Note 23: Constructing Bundles

Posted: 03 March 2007

What is a bundle?

A fruit salad metaphor can be used to illustrate many qualities of a 'bundle'. Imagine a fruit salad composed of apples, oranges, bananas and strawberries. Additional fruits such as kiwifruit, lime, grapefruit and pineapple are also available. Customers purchase individual servings of fruit salad (i.e. bundles). Points to note are:

The salad includes specific fruit, but the customer asks for 'fruit salad' (the bundle) rather than each fruit individually.

The customer can ask for servings with 'less strawberries' indicating a different mix (bundle) of the same fruits.
The customer can ask for fruit salad 'and some pineapple' indicating an 'a la carte' purchase of other fruits (i.e. products and services).
Orange, lime and grapefruit can be combined to form a 'citrus' fruit salad illustrating how the same ingredients can be combined into other bundles.
A customer can ask for specific fruits to be combined in defined ratios to prepare a customer specific fruit salad (customer negotiated bundle).

Stepping away from the 'fruit salad' metaphor, the bundle can also include eligibility criteria, pricing information and invoice presentation definitions.

Product Segmentation / Versioning (bundles)

A set of product features can be combined in different proportions, with added (or omitted) extras, and with variable dimensions such as timing to create differentiated product offerings (bundles) that appeal to different market segments. Versions can be charged at different rates allowing businesses to capture a larger slice of the available revenue from a broader range of customers.

"Information Rules" - This recommened book outlines how the pricing, compatibility and versioning policies that businesses apply influence the take-up of their products and services. It looks at the 'problem' and 'solution' of product versioning / bundles from both the business and customer perspectives. [ISBN: 0-87584-863-X / HBS Press / Carl Shapiro & Hal R. Varian / 1999]

Why bundle products?

A biller's network delivers a finite number of products and services. The biller may offer additional non-network services. From these two sources, the biller constructs all market offerings taken to customers (i.e. the marketplace). That is, the same phone calls or tollways journeys take place, but how they are packaged (represented) can vary widely along with the prices charged.

Bundling encourages increased customer spending by including more of what the customer wants to purchase into a financially attractive package. The bundle's marketing message highlights that if the customer were to purchase the offerings separately, or from different providers, they would incur higher total costs. Bundles focus on the purchase price billed to the customer's invoice. Contracts, which address purchases made across multiple invoicing periods, can include both bundles and individual 'a la carte' products and services.

The products and services offered by the biller are combined into bundles for marketing to and purchase by customers. All charge types are eligible for inclusion in a bundle. That is, a customer purchasing a bundle may be charged for connection (non-recurring charge), data downloaded (usage) and/or basic access (recurring charge). The bundle describes which elements of the bundle's products and services will be charged for, how the charges will be calculated (e.g. calls without flagfalls, no cost installations), and what the prices will be. Note that they inclusion of a billable element into a bundle does not mean that it will be charged for - it might be 'priced' as 'free'.

As well as network-based products and services, intangible services can be included as bundle differentiators. For example, two bundles (e.g. basic and premium) may differ only by the problem response time (e.g. best efforts within 24 hours versus guaranteed fixed within four hours). Bundle components such as these need to be available to, or be distributed to, the relevant business functions that will use these customer's specific settings to vary their processing (e.g. a biller's support call center).

Eligibility tests may be included in a bundle's definition. These can describe who may purchase the bundle (e.g. demographics - city only, market segment - consumers only), qualifying criteria (e.g. customer location must have more than five phone lines), or disqualifying criteria (e.g. cannot connect if (broadband) DSL is present). These tests should be applied when a customer is ordering to ensure that inappropriate bundles are not sold. To avoid customer confusion, only those bundles that fulfill all criteria should be presented for the customer's selection.

Within billing systems, a bundle may be represented as a separate data structure that associates the charge definitions together, including the specific products and services, the eligibility criteria, and the method for charging. This structure would be recorded against a customer when they purchased or selected the bundle and used in subsequent processing against the customer's services or account.

Subject to eligibility criteria, customers may choose to supplement a bundle by selecting individual products and services ('a la carte'). This approach allows the greatest choice for customers, and means that the billing systems must determine whether a charge is priced based on a bundled or 'a la carte' rate. Data analysis may identify that a customer's products qualify them for a (cheaper) bundled rate. The bundle can be offered to the customer for their approval (e.g. may we give you a better price... charge you less...), or be applied automatically without a customer interaction (auto-qualification).

The pricing basis can vary by bundle. For example, different bundles for mobile call charges can be offered that include or omit flagfall charges and trade them off against higher call rates.

Examples of common bundles include:

Cable TV: Cable TV providers segment their (many) channels into basic and optional (usually premium) groups. Customer are offered the basic bundle, and optionally can purchase access to the premium channel groups. The premium channel groups have eligibility tests that only allow them to be sold to customers with the basic channel bundle.
Fixed and Mobile Phones: Providers offer bundles that make trade-off between call and access costs. As well, additional benefits may be offered in premium bundles. The customer can select the bundle that matches their intended calling pattern and provides the desired benefits package.
Internet Service Provider (ISP): The ISP's key offering is access to the internet, possibly charged for with a recurring charge (subscription) that varies by access speed (bandwidth). Additional charges may be levied based on time connected, data downloaded and content. The basic access can be supplemented with additional features (e.g. email addresses, file storage, website space). The ISP may also offer proprietary services such as games and chatrooms. These base product and service offerings are combined to form the ISP's bundles.
Email Service Provider: These billers provide email access, storage, virus checking, customer-specific domain names and other services. These are offered in different bundle combinations that cost more as additional features are included. Some products may be offered only outside of a bundle.
Tollway: An all-day pass (access) bundles unlimited journeys (usage) on the tollway's road network. These passes are often only sold to occasional users (e.g. tourists) rather than regular customers. Regular, high-value customers (e.g. trucks, taxis) would save money using a day-pass since their journeys, when charged for individually, would exceed the day-pass' cost.

Broken bundles

By definition, bundles are collections of products and services purchased by the customer. When part of a bundle (e.g. a phone or utility connection) is canceled or terminated, the bundle may no longer fulfill the eligibility criteria that enabled its purchase. Breaking a bundle may revert the customer to 'a la carte' pricing, or may result in the entire bundle being canceled. For example, a bundle that included fixed phone, cable TV and internet connections might revert to 'a la carte' pricing, whilst a cable TV cancellation of the basic package would also cancel all premium channel groups.

Broken bundles may be identified proactively or reactively. Proactive identification will warn the customer or biller's staff of a cancellation's consequences prior to its execution. Reactive discovery only determines ineligibility by passing across the customer databases reconfirming eligibility criteria for all bundles. In reactive identification, infrequent review may allow customers to benefit from reduced prices for an extended period before their pricing reverts.

The products and services of a now broken bundle may be reused in future bundles. Indeed, a customer's bundle may be terminated by choice to enabled its elements to be included immediately in other bundle purchases.

Tags: Billing, Bundles, Bundling, Charges, Pricing