The Only 2 Ways of Making Money

Is the whole greater than the sum of the parts anymore?

by Andrew Cooke, Growth & Profit Solutions

When we look at some of the changes brought about by changes in technology we find that it has effectively, and literally, taken products, institutions and industries apart. In essence it has unbundled them. Unbundling is the process of taking something and breaking it down to its constituent parts so they can be sold and acquired separately rather than just as part of the whole.

Music is a good example. It used to be that if you liked a band’s new song you could buy it on a 45 record. The song you wanted was on the ‘A’ side and on the ‘B’ side would be another song – usually not worth listening to. If you wanted the one song, you had to buy the other. When the band released its next album you would have to buy the LP record or CD, this effectively bundled all the tracks together whether you wanted them or not. More recently we had the development of companies such as Napster which enabled you to download individual songs – unbundling what was previously bundled together. This has gone further with streaming through Spotify and similar companies, where you can choose what you want and play it immediately.

This process of bundling and unbundling has affected every industry, and it is an on-going dynamic.

Low-cost airlines allow you to book your seat, and have unbundled all the other offerings allowing you to select what you want. So, if you want, you pay for seats with extra leg-room, for headsets, for in-flight entertainment, for food, for drinks, for luggage, for pillows, for blankets. Michael Leary, CEO of Ryanair based in Dublin, once joked (?) about charging people to use the toilet on flights.

Other companies have gone the other way, from having a series of different offerings that were purchasable independently of each other, to being bundled together. For example, Microsoft sells its desktop products as a bundle in Microsoft Office at a significant discount to the price if you bought the same set of products separately.

We tend to cycle through a time of bundling and unbundling our offerings depending on our product portfolio, the level of competition, and changes in customer needs, technology, the industry and the general business environment.

Look at your products and services and ask yourself are there other ways you can make them available to your customers?  Can you unbundle all these things and sell them separately successfully? Or can you bring all the things you sell separately and bundle them together and sell that successfully?

Aristotle said that the whole is greater than the sum of its parts, but he may not be right for much longer.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

Price & Value

Why price and value must co-exist…

The most important thing in pricing is value. This is not the value as you determine it, or but rather the value as perceived by the customer.  The price a customer is willing to pay, and therefore the price you can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes.

There is a relationship between price and value which the Romans understood; in Latin the word “pretium” means both price and value. Literally speaking, price and value are one and the same. This is a good guideline for businesses to follow when they make their price decisions in that you need to:

  • Create value: how your product or service is designed, made and performs all drive the value that customers perceive. Innovation also plays an important role as it focuses on creating, unlocking or delivering customer value that was not previously available to them before.
  • Communicate value: This is how you influence your customers’ perception. It includes how you describe the product, your value proposition, and your brand. Value communication also covers packaging, product performance, and shelf or online placement.
  • Retain value: Your customers’ expectations as to how the value will last post-purchase will have a significant influence on a customer’s willingness to pay, for example, luxury goods, consumer durables and cars.

There are a couple of illustrative quotes regarding price and value. Firstly, the French have a saying, “le prix s’oublie, la qualité reste.” Loosely translated, that means that the quality you bought endures long after you have forgotten the price.

“That is the worst and yet easiest error. Better be cheated in the price than in the quality of goods.” (Baltasar Gracian, 1601-1658)

The point here is that price is quickly forgotten, while quality, good or bad, stays with us. So when you create a product or service is when you begin your planning on how and what to price it as. Make sure you create, communicate and retain value which is perceived by customer as valuable to encourage their willingness to pay.

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Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

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Click here to find out more about Andrew Cooke and Growth & Profit Solutions.