The correct answer is Product families because the requirement is to organize similar products into searchable categories. In Dynamics 365 Sales, product families are used to classify and group related products under a product hierarchy. Microsoft’s product catalog guidance explains that products can be created as standalone products or inside a family depending on how the organization wants to organize and classify them, and the training module specifically describes creating product family hierarchies that include product bundles and individual products.

For the example in the question, “flat screen TV” would be the product family, while individual versions such as 42-inch, 55-inch, OLED, QLED, or 4K models would be products inside that family. This makes browsing and searching easier for sellers because related variants are grouped logically. Product unit groups define how products are sold, such as each, box, or case; they do not categorize products. Related products are used for cross-sell, upsell, substitute, or accessory recommendations, not primary catalog organization. Product bundles combine multiple products sold together as a package. Therefore, the correct catalog structure is Product families .

References/topics: Product catalog setup; product families; product classification; product hierarchy; Dynamics 365 Sales core product configuration.