In today's broadband environment, it is increasingly clear that bundling is the future. Customers want it. Operators and telcos provide it. Multi-product sales are up. Finally broadband providers are giving customers what they really want.
Or are they?
Broadband providers are certainly offering their customers bundled alternatives, but, how do they know they're selling the "right" bundle to the "right" customer?
The place to start is by knowing what customers want, and how to deliver it. Operators can learn a valuable lesson from a success story in a highly competitive consumer products industry — the $2.5 billion sports beverage market.
Gatorade: Case in point
Once a fledgling niche product, Gatorade brought in 40 percent of Quaker Oats Co.'s revenue and was the primary driver in the acquisition by PepsiCo Inc. How did it get there?
When all other sports drinks were being sold the same way — in supermarkets — the executive team at Gatorade set off to ask the market two questions that led to a breakthrough in market share:
- Who are the best customers for us in this market?
- And, what drives their purchase and consumption decisions?
Understanding who their best customers were in each market, and then learning where and when these customers would have an occasion to drink Gatorade led the executives to decide on a new way of marketing their product.
Instead of pushing warm gallon-sized jugs on supermarket shelves, Gatorade would make cold single-serve containers available in corner stores nearby to playing fields frequented by its young customers. Combining this distribution philosophy with a marketing plan to 'own the sidelines' has been a home run for the company.
Matching the right product to the right customer in each of its segments enabled Gatorade to grab and keep 85 percent of the sports drink market.
If you follow the Gatorade approach, the first step is to segment your customer base. But don't stop there. Because, while segmentation will tell you who your customers are, it won't tell you a thing about their interest in Bundle A vs. Bundle B.
Had Gatorade stopped after segmenting, it would be just another flavored drink gathering dust on supermarket shelves. Going a step further to understand where and how its customers wanted to buy the product allowed it to gain and sustain a competitive edge.
The best methodology for predicting true purchase behavior is choice-based modeling using a conjoint approach. In contrast to demographics or psychographic modeling, the conjoint model offers a forced choice approach that helps uncover how customers will behave when having to choose one feature over another.
This is essential when you consider that in a bundle, marketers must make choices about video, voice and data features as well as the customer's preferences for packaging, presentation, billing, promotions, brands and service.
By looking at the whole product package as a number of discrete elements, each with its own value, conjoint demand modeling gives marketers what they need to design, position, price and promote products more accurately and more narrowly than direct mailings allow.
In a recent application of this approach in AT&T Broadband's New England market, conjoint analysis and customer research were used to market specific bundles to the consumers who would be most likely to buy them. Choice-based modeling proved the key in homing in on the most attractive market segments, and capturing and keeping a higher percentage of sales.
A model was created that enabled marketers to dip into and query this rich database to test different bundle scenarios and predict take-rates for individual customer segments. Adding a simple segmentation made it possible to target customers for individual bundles across a given market area.
This approach not only has the power to optimize take rates, but it also builds loyalty and reduces churn around bundled services as the offerings match the preferences of the target customers.
Maximizing bundle ROI
A generic marketing strategy for product bundles cannot maximize economic returns for the broadband industry. It is time for broadband providers to deliver on what customers want by building and leveraging the kind of deep customer knowledge and insights that make great consumer brands so successful.
You can build a better bundle, and the rewards of doing so will be better sales, less churn and a lot of cost savings.
The place to start is aligning the bundle to well-defined, high profit potential customer segments. MSOs need to learn this while they still have the first-mover advantage in the bundle market.