Understanding Product Abstraction (#3)
Ravi Warrier
Former entrepreneur helping startups build better products and businesses. Get help at impresseveryinvestor.com
How Customers Categorize Your Product
I received this message about my last article: Product Abstraction and the Pricing Puzzle
"This is a really nice article but I had one small problem with it. After reading it completely I couldn't place exactly what product?abstraction?is.
In my head if I have to define what is product abstraction in one line, I'm?not?able?to."
In that article, I discussed how pricing and positioning are connected, especially in how customers compare products within different categories. Now, let's go deeper into the idea of product abstraction—how customers mentally group your product, and why this is important when deciding the value they give it.
What is Product Abstraction?
Product abstraction refers to the mental “boxes” customers put your product in based on things like features, how it works, how it’s perceived as a brand, or even its user experience. These categories, or "boxes," form layers, similar to a Russian doll set, where each layer is broader than the one before. Depending on how customers think about your product, they’ll compare it to others in the same category.
For example, let’s consider SUVs. A customer might first compare different SUVs, then expand their comparison to all cars, and eventually to all types of vehicles (like trucks or two-wheelers). Each of these categories is a level of abstraction. So, when setting your price, you need to think about which “box” your product belongs to and what other products customers will compare it to.
Product Abstraction in Different Industries
To understand this concept better, let’s look at examples from three industries: technology, consumer goods, and a common service most people have used.
1. Tech Example: Smartphones
Smartphones are a clear example of how product abstraction influences pricing. When customers shop for a smartphone, they might start by comparing different models within the same brand (e.g., OnePlus 10 vs. OnePlus 11). But as they think more broadly, they could compare it to other premium smartphones (OnePlus 11 vs. Samsung Galaxy S22), or even to more expensive phones like iPhones if the price is high.
Here’s what the abstraction layers might look like:
If OnePlus priced a phone much higher than other premium smartphones, customers would likely start comparing it to alternatives like the Samsung Galaxy or even iPhones. They’d wonder whether the extra cost is justified. If the product doesn’t fit well within its expected "box," customers may lose interest.
2. Consumer Goods Example: Shampoos
In consumer goods, shampoos are a good example. Suppose you’re selling a shampoo that is marketed as organic and eco-friendly. The abstraction layers for this product might look something like this:
Customers will first compare your organic shampoo to other organic shampoos. If your pricing is too high, they might start comparing it to other premium shampoos, even if they’re not organic. Finally, they might compare it to broader categories like other hair care products, which could include conditioners or hair masks, depending on what they need.
For example, if your organic shampoo costs twice as much as regular premium shampoos, customers might think it’s not worth paying that much. The category they place your product in will determine what they compare it to and how much they are willing to pay.
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3. Common Service Example: Out-station Bus Services
Now, let’s look at a more familiar example: out-station bus services, such as traveling from Hyderabad to Bangalore. In this case, customers compare the price of the bus service not just with other buses but also with different modes of transportation, depending on how much it costs.
Here’s what the abstraction layers might look like:
If the price for the bus service is slightly higher than other bus services, customers might start comparing it to train services, which could offer a more comfortable ride at a similar price. If the bus price is much higher, customers could go further and consider booking a flight, since flying is faster and more convenient. This example shows how pricing affects the category customers place your product in, and how the perceived value can change depending on other options.
The Role of Pricing and Positioning in Product Abstraction
Pricing does more than just reflect the value of your product—it also helps determine how customers categorize it. As we’ve seen in the examples above, a customer starts by thinking about a specific category, but if the price doesn’t match what they expect, they’ll compare it to other products in broader or more premium categories. In the previous article, we explained that pricing can either strengthen the product’s position within its expected category or push it out of that category.
When the price doesn’t align with the category customers expect, they may think the product is overpriced, and they won’t be interested. For example, a point-and-shoot camera priced too close to a professional DSLR will struggle to attract customers because they’ll compare it to DSLRs, which offer more advanced features. On the other hand, if a product is priced too low within its category, customers might think it’s of lower quality.
The key lesson here is that pricing must fit within the category where you want your product to be compared. You want customers to compare “apples to apples,” and when they can’t, they should see your product as worth the price you’re asking. Misalignment between pricing and product abstraction can either harm your product or, in some cases, create an opportunity—like the decoy effect, where a product is positioned in a way that makes it seem like a better deal compared to alternatives.
Product abstraction plays an important role in pricing strategy. By understanding how customers mentally categorize your product, you can make sure your price fits within their expectations, while still showing the value you offer. Whether you’re selling technology, consumer goods, or services, knowing where your product fits in the hierarchy of customer perception is key to avoiding pricing mistakes and maximizing its value.
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