Classifying products is crucial for business success.
You can use it to gain a deeper understanding of the mindset of your customers when they buy your products. For example, if you sell a convenience good like toothpaste, you’ll need to create a marketing plan that meets customers where they are, and shows how your product is different.
There are lots of ways to classify products. By knowing the different categories, you can see where your product lies, understand the mindset of your customers better, and make money online.
What is product classification?
Product classification is the process of categorizing products based on certain characteristics. There are various reasons for doing this, like understanding consumer buying behavior or choosing which white label or private label products to source.
You can classify products in a few ways. In most cases, items are grouped based on their typical use. Things like computers, TVs, and phones fall under the “electronics” category.
The price point is another way to categorize products, determining how expensive or affordable they are. Luxury brands would fall into the high-end price point category, while budget brands would fall into the lower price point category.
Types of consumer products
Now that you know why classifying products is important, let’s look at four different types of products with examples: convenience goods, shopping goods, specialty goods, and unsought goods.
1. Convenience goods
Convenience goods are products that consumers frequently purchase with little thought or effort. These items are typically low-cost and widely available, making them easy to buy on the go.
Examples of a convenience product include:
- Laundry detergent
Because convenience goods are often purchased, they tend to be impulse buys—consumers may not carefully consider all their options before making a purchase.
Convenience goods advertising often emphasizes an item’s low price or limited availability to create a feeling of urgency or need. A grocery store, for instance, might put bread on sale at the entrance so customers will buy it.
Many businesses rely on convenience goods for reliable sales and profits. However, since they’re so widely available, businesses have difficulty differentiating their products.
Shopping products are items bought less frequently. They are often more durable and expensive than convenience goods, and are geared toward a specific niche, like refrigerators or televisions.
There are two types of shipping products:
- Homogeneous shopping products are items that are identical, or very similar, across different brands. For example, all televisions have a screen, a power cord, and an input for an antenna or cable.
- Heterogenous shopping products are items that differ significantly from one brand to another. For example, some refrigerators have a water and ice dispenser built into the door, while others do not.
Other examples of shopping products are:
- Airline tickets
- Washing machines
For example, when buying a new car, a shopper will look at different models to find the one with the best combination of price, fuel efficiency, safety features, and so on.
Shoppers compare products on multiple dimensions, so businesses must ensure their products stand out. The most effective way to do this is with effective marketing and branding highlighting the product’s most attractive features. A business should also ensure its products are easily bought and accessible.
3. Specialty goods
The consumer perceives specialty goods as something different and unique from other products. Because they offer something no other product can, they are worth the consumer’s premium price.
Examples of specialty goods include:
- Luxury cards
- Professional cameras
- Designer clothing
To convince consumers that their specialty products are worth the price, businesses must create a strong brand identity. This involves differentiating the product, creating a sense of exclusivity, and promoting its unique features.
4. Unsought goods
Unsought products are goods that the consumer does not know about or does not think to buy. They are often expensive, risky, or complicated products. Examples include:
- Funeral services
- Life insurance
- Car repairs
Because unsought goods are not top of mind for consumers, businesses must work harder to generate interest and awareness. They can do this through marketing campaigns, personal selling, and other forms of advertising.
Unsought goods often require more explanation than other types of products. As such, businesses must ensure that their product is easy to understand and that potential customers know where to go for more information.
Types of industrial products
Unlike consumer products, industrial goods are made for industries. They are used in manufacturing or in maintaining and repairing machinery and equipment. Industrial products can be either raw materials or processed materials.
5. Raw materials
Raw materials are materials used in the production process of other products, but have not yet been processed. Raw materials can include metals, minerals, lumber, and petroleum.
You would use raw materials to create consumer products like:
- Canned goods
- Construction materials
Raw material costs can fluctuate based on supply and demand, so it’s important to keep an eye on the market. For example, copper prices have increased sharply over the past few years due to increased demand from China. This increased demand has led to higher prices for companies that use copper in their products.
6. Processed materials
Processed materials are those materials that have been refined or processed in some way to be used in the manufacturing process of other products. Processed materials can include steel, glass, plastics, and chemicals.
You use processed materials to create products like:
Processed materials often have a longer shelf life than raw materials because they have been through a manufacturing process that creates a more consistent product.
7. Capital goods
Goods and services used in production are capital goods. A capital good can be anything from machinery to major equipment to tools.
Raw materials and processed materials are needed to make capital goods. A computer, for instance, requires metals, glass, and plastic.
Once you have these materials, you have to put them together. Capital goods are the machines and equipment that assemble computers.
8. Intermediate goods
Intermediate goods are those products used in the manufacturing process of final goods, but are not themselves final goods. Intermediate goods can include parts and components used to produce a final product.
For example, salt is an intermediate good because it is used to produce many food and nonfood consumer goods, but is not itself a final product.
9. Component parts
A component part is what makes up a bigger system or product. Component parts can refer to anything from the parts that make up a machine to the raw materials used to make it.
One example of a component part is a circuit board. From computers to mobile phones, circuit boards are everywhere. Circuits are made up of various electronic components like transistors, resistors, and capacitors.
10. Accessory equipment
An accessory equipment is something that doesn’t really contribute to the core operation of a process or system, but improves its efficiency, safety, or quality. This could include conveyor belts, packaging machinery, storage units, or cranes in an industrial setting.
11. Operating supplies and services
A business’s operating supplies are what it needs to run. They’re used in production or maintenance. Operating supplies are things like paper for printing invoices or oil for lubricating machinery, for example.
Why is product classification important?
A product’s classification affects many aspects of its life cycle, including how it is marketed, its price, the type of consumers who buy it, and the high demand for it. Other reasons why professionals classify products:
Easier to develop new products
With product classification, you can better understand what consumers want and need, allowing you to create products that fill market gaps.
Save money on marketing and advertising
Product classification can also be used to segment your market. By grouping products together, you can target specific groups of customers with your marketing strategy. This can be a more effective way to market trending products, as you can tailor your message to appeal to a specific audience.
When you know your target market, you can create ads that meet their needs and wants. You won’t waste money on ads that don’t work.
Provide relevant information to customers
Classifications can also help you give customers relevant information. You can tell customers what kind of product it belongs to if you know what category it belongs to. They can then make an informed decision about whether they want to buy it or not.
Help with strategic decisions
By classifying your products, you can also make strategic business decisions. You can use product classification to create a product portfolio for your business.
This will help you to map out the different products you offer, and will also help you identify any gaps in your product range. Offering products your customers want can increase brand loyalty and sales.
Improved inventory management
Lastly, product classification can also help you manage your inventory. Knowing what products are in high demand will help you keep more on hand so you don’t run out.
Classifying products properly can help businesses make better decisions about how to market and sell their products. In turn, this can lead to increased sales and profitability.
How to classify products
There are four main product classification systems:
- Use-based classification systems group products according to their primary function or use. For example, a use-based classification system for clothing would group all shirts, all pants, and so on.
- Function-based classification systems group products according to their secondary function or purpose. For example, a function-based classification system for clothing would group all shirts designed for formal occasions together, all shirts designed for casual wear together, and so on.
- Geographical region is another common way to classify products. Products can be classified by the country or region in which they are produced, by the country or region in which they are sold, or by the country or region in which they are used.
- Target audience or demographic—where you group products based on who they’re meant for. All baby clothes, for example, would be grouped together, since they’re meant for babies and young kids.
There are many other ways to classify products, and businesses often develop their own unique classification systems to suit their specific needs. However, the use-based, function-based, and geographical region classifications are the most commonly used.
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Types of products FAQ
What are the 4 product classifications?
- Convenience products
- Shopping products
- Speciality products
- Unsought products