Quick Definition
Product hierarchy refers to a structured arrangement of products into ordered groupings that define parent-child relationships within a product family.
What is Product Hierarchy?
Product hierarchy is a systematic way of organizing a company’s products into a structured format that showcases the relationship between different items within a company’s portfolio. It helps businesses categorize and manage their products efficiently, from broad product categories to more specific product types and subcategories. This hierarchy is essential for both internal product management processes and external customer-facing applications like ecommerce websites, aiding in everything from pricing strategies to marketing campaigns.
The Structure of Product Hierarchy
Levels of Product Hierarchy
- Core Product: Represents the most basic level of product hierarchy, which fulfills the basic needs of the consumer. This level defines the fundamental product need that the item addresses.
- Basic Product: At this level, the product includes all the essential features that allow it to function. This could refer to the generic version of a product without any add-ons or enhancements.
- Product Class: A grouping based on the functionality and customer base, product class helps in segmenting products into manageable categories.
- Product Line: This refers to a group of products that are closely related, either functioning in a similar way, sold to the same customer group, or fall within the same price range.
- Product Type: Within each product line, products may be further divided based on their characteristics or specifications into different types, which cater to specific customer preferences or requirements.
- SKU (Stock-Keeping Unit): Represents a specific item, including details on size, color, or other attributes. SKUs are critical for inventory management and sales tracking.
Additional Considerations
- Subcategories and third-level categories may be used to further refine groupings, particularly in larger product portfolios, allowing for more specific distinctions between products.
- Template and workflow systems, often part of an ERP (Enterprise Resource Planning) or PIM (Product Information Management) system, help streamline the process to add product listings and ensure master data accuracy across product levels.
Importance of Product Hierarchy
Organizing Products
Product hierarchy helps in categorizing products and organizing products effectively on both the backend ERP systems and customer-facing platforms like ecommerce sites. For example, creating category pages for each product class or type can significantly improve the user experience and customer experience by making it easier for customers to find and browse through similar products.
Enhancing SEO and Marketing
A well-defined product hierarchy improves search engine optimization (SEO) because it creates clear pathways for search engine crawlers to index content more effectively. For marketers, understanding the product hierarchy enables more targeted marketing campaigns, as promotions can be tailored to specific product lines or classes.
Pricing and Product Management
In product management, hierarchy aids in setting pricing strategies at different levels, from base models to premium versions with additional features. This structure also assists managers and teams in troubleshooting and developing initiatives for new product development by clearly identifying where opportunities for innovation or improvement exist.
Practical Example of Product Hierarchy
A practical example could be a technology company like Microsoft, which organizes its products into:
- Core Product: Software solutions.
- Basic Product: Operating systems.
- Product Class: Desktop, Mobile.
- Product Line: Microsoft Windows, Microsoft Office.
- Product Type: Different editions of Windows 10, Office 365 for business, home.
- SKU: Specific version numbers, license types, etc.
Each level of this hierarchy addresses a different product need and customer needs, ensuring a family of products that is well-structured and easy to manage from both a sales and stock perspective.
Conclusion
Product hierarchy is a crucial organizational tool that enhances how products are managed, presented, and sold in various business environments. It not only simplifies internal operations and stock-keeping but also improves the customer’s ability to navigate and interact with the company’s products, ultimately enhancing satisfaction and driving sales.
