The list of products and bundles looked like a McDonald’s menu. There were a la carte items, small bundles, all-inclusive bundles, specialty bundles. Each of these offerings was available in multiple languages. You would think that with this expansive selection, the customers would be thrilled. You would think that with so many products and price points that the customers would be navigating to the best value bundles. With all of these products, you would think that the business was healthy.
The product catalog didn’t start this way. It evolved from a small set of a la carte options. Back then, you could know the popularity of the products by how many units each a la carte item sold. To drive more revenue from the less popular products, the business introduced the first product bundles. They were simple bundles of two a la carte products priced at a discount from the combined list prices. These seemed to be fairly successful, so more bundles were added and aggressively promoted. As bundles were added, the product mixes got more complex. Some bundles contained 5 or 6 products. To “prove” the value of the bundles, a la carte items remained on the price list. Customers picked up the cheaper, “value” bundles and revenues escalated.
This would be fine if the market remained vibrant, the revenues continued to grow, and the costs didn’t escalate. However, as competition increased, the market became fragmented, the revenues dropped, and the costs grew.
Unfortunately, the business started off on the wrong foot when they introduced bundles. It wasn’t that the bundles were a wrong strategy. Rather, the bundles were created for the wrong reason. The business created the bundles to solve a business problem. Put another way, the business did not create the bundles to solve a customer problem. To that point, the customers were happy choosing the a la carte products they needed in the number of units they required.
So, what was the problem the business was trying to solve with the bundles? The business was trying to build an extensive product line. Starting with a few essential products, they extended the product line with related components. The business expected to sell at least one related component with each base product sale. However, the related sales just weren’t occurring. So, the bundling strategy was developed to drive more revenue from and increase the usage of the less popular a la carte items. At this point, the business hadn’t really diagnosed why some of the a la carte items weren’t more successful. Were the a la carte items too expensive? Did they lack critical features? Did the customers know about them? The business couldn’t answer these questions. Engineering thought their products were just fine and pointed their fingers at marketing. It was marketing’s problem to solve, and so the approach was a marketing approach.
What are the chances that the business by bundling products together was solving the real problem behind the lagging sales of the less popular a la carte products? Very low.
Bundling can be an effective strategy. But the strategy is best used when it is borne out of the desire to drive real customer benefit. Part 2 of this series will discuss the painful, unexpected results of expanding the product bundles.