Many like a dirty martini; I don’t.
I love martinis but please keep them clean and uncontaminated by dirty fluids that violate the clear pristine gin and vermouth mixture. I don’t mind if you put 4 symmetrically organized olives on a skewer in it because they are gone before any real contamination can occur — I love olives but hate the juice.
I feel the same way about bundling and the way it is practised in the marketing world today.
Bundling is commonly used by most organizations — add a number of products together and give the customer a discount. Combine two products and get 10% off the total price for both; take 3 products and the discount goes up to 15%. The more you buy, the more you save. A pretty simple idea.
To me, however, bundling practised in this manner is like mixing a dirty martini.
It contaminates and dilutes the basic marketing tenet that says price should be a direct function of value; the greater the value, the higher the price. And, conversely, the lower the value, the lower the price.
I’m not aware of any marketing principle that advocates increasing the value of an offering and then reducing the price. Even if economies of scale and scope were in play, the right thing to do would be to maintain price levels and reflect the benefits of the lower costs in increased margins.
But rarely does merely selling two products together materially drive cost down; bundling isn’t physical integration. Combine long distance service and internet service on a customer’s bill, and the telecom company doesn’t realize any measurable cost savings as a result of the combination yet the customer gets a discount for signing up to two communications products.
It’s an illusion
And it’s a pipe dream to believe that lower bundle prices stimulate long term demand and increase revenues. Combined billing for long distance plus internet service doesn’t stimulate usage of either. I’ve had home phone, long distance, internet and TV services bundled together for years, but still treat each one separate and distinct from a consumption point of view — my usage hasn’t changed for any one of them.
The customer loves getting the discounts but no real value is created for the organization. In my former CMO days, I was skeptical to the point of a non-believer of bundling activity — I viewed it as lazy marketing and slight of hand.
Bundling drives marketing creativity to zero
It’s a no brainer — it doesn’t take a marketing graduate — to add and bill two services together and apply a discount. What talent does it take to do that? What value proposition does the addition produce other than a lower price? When long distance and internet service are sold together, what unique communications value is created by the synergy between the two services other than a price discount? Right. Nada.
Marketing professionals should be motivated to create new packaged solutionsthat seamlessly integrate a number of product elements and apply premium — not discounted — prices that reflect the added value created by the package.
Bundling ignores basic pricing principles
The function of price is to value the exchange between an individual and an organization that satisfies each party to the transaction. A successful value exchange leaves the customer happy with the money they have spent for the benefits they have received ; the company is better off because they realize an acceptable margin. It’s easy to offer volume discounts but it completely ignores the impact it has on profitability. You can’t sell a martini if it doesn’t make money. Do you really think a discount should be offered if you buy two drinks? Never seen a two-fer on martinis.
Bundling gains no competitive advantage
All marketing teams think by offering bundles they create customer loyalty; that by offering reduced prices for volume, customers will decide to stay with the organization forever. Not true. People are fickle when it comes to price and will go wherever the lowest price is offered. The reality is that most competitors offer bundles and therefore competitive advantage is conferred on no one. All the banks use bundling, all the telecom companies offer them — every sector is represented in the bundling dysfunction.
Bundling gives customers the wrong message
Increase the number of products provided and get a price savings is exactly the wrong message that should be given to the market. In life the more value you receive the higher price you expect to pay. In martinis, the better the gin, the higher price for the martini — bar stock gin is sold at a lower price than Brockmans.
Bundling screws them over
Customers deserve more value that satisfies their overall wants and desires and we should be doing it at prices that reflect the value they perceive they’re receiving. This preoccupation with discount bundling is a distraction to the marketing profession from what they should be practising. Bundling is a red herring; it’s olive juice that screws up a perfectly good martini.
What people really want are integrated packages that satisfy a broad range of what they covet. Packages that reflect their lifestyle, for example, that might seamlessly integrate elements like a vacation, meal, wine, snuba and a car rental or if it’s a business, elements like sales training, CRM apps and logistics assistance.
Bundling is marketing’s dirty martini; it muddies the waters of good marketing.
Let’s get back to the basics — create more value for customers and charge premium prices that reflect it.
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