Now, Bundle Them Up!
Retaining your customers is a lot less expensive than getting new ones. So, how do you keep them coming back for more? They will, if they perceive value. Mark our words; it’s all about what the customer perceives.
Even if your competition is offering a particular product at a lower cost, if the customer perceives that he is getting the best deal for a product bundle, he will not move on, or will at least think twice.
Leading financial institutions are pursuing this strategy through innovative product bundling – they are providing tailor-made product packages for specific customer segments. These strategies, on one hand, help retain the customers and prompt them to perceive value, while on the other, they ensure profitability to the bank.
Pardon the platitude, but I think the burger tells a story! Burgers, as you may be aware, essentially consist of buns (bread), patties, cheese, butter, mayonnaise, salt, pepper and veggies. Each of the ingredients of the burger has a price, but the price of the burger as a product is much more than the sum of the prices of its individual ingredients. That’s the power of product bundling!
Now, if you had a framework that calculated the price of the product based on the costs of the ‘ingredients’, the market dynamics and your bank's relationships with the customer on one side, and also indulged your customer with the choice of the ‘ingredients’ in his burger on the other, you have a differentiated product for your customer at a price that he perceives is value for money.
Bundling makes it easier for Relationship Managers to sell a group of complementary products over selling individual products, provide product choices, recommend best-value packages, and thus assume the role of consultants for your customers. Bundles also give you more latitude when it comes to pricing – in other words, the ability to price, based on the costs involved, by having a view of the ‘price-sensitive products’ in the bundle. Like bread, for instance. You could charge a lower price for these price-sensitive products, to give your customer the perception that the entire bundle is competitive and value-for-money.
Based on the framework, banks can also look at providing bulk discounts and progressive discounts to their loyal customers. Air Miles is a similar example. Assume that a customer gets Air Miles that he can redeem at the end of the year for holiday tickets, and periodically, for some gifts. During the year, he will try and travel the same airline; occasionally, he may be flying at a higher price; perhaps at the end of the year he would have spent more than what he would have, had he used different airlines. But he is willing to stick on, as he perceives higher value in the entire deal.
Rapid commoditization of products and services is exasperating banks. Products are getting commoditized mainly due to technology-based channels that have laid product features and pricing more transparent before consumers, who wish to compare competitive offerings. Customers are realizing that while their bank is a leader in certain products and services, it is merely keeping up with competitors in certain other offerings. As a result, they have (albeit reluctantly) started comparing and purchasing products from various financial institutions, and also managing their own portfolios of products. Thereby, they are putting the squeeze on the bank’s margins and driving unique value to the lowest common denominator — price.
Financial institutions are realizing the impact of competition, and are looking for customer retention and increased customer wallet share. This is driving them to increasingly focus on delivering an innovative customer experience — one that targets unique segments and emphasizes convenience, service and value. Innovative product bundling is hence a giant leap in the right direction.