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An aside about “bundling”

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.

Posted in Four pillars .


8 Responses

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  1. kevin jones says

    hilarious calculators in the water, just the way the system intended.

  2. John Holden says

    JP, I remember hearing of the “calculators in the river” incident. In our Midland Bank team, there was no way to invent a customer. We only identified one real opportunity to win the incentives, and I spent an inordinate amount of time trying to sell a bunch of programmable calculators to Thomas Cook (then owned by Midland) as a replacement for their pre-war Mercedes (!) accounting machines that were used for central foreign exchange accounting. Fortunately, given the dependency of said calculators on recordable magnetic cards that, we later discovered, had a habit of erasing themselves, it was a good job that Thos Cook said politely “no, thank you”.

  3. JP says

    @Kevin glad you liked it. At least one reader of this blog was there at the time, and I’m waiting for him to add to the story.

  4. JP says

    @john yes I remember being told how hard it was to invent the customer and to “pay” for the calculators. [I can also remember leaving the Pepys one night and being told “hush. That’s where the (calculator) bodies were buried”…..

  5. Jeff Mowatt says

    @JP, I’m reminded of a former life in mainframe computers where while on one hand hardware suppliers started to unbundle parts of their OS, application developer were working toward complete business solutions.

    On the issue of a moral compass it had been Milton Friedman who asserted that the responsibiliity of business was to return a profit to its shareholders, within the law. In 1996, it was challenged with an almost heretical idea – a business which operated for the benefit of other people, profit for social purpose.

    http://www.sunzu.com/articles/profit-for-social-purpose/

  6. Anand Narasimhan says

    This reminded me of the now infamous M$ and the Internet Explorer Anti-trust/monopoly case. Would that be a case of bundling as well?

  7. P. Venkatraman says

    In India the Monopolies and Restrictive Trade Practices Act effectively protects the customer against bundling, which falls under the ambit of Restrictive Trade Practice.

    Surprisingly the UK and US, supposedly more capitalist ( and thus pro consumer choice ) have not seen it fit to introduce such laws which encourage dumping and wanton consumption.

    The worst is probably the bundling of the iPhone together with rate plans. I landed in NY with a fully unlocked UK iPhone only to discover the the local ‘pay as you go’ sim card severely curtailed my ability to use data, only because I had an iPhone without the AT&T plan. I got myself a entry level Andiord phone and had not such issues after that.

    Guess where my loyalties now are?

    Venkat

  8. David Chassels says

    A good story that highlights the corrosive nature of “targets” something IT vendors have grown up with. Sorry did I say “grown up”….? The only way customers can be stopped being taken for suckers is to get smart and ask the intelligent and awkward questions of their “vendors” As Naomi Bloom a leading industry strategy and thought leader sums it up “It really matters how your vendors build their software, not just what they build”. I have a few ideas ….



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