MarketSense

To Create or not to Create a Whole Product Bundle

We've been talking about whole product bundling. Today, we will focus on how to decide whether to create a whole product bundle.

When investigating any product formation, a product marketer usually researches questions like:

• Are buyers likely to have any of the whole product components at hand?
• What affect does adding these components have on the cost of the product?
• Does the addition of these components increase or decrease the longevity of the product?
• What are the manufacturing implications of the whole product bundle?
• What are the service implications of the whole product bundle?
• What affect does adding these component do to the buyer's perceived value of the product?
• How does the product price need to change to cover the costs of these additional components?
• How does the whole product affect the financials for the product, product line, and brand?
• How do these components change the way our product is compared with the competition?

The answers to each of these questions warrants detailed investigation and analysis. However, the answers can still create conflicting trade-offs. So, how does one decide?

I suggest that the decision point be around one question.

Can you sell the whole product value to the buyer at a viable price?

At first this one question may seem simplistic. What about supply? What about demand? Not to diminish them, but to me, these are implementation issues.

The critical point is that to achieve whole product success, you must be able to persuade many buyers that your differentiation is worth the delta in price. That means two things.

1. The differentiation must be important and attractive to the buyer.
2. The price differentiation must be commeasurate with the perceived value.

The value-price question is fundamental for any product, whole product or not. However, it is easy to use implementation challenges as an easy excuse not to deliver a whole product. With the global resources we have available today, implementation hurdles shouldn't be show stoppers. They should be challenges that spur the creativity of the entire enterprise.

What does whole product success look like to you?

In my last post, I explored the relationship been product bundling and whole products. Before we look at key factors in decision-making in whole product bundling, we need to be clear on what product success looks like.

Companies define successful products in a number of different ways. The characteristics of a successful product often have to do with corporate goals. In addition, product marketers may be goaled and measured on specific success factors.

Each view of product success influences the decisions we make in whole product bundling. So, let's look at some ways product success is measured.

1. Financial Bottom Line

Examples of purely financial measurements include product revenues or product profits. When taking a financial view of success, details about what the product is and how that product has achieved the numbers are often lost. Myriads of underlying problems can hide in these details only to surface in financials quarters or years in the future.

Financials are important. In the bundling process, they help you gauge what you can afford and what you can't.

2. Unit Sales Figures

Examples of sales figures include total units sold or net units sold (total minus returns). Unit sales focus on the question of "how many". We can capture quantity purchases and sales returns. Unit sales give us good indications of how our marketing mix is working and how our product is received.

Unit sales tell us how well the product is doing. Declines in unit sales can indicate competitive pressures. Returns can indicate customer issues - concerns that can be corrected with whole product bundles.

3. Buyer/User Behaviors

Examples of buyer behaviors include product purchases (including related purchases of accessories), product repurchases, warranty registration and use, and product returns. From the evaluation of buyer/user behaviors, we truly understand how a product is received, used, and valued.

Buyer/User behaviors provide essential insights into requirements for whole product bundling. By capturing buyer/user behaviors in data, a marketer can understand whether a product is being used or is simply shelfware.

Most marketing environments tend to favor one of these measures of success over the others. Let's take a quick look at the implications for whole product bundling each poses.

• In financially focused success, decisions will be made to drive revenues and/or profits.

Profit-oriented success will often involve the trimming of costs to get the most out of each unit sold. Bundling decisions will revolve around cost reduction. Revenue-oriented success forces a sell-more approach. Bundling decisions will revolve around the ability to get more money out of each sale. Rarely will financial-based bundling decisions result in whole product bundles. These decisions tend to be corporate-focused rather than customer-focused.

• In unit sales-focused success, decisions will be made to increase the number of units sold and minimize the number of returns.

Prices may be cut to stimulate new purchases. Return policies could be restricted to minimize the number of units returned. Bundling decisions may partner a highly successful product with a laggart to increase unit sales of the less successful product. Whole product bundling, by serving as an effective differentiator in the marketplace, can be used to increase unit sales while declining the number of returns.

• In buyer/user-focused success, decisions will be made to increase buyer/user satisfaction with the product.

Increased buyer/user satisfaction can be a critical factor in building success across a brand. In this case, success is not valued by a single product but by the entire brand or product line. Bundling decisions focus on maximizing satisfaction while remaining competitive. Individual product profits can be sacrificed for the value of future purchases (total customer value).

In summary, it is important to understand the corporate vision of product success before making whole product decisions.

Product lines, brands, or subscription-based offerings that benefit from repeat purchases, can achieve the greatest benefit from whole product bundling.

Product Bundling and Whole Products

Today we'll take a look at how a product bundling strategy relates to whole products.

In prior posts How to Damage your Product Line by Using Bundling as a Product Strategy, Unexpected Results from a Product Bundling Strategy and The Dos and Don'ts of Product Bundling, we've seen the dangers in product bundling. This is particularly the case when the impetus for the bundle isn't customer-based.

The most compelling reason for bundling products together is to deliver a whole product.

What is a whole product?

A whole product is a product that is completely operational or able to be used as intended without requiring any additional purchase.

The Christmas season always reminds me of the classic example that demonstrates the value of whole products. I remember a time when battery-operated toys were packaged with batteries. This whole product "bundle" (toy and batteries) ensured that there would be happiness when the toy was unwrapped on Christmas day.

Sometime when I was growing-up, manufacturers stopped bundling batteries with battery-operated toys. If you didn't happen to have on hand a stock of the appropriate A, AA, AAA, or other battery type, you weren't going to be able to enjoy the toy. (Don't try this on a 5 year old.)

If the number and type of battery needed was prominently displayed on the toy box, a forethinking parent could pick up batteries at the time of the toy purchase. This was actually impossible in the "old days" when toy stores did not carry batteries. Now that the practice of battery non-inclusion is rampant in toyland, toy retailers have had to take on the role of whole product enabler. Most now carry batteries.

Sellers seem embarassed to acknowledge that they are offering products that don't work without additional "parts". When was the last time that you saw a seller prominently mention that additional "parts" were needed?

For the buyer, by not receiving a whole product, the issues are those of cost and inconvenience.

• The product is not operational out-of-the-box
• Additional "parts" must be located and purchased for operation
• The customer assumes the responsibility to make the product operational (purchasing the appropriate parts and installing them correctly)
• The product purchase price is not the true cost of the product

We can see the issue from the manufacturer's point of view. Batteries are a problem.

1. They become an additional part to source
2. They become an additional part to assure (as in quality testing)
3. They become an additional cost to bear in the cost of goods
4. Their effectiveness is not infinite. They expire. The limited shelf-life adds complexity to stock management.

Whole product bundles create lots of conflicting trade-offs. How does the marketer decide when to take on whole product bundles?

I'll explore that question in an upcoming post.

Provocative Buyer Persuasion

The question on many of our minds is how do you change the discussion with your prospects in this challenging business environment?

In the March 2009 issue of Harvard Business Review, the article In a Downturn, Provoke Your Customers takes a page out of the classic buyer persuasion playbook.

In the article by Philip Lay, Todd Hewlin, and Geoffrey Moore, the authors recommend developing a provocative point on a critical customer issue. In other words, they are starting by looking at the buyer's business.

We in marketing and sales ought to know a lot about our buyer's businesses. Like good consultants, we should be paying attention to the little things we learn about their business. If we are paying attention, we can take this intelligence and obtain insight into our buyer's business that even the buyer doesn't have.

In buyer persuasion, we take that insight and turn it into a secret weapon in our marketing and sales processes. We know that by satisfying the buyer's strongest motivations, we can more effectively direct the sale.

This article takes this one step further and suggests that we take this insight and create compelling products based on it. In the situations cited in the article, the company that recognized the provocation didn't leave the solution up to the buyer. They took the initiative and the risk and developed a response (think product) to the provocation. Then they sold it to the buyer.

So, what did the provocation do for the seller?

It created a unique, high-value opportunity to sell a solution for a costly strategic problem.

It compelled project investment outside of the buyer's existing budget.

And how did the seller do this?

By building a customized, persuasive business case that the buyer could not turn down, even in this tough business environment.

Two thoughts to consider:

What is the true value of the buyer intelligence we have floating around our organizations?

Why we aren't doing this provocative buyer persuasion all of the time?

Rational Loyalty

I have loved every Palm PDA I've ever purchased.   I figure I will keep on buying Palm's PDAs until either I die or the company stops making them.    And if the company decides to stop making them, I may stock a few to last me through the following decade.

 

A cautious buyer, I tend to research all of my electronics purchases - for weeks or even months.  All except my Palm PDAs.

 

I bought my first Palm - the Palm V - on a whim at a promotional event Palm had at a Java One conference in 1998.   Within a day it was running my life.  I threw away my paper address book.  I threw away my paper calendar.  That first Palm marked every event of my life for 5 years.  It traveled with me on 3 continents.   During its last few months, I nursed its wandering touch screen through weekly recalibrations.

 

I fell in love a second time with the Palm Zire 71.  With the beautiful color screen, the sliding case that revealed a camera, and the MP3 player, I walked out of Best Buy with my prize only moments after seeing it for the first time.  A few hours later with a simply sync, my life was transferred over to my new Palm.   With extra memory and an expansion card slot, I was quickly ripping my favorite music and loading neat applications.   (Hours earlier I didn't even know what "ripping music" meant.)  My Palm Zire participated even more in my life than my Palm V.  It didn't just organize my life; it recorded it too - on its own 3 continents.

 

One day last week, 5 years after I brought my Zire home, it started behaving erratically.  I tried numerous soft boots to coax it out of its touch screen frozen funk.   It was looking like a hard boot was the only solution.  Preparing for the worst, I started researching my replacement options.  I could go with another Palm - though a 3 year old model or switch to a Windows Mobile PDA.  I could go for a smart phone or a high end PDA model with a big screen.   I like my phones to be phones and my PDAs to run my life.   I chose the Palm T|X - the top line though dated model.

 

A quick trip to my local Staples and I was the delighted owner of yet another new Palm.  A simple sync and my life was easily transferred.   Did I mention that I love Palm PDAs?  The new Palm has wireless, bluetooth, email, and very cool "Docs to Go"software - all of which were absurdly easy to setup.  Now that I have it, I don't know how I ever lived without it. 

 

 

Why do I keep coming back to Palm?  Is my loyalty irrational in a day when smart phones are going where PDAs have previously tread? 

 

Loyalty is never irrational when it is based on good design.  Consistency, ease-of-use, just the right features are winners every time.  Take the Apple Mac.  Take your favorite automobile model.  Take your favorite digital camera.  Good product design has no substitute. 

 

Want to create rational loyalty?   Invest in good product design.