Thread by @fintechjunkie

"There are only two ways to make money in business. One is to bundle and the other is to unbundle."

A thread on this powerful but very mis-understood concept:

2/22: The practice of bundling is pretty intuitive: It focuses on combining multiple value propositions into a single, integrated offering.

Unbundling is the opposite: It focuses on untethering a single value proposition from a combined offering.

3/22: When constructed properly, the benefits of bundling are intuitive:

Customers can buy a suite of contextually relevant products/services through a single provider/buying process.

Providers can improve the LTV/customer by selling a bundle vs. a single product.

4/22: When constructed properly, the benefits of unbundling are intuitive:

Consumers can research and assemble their own suite of best-in-class products.

Providers can reduce acquisition costs through simplified marketing messages and an increased ability to target prospects.

5/22: Consumers prefer bundles when there’s minimal to no sacrifice of quality and the combined offering comes a discount to buying each component of the bundle separately. In these cases the simplicity of buying from a single source is seen as additive.

6/22: Consumers prefer assembling their own suite of solutions when the quality of each solution is superior to those offered by a bundle or the combined price is less than that of a bundle. In these cases the simplicity of buying from a single source is seen as detractive.

7/22: The above framework can be used to assess whether a company is more likely to win by “bundling” or by “unbundling”. Both are viable strategies so the challenge for a management team is to exploit the most important benefit of the model they choose.

8/22: Bundling: The Benefit of Integration

Providing customers with multiple products that they can buy with near-zero friction is a massive benefit. Allowing a customer to purchase add-ons without running through a multi-step activation process can be incredibly effective.

9/22: Example: The Benefit of Integration

Many Neo-Banks like @current and @chime have integrated a simple form of overdraft protection into their apps. Their “push button add $100” functionality is inexpensive, seamless and for many customers is an alternative to payday loans.

10/22: Unbundling: The Benefit of Focus

Getting a customer’s attention is challenging due to information overload. But great marketing makes it clear that a company’s product solves a customer’s problem which is much easier to do with a single value prop than a bundled offer.

11/22: Example: The Benefit of Focus

Cross-Border money movement is a big business. Banks offer this functionality as part of their core offering but specialists like @remitly and @Wise have crushed the Banks in many marketing channels with simple messaging + focused products.

12/22: While both models are well understood in theory, the truth is that they’re frequently misunderstood in practice. In many cases assumptions are made that lead to common mistakes and poor outcomes.

13/22: Bundling: The Fallacy of Equivalency

Assembling a suite of products that are contextually relevant to a customer base is possible, but the main reason why unbundling works is that most “multi-product companies” don’t offer best-in-class products across the board.

14/22: In many cases, functional parity isn’t enough. Many of today’s consumers make decisions based on dimensions outside of features and price. Brand values and the user journey can’t be ignored. I wrote a thread on this topic a few months back:

https://twitter.com/fintechjunkie/status/1372985697708171270?s=20

15/22: Bundling: The Fallacy of Preference

Assuming that the mere presence of a suite of products allows a company to effectively sell the suite to its customer base is a bad assumption. X-selling isn’t the same as bundling especially when there’s minimal integration.

16/22: Unless there’s a distinct reason for a customer to buy multiple products from the same company it’s usually in their best interests to shop. Always ask the question: “If a rational customer were faced with perfect information would they pick your product?”

17/22: Good reasons for a customer to buy from a single provider:

A streamlined application process --- Possibly even one-click to purchase

Relaxation of approval criteria --- “Yes” when others would say “no”

A reduction in cost --- Bundled pricing that can’t be beat

18/22: Unbundling: The Fallacy of Rebundling

The double-edged sword of having a single product is that customers chose your company to solve a distinct problem. It’s far from a truism that these customers have given you permission to sell them other products.

19/22: Do the field work to understand what Brand permission you have. And always true back to the definition of brand:

A Brand is a promise that when kept creates preference.

The Brand promise you attracted customers with might not extend well to other products.

20/22: Unbundling: The Fallacy of Unit Economics

A major albatross of single product company is that the economics of a single product have to offset the cost to acquire and onboard each customer as well as contribute to the crushing costs of SG&A (overhead).

21/22: In many cases the unit economics can be attractive but still underpin a crappy business if the proper level of scale isn’t achieved. And unless organic and viral growth dynamics are present, the acquisition economics usually get worse as a single product company scales.

22/22: The TL;DR: Bundling and unbundling are both valid strategies but there are pitfalls that should be avoided and assumptions that should be tested for any model. Building a durable and valuable business requires putting the pieces together with precision!