In part 1, we found the business with a comprehensive menu of a la carte and bundled product configurations. There were multiple layers of bundles and a wide variety of price points. Prior to the bundling, the business was able to gauge the popularity of individual products via the a la carte sales. Some of the a la carte products were not selling well. To boost revenues from those lagging products, the business began combining products into “value-priced” bundles. As the revenues increased, the business introduced more bundles. Then the leaner times came and the revenues and sales took a downward turn. The business wanted to respond, but two problems limited their success.
1. The business had lost critical data which impacted their ability to make wise business decisions.
When the business started selling multi-product bundles, an unexpected effect of the bundling was a complete loss of information about individual product popularity and customer use. The bundles created a huge blind spot. Customers were buying bundles, but the business didn’t know why. The bundles hid the information about which components were valued by the customers.
Because the business didn’t know what was working in the bundle and what wasn’t used, the business kept investing in all of the bundle components at great cost. New features were simply added to bundles indiscriminately. “One size fits all” was the bundle mantra. When the hard times came, the business had no customer information that could help them make the tough decisions. The business had to guess which components to discontinue.
2. The bundles had created extreme levels of price sensitivity with customers.
As the business added bundles to its product offerings, they also kept the a la carte components on the price list. The reason for keeping the a la carte products was to “prove” the value in the bundles. Customers could add up the price of the individual components and compare that with the bundle price. The problem was that customers were doing all of those calculations. Each customer knew how many of which components they wanted to purchase. They would then configure their order with bundles and a la carte components to create the lowest possible cost.
With revenues declining, the business was forced to decide which components to continue investing in and which ones to discontinue. As components were removed, one side effect of discontinuing components was that the bundles that included them suddenly appeared to be more expensive in the customers’ eyes. The bundles included less value at the same price.
I don’t think that we realize how we as product marketers deserve the customer behavior we create. What seem like simple product decisions - to create bundles, to offer discounts, to give away products – create buying behaviors we may not have considered. Though we would like to blame the results on the competition, most of the time, we do it to ourselves.
Part 3 of this series will discuss the considerations product marketers should take when creating product bundles.
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