An aside about “bundling”


This post is by JP from confused of calcutta


Click here to view on the original site: Original Post




Yesterday, when writing about The Mind Of The Customer, I touched upon why the practice of bundling irritates, even angers, customers.  Bundling comes in many forms, not all of them enforced, not all of them intrusive.

It is normal and natural for a company to try and sell that which is on the truck, as it were. Where it becomes unnatural is when companies work hard to include products and services they know the customer does not want, by creating artificial “bundles” that contain their “most wanted” goods with their least wanted ones.

Bundles can and do offer choice. Some of the consequences of bundling are less than savoury. For example, in the early days of mass mobile, some telcos practised designing “out-of-bundle” products. Wait for it: the bundles were designed not to be used. The most egregious example? “Inclusive” minutes and texts you couldn’t get at. So customers would have predictable “out-of-bundle” costs, using products designed to capture that market. Still sends shivers down my spine when I think about it.

It’s easy to understand why these things happen. Often it’s as a result of incentives that militate against the customer. Private companies tended to focus on profit maximisation, and owner-managers understood the importance of customers for life. As they scaled up (and often went public) the focus moved from profit maximisation to revenue maximisation, and the idea of a lifetime relationship with the customer began to fade. Large public companies, focused on “shareholder returns”, often worried even less about churn: they’d either hold on to their customers via pseudo-monopolies and regulatory capture, or just not care: many were paid for revenue, not profit.

So the very idea of a “customer for life” weakened, even though numerous studies have shown that it is far more profitable to engage with an existing customer than with a new one.

It must have been sometime in the 1980s that I started hearing the term “stakeholder returns”, suggesting that people other than shareholders had the right to expect some return. Staff. Partners.

And customers.

In today’s environment, the customer is more than just a customer; more than just an “advocate”; she’s a channel, creating leads by recommending your product or service to her friends; she’s your partner, suggesting improvements to your distribution and supply chain; she’s your co-worker, trying out new products and giving you quick and accurate feedback.

If you’ll let her.

And if you don’t, she’ll find someone who does.

[Incidentally, the recent Economist Schumpeter post on restoring faith in firms is worth a read in this context: Companies' moral compass: Some ideas for restoring faith in firms].

Back to bundling. The least intrusive form of bundling is when the company sets its salesmen sales quotas with specific product/service mixes. You can sell all you want, you’ll always make the base commission, but if you want the multipliers and to make the “Club”, then you’ll have to hit targets for the mix of products. Sensible, you say? At least the incentives are less likely to militate against the customer. But sometimes these structures can have hilarious consequences:

At one firm I worked at, we were slowly exiting the production and sale of calculators. Large, desk-based, industrial strength, calculators. So some bright spark decided to include a target for calculator sales in the product mix for “Club”.

First, the salesmen sold them to customers.
When they ran out of customers who’d buy them, they started giving them away, eating the costs out of their commission.

When the customers started saying “No more” to the free calculators, they started making up customers to “sell” the calculators to.

When their partners objected to the stockpiling of calculators, still in their packing, in their garages, something had to give.

I was present the day the City of London police called on our offices in Dominant House, Queen Victoria St (It’s now called Senator House, and it’s still opposite the Seahorse pub). Apparently they’d found a very large number of calculators in the Thames, and wondered if we’d been burgled. The calculators were found just off the pier near the Samuel Pepys, the favourite watering hole of the company’s City salesmen.

Strange, that. No burglaries known. Just hundreds of calculators in the river.

Incentives.

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