How does breaking down offers affect your business?

Breaking down offers and how it affects startups and existing businesses

Businesses aim to provide the most value to their customers at the highest profit margin for the business. This idea often leads businesses to offer the largest number of products (or product features) so that customer is convinced to justify the price and make a purchase.

However, as discussed in a previous article on Downselling (Can selling less improve the bottom line?), it is wiser to make your business strategy on what the customer wants exactly, not what is perceived in the market or by competitors.

Often times, breaking down the offer to the customer can have better outcomes as the customer feels the product or service is more relevant to their needs, or more justifiable price-wise.

We list below three strategies for breaking down offers, and when to use each:

Modularity

Modularity is all about breaking the offer down to its roots. The more basic the product/service is, the more flexibility there is to produce unique configurations for customers later.

• Example:LEGOs are the best example for modularity. By selling basic building blocks, children can get creative and use them to create modular items that they use or play with.
• Considerations:To work well, the basic offer should provide some value or be usable at some level. This allows customers who just want access to the base functionality to gain access to it without adding modules, while those customers interested in added features may purchase modules.

Bundling and Unbundling

Unlike Modularity, Bundling and Unbundling are conducted to standalone products or services of the same nature. It can be an effective strategy when trying to sell stock fast or help customers get a part of an available offer at a cheaper price

• Example (Bundling):Selling packages of bottled water in a "buy one get one free" manner. Here, a customer gets a bundle including multiple bottles for the price of one.
• Example (Unbundling):Selling standalone audio tracks of a music CD on iTunes or Google Play. Here, a customer can download a certain track at a cheaper price instead of getting the full album.
• Considerations:Bundling is more geared towards lowering the overall price the customer has to pay. This can be utilized when needed.

Upselling and Downselling

Upselling is aiming to sell more items or products that might be relevant but are not the same to the customer, and thus increasing the value for the customer and increasing the price they have to pay. Downselling is its opposite.

• Example (Upselling):Check here for info and an example on Upselling
• Example (Unbundling):Check here for info and an example on Downselling
• Considerations:Upselling is geared towards increasing the overall value for the customer and increasing the profit margin for the business. This can be utilized when needed.

Limitation of Unbundling

While unbundling can prove useful financially for the businesses, it should be considered with care. Maybe you have heard of the backlash Apple had when it announced that it was unbundling its new phone from the charger each in separate packaging .
 
While a company like Apple can get away with something like this, entrepreneurs should recognize this risk they are taking for the promise of increased financial return. Balance is key in determine how much to unbundle.

Business Unbundling

Unbundling is not always a terminology related to products and services, but can be applied to the business itself. here, businesses may decide to unbundle their divisions or departments as a part of reform operations or to optimize operations.
 
This usually happens for two reasons:

• Unbundling for optimizing costs and streamline a business: companies and businesses may unbundle their departments as an effort to save re-distribute resources and focus on the core value proposition(s) of the business. For example, a large corporation decides to stop its resale operations and focus solely on producing its line of products to be sold off to other external resellers.
• Unbundling as an effort to fight bankruptcy: In the case of declining income and the danger of losing capital, companies undergo reforms- either internally or enforced by the government- to avoid going bankrupt. Such reform strategies revolve mainly around unbundling business operations and divisions in an effort to get rid of costly parts of it and retain the core business functions.

Either way, breaking down offers can be a beneficial tool when employed successfully in a business.