A friend recently asked about a Pragmatic Pricing blog from 2 and a half years ago. It was about the furor that was going on when the airlines were unbundling – they were beginning to charge for checked luggage. It’s very interesting to re-read that blog now that we have emotional distance from the events.
As you read it, notice there is no longer all this anger toward the airlines. Obviously, the negative reactions were caused by how they did it, not what they did.
My friend’s question: When does unbundling work?
Unbundling works when you are currently providing a complete solution for a single price and a large number of customers don’t benefit from all of the features. In other words, your solution is too big.
In the airline situation, they were selling the full solution of air travel which included checked luggage. However, many travelers didn’t check any luggage. The complete solution was too big. They were forcing people to buy features they didn’t use. They could have (and did) offer a “complete solution” that had fewer features. They removed checked luggage from their solution. This new offering is a complete solution to some set of customers.
Should you unbundle? If you currently offer a complete solution, but a large segment of your customers don’t use the entire set of features, then you are ripe for unbundling. You can reduce the features of your complete solution and offer the other features as options. This allows you to be even more price competitive with the base product while making up profit selling the add ons.
If you don’t want the complexity of a base product (that is a complete solution for some) and a myriad of a la carte choices to add on, then consider creating good, better, best bundles. Thinking about unbundling can help you create a new “good” product that is more competitive and attractive to more customers. Your current product can be considered better or best.
The secret to unbundling is thinking about the complete solution. If you sell a complete solution, look for the minimum set of features that a segment will still buy. If your smallest offering has more than that, then consider unbundling.
Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author
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