Bundling 2.0

March|2010

Going Beyond Boundaries

Bundling 2.0 I Going Beyond Boundaries

Traditional bundling is a nice start for companies seeking to drive acquisition, generate cross-sales and increase product & service uptake / upsell, but it’s only a start – bundling beyond boundaries is the wave of the future.

Traditional bundling (the concept of putting complementary products & services together and selling them as a package to the customer base) has been around for ages, utilized by companies across almost every sector. Examples of traditional bundling can be found in ICT (Microsoft Office, a bundle of different software), among restaurants (McDonald’s Extra Value Meal, a bundle of a burger, fries, and drink), and in telecom (AT&T, offering various bundles of internet, home phone, wireless & digital satellite services).

The word traditional in this case refers to the fact that bundles have usually been created by one company, within one sector, as in the examples above. A given company has traditionally looked within its own product and service portfolio to design the bundles we as consumers ultimately see. But there exists a wealth of opportunities to look beyond just one’s own offerings to create bundles which can generate significant value for the company and be truly appealing for the consumer. This concept, bundling 2.0, is the wave of the future.

What is Bundling 2.0?

Bundling 2.0 is the concept of a company looking beyond itself when considering what bundles it can offer its customer base. It’s the idea that many different products and services from within and outside a sector naturally belong together, and can be offered together to potential customers. Such bundles require some form of partnership with another firm, and thus, require more legwork to go-to-market.

The benefits these new 2.0 bundles provide customers are not just savings, which is the core value proposition of traditional bundles, but rather ease, making a customer’s purchasing experience extremely convenient. 2.0 bundles are designed around the purchasing behavior of consumers (particularly around frequency and volume) and take into account the segment they belong to. As such, 2.0 bundles are designed with extensive business intelligence serving as input.

2.0 bundles can be designed with partners both within and outside of one’s own given sector:

Across Sectors 2.0 bundles across sectors are essentially no different than those within a sector, except that the bundles products and services come from an array of companies that at first glance may not always seem to relate to one another. There are very few examples of such bundles in the marketplace today – one that does stand out is in the restaurant / entertainment industry, whereby a customer who eats at a certain restaurant in a given mall and has a bill over a certain amount receives free movie tickets to a cinema in the same mall. As the two events (dinner, then a movie) naturally go together, the bundle makes a great deal of sense for all parties involved. Again, the opportunities to create

bundles that can generate significant value for the companies offering them are endless.

Some examples that come to mind:

o Banking & Telecom & Others: A bank teaming up with a telecom, utilities providers, an accounting agency, an office supply company, and a courier company to offer a bundle of products and services that almost any start-up company would need. Aside from any discount that can be provided, the value delivered through the offering of one-stop shopping is almost immeasurable.

o Real Estate & Housekeeping & Others: A real estate rental agency teaming up with a housekeeping service to offer a bundle on rental properties, such that the potential consumer not only receives a discount from procuring the offerings together, but also benefits from the convenience of the single offer / one-stop shopping. Other partners in such a model could include a major appliance chain, a gardening company, a water delivery company, a moving company, or even a utility provider.

o Insurance & Fitness: A health insurance company teaming up with a gym to offer a “Health Plus” bundle, whereby the insurance premium is discounted for those who sign up for the gym membership and commit to a certain number of visits during the policy’s lifetime (as the risk of the insured decreases significantly, taken as a whole).

o Automotive & Energy: An automobile dealer teaming up with a chain of gas stations, whereby customers who lease a given car receive a discount on gasoline for the length of the lease.

Within Sectors 2.0 bundles within a sector aim to bundle a group of products and services that naturally complement each other, though not always offered exclusively by one company. Some examples of such bundles already exist – i.e. in the telecom sector, whereby a customer who signs up for a mobile phone service receives a branded mobile phone at a discounted price, or, in the ICT sector, whereby a customer who buys a laptop receives a bundled software for free – but these only scratch the surface of possibilities still out there in various sectors.

Some examples that come to mind:

o Electronics Stores: An electronics store bundling together a set of goods that naturally go together, thus increasing share of wallet (though reducing margins) – a specific example of this could be a “New Home Bundle,” bundling a given television, DVD player, music system, home telephones, etc., together at a discounted price (done independent of the brands, who together would likely not bundle their products together).

o Supermarkets: A grocery store bundling together a set of perishables that also naturally go together – a specific example of this could be a “Dinner for Two Bundle,” bundling steaks, potatoes, vegetables, dessert and a bottle of wine, together at a discounted price. Such a bundle not only provides

convenience for the shopper who can pick the bundle up when on the run, but also helps increase average spend per basket (as customers may not normally buy all components of the bundle if not for the offer).

o Furniture Stores: A furniture store bundling together a set of furniture that every new business opening an office may need, thus increasing share of wallet, by bundling together things like desks, chairs, shelves, etc.

As is evident from the examples above, this type of “within sector” bundling works primarily in retail, whereby retailers are able to bundle complementary products with each other. Other applicable retail types where bundling can be leveraged include clothing, hardware, bookstores, etc.

Rules & Guidelines to Follow When Designing Bundles

We recommend a set of rules & guidelines be followed when designing 2.0 bundles to ensure maximum effectiveness and uptake of the offerings. Poorly designed bundles will add little to no value to companies that offer them, and in fact, may harm the bottom line through a decrease in margins with no shift up in revenues.

1. Always begin a bundling design effort by gaining a deep understanding of your customers and their purchasing behaviors. Every company has its own set of unique customers that naturally cluster into identifiable and addressable segments. These segments each have different needs and behave quite differently from one another. When designing bundles, it is critical to know your customer segments and address their specific needs. Questions that need to be answered here are around the products and services customers in each segment buy, the order they buy them in, where they buy them from, etc.

Of particular importance is to understand the important life-stages of customers in each segment. For example, young adults will sooner or later rent or buy their own home, a stage in their lives that many companies stand to benefit from. Businesses, as another example, will open new offices, a stage in their growth that requires significant purchases to be made. Focus groups, surveys, and an analysis of internal data are some of the ways in which such information can be obtained.

2. By understanding the purchases made by consumers in each segment, companies then need to identify their shortcomings in terms of offerings, and look to close those through partnerships. For example, a business about to open is in need of an office to rent, a new bank account / loan, telecom services, an accountant, office supplies, etc. Any of the aforementioned entities can take the lead role in trying to offer a one-stop shopping experience to the potential customer by forming partnerships with the others, and offering a bundled package to meet most of the new businesses needs. Each partner would offer some level of discounts and / or benefits to the potential customer, who would potentially even pay a premium for such a convenient service, if it existed.

3. Partner with companies that are positioned in a similar light to yours. The products and services in a given 2.0 bundle should be aligned with each other in terms of their brand value, as the end user needs to perceive all components of the bundle as attractive. As such, a product that is perceived as low price / high value should be bundled with others that are also perceived similarly. A poor selection of partner products and services can also cause a detriment to customer perception of your own brand, as any failure of the bundle to satisfy the end user will reflect on all partners. Thus, partner selection is a very critical component of any 2.0 bundling design effort.

4. Conduct a basket analysis to understand which products naturally go together. By identifying the products and services that are commonly purchased together by customers at the same time, companies can identify the possible variant bundles they can create. For example, if a given product is purchased 20% of the time when a specific other product is purchased, then bundling these together could push that rate up, incentivizing customers by not only reminding them of the complementary nature of the products, but through some form of discount.

5. Thoroughly pilot all bundles. The importance of this cannot be stressed enough, as piloting provides a great deal of insight into how effective the 2.0 bundle will be when rolled out in mass scale. Pilots provide marketing and sales the opportunity to understand the potential performance of the bundle, the resistance there may be to the bundle, the processes that need to be redesigned, the value proposition that needs to be revisited. No 2.0 bundle should be rolled out fully until pilot results are obtained and possible tweaks are made to the final offer.

2.0 bundles stand to provide a wealth of benefits to not only end users, but the companies that engage in designing and offering them. We recommend all companies immediately begin examining the ways in which they can benefit from such a concept, and move forward in ensuring such bundles hit the market sooner rather than later.

About Forte Consultancy Group

Forte Consultancy Group delivers fact-based solutions, balancing short and long term impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety of service offerings for numerous sectors, approached in three general phases - intelligence, design, and implementation.

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