that you have to build up onto your core product offering, in order to truly exceed the customer expectations. But, let's look at an example. Let's take the case of the iPod. The iPod was introduced when Steve Jobs came back to apple after apple acquired his following company called Next. It neither was the first MP3 player into the market, and at its core, the iPod was not the one with the most memory and worst of all, did not allow you to actually illegally download or copy music because Apple had set up their own format for listening and distribution music. So you might say okay, this product might have very little chance of actually becoming a blockbuster in the market. But how did they go about doing it because actually the iPod became the first blockbuster product since Steve Jobs came back into the Apple Corporation. In fact how did he go about surpassing all the other Japanese, Sony, Panasonics, and all the other brands of more established iPods in the market? Well obviously in addition to its core product features or benefits, the Apple product had its brand. But as you can imagine, the brand of Apple before any of the success of blockbusters that they have set up in the last decade or so, they did not have a brand nearly as strong as it is today, all right? So the brand is clearly very important. Apple was still a relatively well-known and loved amongst its core base of users, because of the Max brand. However, not nearly as strong, and we cannot clearly say that it's because of the brand that eventually this iPod became a blockbuster. It had some other elements that some of the other ones didn't have. For example, the turn wheel for searching and finding music. Which was an important feature and it also had a large screen which makes it very nice to be able to find and scroll through your collection of songs. However, none of these features for as important as they may be have really converted the Apple iPod in a blockbuster. What other elements can you think, what is the augmented product besides the core benefits where you are not dominant in any particular one of them? There are many, obviously, all the way from the kind of warranties it offer, the technical assistance, how was it delivered, the packaging, the maintenance, and even some of the channels of distribution or the setup and installation. Which essentially worked as you open it, you take it outside of the box. And it's ready to work, okay? So let's look at it. How do you go about augmenting the product? Well first of all, you have to be in with the core product benefits, which in the case of consumer electronics is the hardware and the software, right? But we've already said before that Apple was not the best iPod in terms of either sharing or memory capabilities. But innovation you have design. It's very nice to be able to personalize to your own color and size. And in addition, they built a product portfolio so that sometimes you can use it for running, another one for a limited collection of songs, or to download your entire music collection into this particular product. But we can augment the product even more. How? I've referred to this before. The packaging, right. You open the box and it's ready to work. Beautiful, right? Now after you put in all these elements and you've thought about all of these additional benefits that you might be delivering to your potential customers, do you think that the actual iPod became a blockbuster because of this? The answer is no. It was a successful product, but it didn't even come close to becoming a blockbuster. Companies have to work much harder than this, to be able to come up with blockbuster products. In the particular case of Apple, they have to leave their particular hardware and software technical expertise and move on to a complete channel of distribution. The iPod did not in fact become a blockbuster until iTunes was invented approximately three years down the road from where the iPod was first introduced. And after the iTunes, Channel distribution is one finally, this product became the first blockbuster in the MP3 category. [MUSIC]
