Life after bundles

The next battle will be over distribution channels

Now that bundles have become de rigueur as a product packaging strategy, one of marketing’s four Ps—product, price, place and promotion—appears to have been pushed much closer to its limit. The marketing promotion that surrounds bundles has escalated from “triple-play” to “grand-slam.” 

Now that the baseball season is over, what will the next super-bundle be called? Touchdown? Three-pointer? Hat-trick? Or outside the U.S. it might be GOOAAL! 

Bundling is a product packaging strategy with broad appeal. Well-designed bundles provide stickiness, loyalty discounts and potentially, product differentiation, by including capabilities competitors can’t quickly or easily match. A great example of this hunting for product differentiation is the video component of cable’s triple play, which has been driving many telephony service providers to make arrangements to add satellite TV to their voice bundles.

Interestingly, we have yet to see a cable provider add wireless voice to their bundle, as many wireline telephony providers are doing. Which MSO will be the first to bundle with a wireless vendor? Or are we already seeing this, albeit in the other direction, with 3G wireless providers adding pictures and limited streaming video to their offers?

In our increasingly software-based world, the product differentiation available through bundles usually lasts at least until the ink is dry on the first press release....

In some cases, yes, but not as many as we would like to see. Bundling does serve to stabilize otherwise escalating marketing and sales costs by making it possible to cross-sell or up-sell new services to existing customers—which is almost always cheaper than acquiring new customers. And, several market experiences indicate that subscribers to bundles with two or more services included are less likely to churn than those with only a single service. However, the jury may still be out on stickiness or sticker-shock. Which comes first as the single bill grows ever larger as more and more services are added?

Frequently, the only bundle-required change to the supply chain are extensions to the flexible billing package, assuming one is already installed. If such a flexible billing package is not already in place, acquiring one is likely to be early in the list of to-dos. This is especially true for wireless service providers who are adding lots of third-party applications or services into their mix to see which ones stick.

Is there a downside? In our increasingly software-based world, the product differentiation available through bundles usually lasts at least until the ink is dry on the first press release; the half-life of differential advantage has become about 25 microseconds. As soon as your competitors hear what you are doing, they can match you with the next round of leapfrog (or at least me-too) bundles. Bundling has also increased competitive pricing. So, what does a good telecom marketing organization do to find some sustainable competitive advantage?

Consider the four Ps of marketing and think about which one still has room for creativity? Where can one find a sustainable competitive advantage?

There is beginning to be an increased focus on developing effective channels to market. Successful players will differentiate themselves in 2004 and beyond by defining new channels and selecting the appropriate mix of and extent of use for the different alternatives channels.

Certainly, the web has been well established as a still-growing market channel. But most successful users of web sales have learned that the web alone does not make an effective distribution strategy. Good call center support (both voice and emerging multimedia call centers) must also be added to make the web and other sales channels more effective, both for sales volumes and customer satisfaction.

Convergence—n this case, convergence of disparate networks—is also changing how equipment vendors are approaching their distribution channel mix. For example, as VoIP equipment sales are replacing TDM equipment sales, the voice equipment vendors are all looking for the appropriate channel mix to obtain the required coverage and skills required to sell converged solutions successfully.

What is the right mix? How much should be through an existing direct channel and how much through existing or augmented indirect channels? Supporting a direct sales capability is very expensive, but once in-place it is incontrovertible that a direct sales force has a better ability to handle rapid change than the slow and detailed processes required to recruit, direct, train and target through differing indirect channels.

Generally, service providers should include some direct selling in the channel mix—at least to cover the largest enterprises or to serve selected vertical segments. When using indirect channels, focus on improving their ability to respond and be effective as markets, products, competitors and the business climate changes.

How does a manufacturer that uses the traditional voice interconnect channel acquire the necessary data network, LAN skills to become VoIP capable—from both a sales and support perspective? Conversely, how do the traditional data vendors, value-added resellers and independent software vendors (ISVs) gain the skills to sell and support voice? These are some of the sales channel challenges being faced by equipment and solutions vendors across the telecom industry.

As computing and telecommunications also converge, the computer vendors are changing their businesses to be less hardware and more software and services oriented. They must, in turn, adjust their channel strategies. How can or do the channels of the computer vendors play into this mix? How can or should the computer vendors partner with vendors in related product spaces such as voice equipment or call centers that may deliver their solutions by using the computer vendor’s hardware and software?

Service providers, who also want to play further with larger enterprises and generate additional value-added revenues, from their networks from their growing IP networks are also looking at how they can provide more value to gain more and stickier revenue. Hosted services or outsourcing services are the broad-bush plays being put forward. To get there, many service providers are re-entering or expanding their position as distribution channels for voice and data equipment in addition to maintaining their core business—network-provided services.

We have been and—are continuing to see lots of churn—idea churn, channel churn and people churn. None of this churn is good for making profitable sales and developing long-term relationships with customers, all of who are being bombarded with new offers in more ways than even the most sophisticated spammer can imagine. To succeed as the economy slowly improves, telecom industry participants will have to invest in a number of different activities such as: reconsidering their channel needs; developing new channel plans, programs and tactics; applying appropriate channel management technologies; and acquiring and managing new channel relationships. Effective channel development, support, care and feeding will be increasingly important determinants of success.

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David H. Yedwab is Executive Vice President of The Eastern Management Group, Bedminster, NJ. He can be reached at dyedwab@easternmanagement.com.

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