We often see large companies creating bundles of products or services. They do this for a myriad of reasons – it can attract more customers or reduce customer churn, it can reduce the operational overloads of providing them separately, it can pull in additional revenue. The perfect example can be found with your local cable company (converged operator) offering you home phone, internet and mobile all together.
What about the opposite? How do you identify when a piece of a product or an individual service may be something that can actually stand on its own, and may actually perform better if it was unbundled from the whole?
I believe it’s when you have these three customer/market components of the business model canvas:
- You can identify a specific market segment
- That has a unique value statement – problem/solution formula.
- This market sees enough value in it to pay for it separately
Taking the converged operator example above, who also offer those three products separately. The one that sits up as the best example is the mobile phone. So let’s look at that. It’s a well-known example, so we can relate to the concepts easily.
Consider the specific market segment of the business user. They would have a totally separate value statement to the home user. They would benefit from buying in volume, in having more than one phone on an account. They would possibly like to share data rates among these phone users, if the patterns of use were different for different users. If they have high usage rates, they may even be looking for discounts on calling rates. And care about roaming rate plans, if they do a lot of business travel. A different offer that is tailored for this market and priced at a rate they would be willing to pay would be a product that is setup separately and unbundled specifically for this user.
So, let’s now look at it in a slightly less known example, in order to see why this might be useful and important to us in our own innovations.
Let’s say we were a company that sold a software accounting package that could record accounting transactions, produce financial statements and handle inventory management. Let’s say we identify a segment of the market that is a self-employed business people who offer a professional service – such as a home decorator or even a dentist. They may not have a lot of capital assets, hold no inventory and have no need for detailed financial statements. They just want to be able to bill their customer’s for the service they provide. Then an accountant can look at everything else at the end of the year and prepare their annual tax return. An online service, such as Freshbooks, that offers an online invoicing service that caters very well for this market segment. Sage Accounting have followed suit by providing an online unbundled product based on their full accounting package. Did they come up with it because someone else offered it? Probably. Could they have come up with it, if they had taken a look at their product to see if there was a market segment that would benefit from only part of the product? Possibly.
Why should we care about unbundling? If we are an established company and we want to drive more business we may want to look at what we offer to see if there are additional markets for pieces of our product. If we are a Startup looking for what should be our MVP, we may find our market problem/solution in the feature-rich products already on the market.
So how do we do this?
We can look at the existing market and ask: Is there a segment of this market that is currently underserved. That finds our product overwhelming, (or underwhelming). We may only have a handful of customers from this segment. But if we offered them an unbundled part of the product, could we serve a lot more.
We can look at the problems of our market. Does one of the problems have a more critical need for fulfillment, which ones are most important to customers? Is our solution really the best way to handle the problem? Could we come up with a different solution for them? We need to get out and do some customer discovery with these customers, and ask them what their problems are and what they need.
And finally, and somewhat most importantly, would they be willing to pay for an unbundled solution? And how much would they be willing to pay? Because this is the business case that can tilt the decision of whether they would only pay when it is bundled, or if it’s pressing enough of an issue that a lot of people would pay for it unbundled.