We are all too familiar with price unbundling. Remember the first time Airlines charged for checkin bags? Or a restaurant charged for salad dressing? The simple recipe for price unbundling is to separate out benefits that used to be part of the offering and charge for it.
In general price unbundling has its roots in business limitations rather than customer imperatives.
- Businesses see increasing cost to serve customers with no ability to increase prices
- Their base product is undifferentiated and competes only on price
- The extras were added to the product when times were good – when they had pricing power – but things changed
- Cost of providing the extras keep increasing
- It is never about serving more customers and growth. It is always about getting more out of customers you already have.
- Price unbundling is driven by accountants.
It is all about the business. Customers and their preferences are missing in this defensive move. Pricing here is about extracting value from customers versus getting them to willingly pay for value they get. In the end this results in even more cost cutting and reduced quality of offering.
Product Unbundling is the exact opposite.
- You are not driven by cost economics – it is not about punishing customers, reducing or managing cost to serve customers.
- You are driven by growth economics – your current product has great product-market fit for certain segment but you are looking to reach adjacencies.
- You start with customers – understanding the current segment and its needs, understanding the adjacencies and what is needed to serve them.
- If you are not actively seeking to unbundle the product, your competitors will – that is how disruption happens. Disruptors are not better innovators than you are but just better at customer segmentation.
- Product unbundling is driven by product managers with focus on customer preferences and armed with data and analytics.
Are you prepared to unbundle your product?