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1、PRICING INNOVATION TOPIC AREAENHANCED BUNDLING IN TELECOMMUNICATIONS-PROPOSALJune 2001,PURPOSE OF THIS DOCUMENT,This document is a sanitised version of a proposal to the retail business unit of a vertically integrated telecommunications companyThe document has three parts:The arguments for the neces
2、sity of a bundling project at the clientA generic approach for bundling case work in a retail telecommunications playerAn appendix containing telco specific thoughts on bundlingIt is expected that this document could serve as the basis for proposals to other telcos and other industries on the topic
3、of bundlingMore detailed information on the topic of bundling is included in the document Review Of Bundling available on KM,AGENDA,Our understanding of your agendaWhat we heardKey issues to be addressedProposed bundling projectObjectives and deliverablesApproachAppendix:BCG thinking on bundling in
4、the telecommunications industry,TELCO INTENDS TO REVIEW ITS BUNDLING STRATEGY,Issues Raised During Discussions,Retail Telcos current bundles are giving away large discountsHow can we tell if there is money being left on the table?Retail Telco is currently considering new bundles,including PayTVCo or
5、 potentially utilities productsHow can we predict the retention benefits of such bundles?Telco would like to progress the current bundling strategyHow do we progress the bundle proposition from discounted to value-added?How do we integrate the communications,front of house and back of house componen
6、ts of the offer?,AGENDA,Our understanding of your agendaWhat we heardKey issues to be addressedProposed bundling projectObjectives and deliverablesApproachAppendix:BCG thinking on bundling in the telecommunications industry,WE BELIEVE THAT BUNDLING IS A CRITICALCHALLENGE FOR TELCO TO RESOLVE,Reducin
7、g customer churn has a significant impact on profitabilityChurn is driven in part by price sensitivity,which is highest amongst the high value customersBundling can reduce price sensitivity and can be targeted at the high value customersHowever,poorly designed bundling can negatively impact the bott
8、om line,Careful bundle design is required to ensure benefits of bundling outweigh the costs,RETAIL TELCO COULD BE LOSING APPROXIMATELY$xxxM IN FOREGONE CONSUMER REVENUE DUE TO NET CHURN THIS YEAR,Retail Telco Full Service Customers,Competitor Local Access Customers,Competitor Long Distance Customers
9、,Competitor Full Service Customers,Net:$xxxM,Net:$xxxM,Net:$xxxM,Pre-selectChurn(Long Distance),LAR Churn(Local Access),Source:BCG Client Experience,Annualised Consumer Churn Losses(July-November 2000),CHURN IS DUE,IN PART,TO LOWER PRICED COMPETITORS,Annualised Long Distance Churn Out(%of Telco Cust
10、omers),Comp A.,Comp B,Comp C,Comp D,Price Sensitivity,Slope of curve represents price sensitivity of customer basesteeper curve indicates more price sensitivity,Non-price drivers of churn,Degree of churn remaining where price differential is zero indicates degree to which non-price drivers are causi
11、ng customers to leave or remain with Telco,TelcoMore Expensive,TelcoCheaper,Note:Data disguised for client confidentialitySource:BCG Cient Experience,Average Long Distance Differential(1)(%),Note:Data disguised for client confidentialitySource:BCG Client Experience,Average Long Distance Differential
12、(1)(%),Annualised Long Distance Churn Out By Value Segment(%of Telco Customer Base),Comp A,Comp B,Comp C,Comp D,High Value,Med.Value,Low Value,TelcoMore Expensive,TelcoCheaper,HIGH VALUE CUSTOMERS ARE THE MOST PRICE SENSITIVE,DISCOUNTED BUNDLES CAN REDUCE CUSTOMERS PRICE SENSITIVITY AND HENCE REDUCE
13、 CHURN,Customers are attracted to bundles through discount or integration of productsBy switching any single product the customer loses the overall discount or the integration within the bundle.The customer is therefore likely to switch only if they can switch the whole bundleSwitching the entire bu
14、ndle is time-consuming for the customerCustomer focus has been taken off individual product price comparison,BUNDLING CAN REALISE A NUMBER OF BENEFITSFOR TELCO,OUTSIDE OF CHURN REDUCTION,Sources Of Value Through Bundling,Volume Increase,Price Realisation,Cost Reduction,Potential Benefits Of Bundling
15、,Win and retain greater share of customer walletSell additional products to customers who would not have otherwise bought themCreate value greater than sum-of-the-parts and charge for itImprove price perceptionRealise economies of scope in production,distribution,sales and serviceRealise efficiencie
16、s by simplified product range,Existing bundles focus on retention benefits,BUNDLING HAS POTENTIAL TONEGATIVELY IMPACT THE BOTTOM LINE,Discount Cost Of Current Bundle Offers($m pa),Is Telco recouping these discounts throughRetention benefits?Customer Acquisition?Cross Sales?Volume increases?,Illustra
17、tive,Total Bundled Discounts($m),20,Bundle Customers(m),0.2,3 Product Bundle Discount($),150,Average Spend For 2 Products(A$m),1000,Average Bundle Discount($),100(2),2 Product Bundle Discount($),50,Telco Customer Base(m),1,Bundle Take-Up(%),20(1),Discount(%),5,Average Spend For 3 Products($),1,500,D
18、iscount(%),10,x,x,x,x,(1)10%take 3 product bundleAssumes another 10%have2 product bundle(2)Based on 50-50 split between the2 Product and 3 Product bundle offersNote:Numbers disguised for confidentiality,ENHANCED BUNDLING COULD MAKE A LARGE DIFFERENCE,Potential Effect Of Project On Retail/Mobile Telc
19、o Annual Profit($m),Source:BCG Analysis,71,11,20,40,35,106,Illustrative,Other Sources Of Value,Extension of bundling to new products and new bundles,e.g.,InternetPay TVExtraction of other sources of valueCost SavingsImproved price realisation,?,?,AGENDA,Our understanding of your agendaWhat we heardK
20、ey issues to be addressedProposed bundling projectObjectives and deliverablesApproachAppendix:BCG thinking on bundling in the telecommunications industry,PROJECT OBJECTIVES AND DELIVERABLES DESIGNEDTO HELP TELCO MEET THE BUNDLING CHALLENGE,Project Objectives,Assess economics of Telcos existing bundl
21、esRecommend immediate improvements to existing Telco bundlesDevelop and assess further bundling optionsImplement optimal bundling approach,Project Deliverables,Bundling benchmarksAnalysis of financial impact of current bundle,including retention benefitsPotential improvements to existing programValu
22、e delivered by immediate improvementsList of potential bundling options for TelcoFramework for estimating retention and other benefits of bundling for TelcoEconomic assessment and prioritisation of bundling optionsExecution plans for bundling,includingoperational needs,e.g.,information systemsorgani
23、sational needs,e.g.,transfer pricingcommunication plansroll-out plans,Overview Of Project Objectives And Deliverables,The project will address bundling issues for consumer and SME segments,A BUNDLING SCORECARD WILL BEDEVELOPED AFTER INITIAL ASSESSMENT,Bundle Aspect,ProductsNumber of productsProduct
24、mixIntegration of productsPricingDiscount levelDiscount mix across productsTiering of discountsResultsTake-upRetention valueCross-sale valueAcquisition valueDiscount costProgram costs,Score,20%$m$m$m$m$m,Recommendations,Increase range of products in bundleHigh value segment requires inclusion of VAS
25、Products require more integration,e.g.through unified messagingReduce level of discountDiscount more steeply on LD and mobileInclude threshold spend,Telco Existing Bundles Scorecard,Unattractive,Attractive,Not Relevant,Relevant,None,High,Misaligned,Well Aligned,Too Flat,Too Steep,Too Flat,Too Steep,
26、Illustrative,AGENDA,Our understanding of your agendaWhat we heardKey issues to be addressedProposed bundling projectObjectives and deliverablesApproachAppendix:BCG thinking on bundling in the telecommunications industry,BCG EMPLOYS A FOUR STAGE APPROACH TO BUNDLE DESIGN,Phase I,Phase II,Phase III,Ph
27、ase IV,Review current status of bundlingStrategic objectivesCurrent performanceCompetitive gapsRecommend incremental changes to existing offers,Understand key elements of the bundling contextDevelop range of bundling options,Analyse economics of bundling optionsPrioritise viable options,Develop exec
28、ution PlansRoll-out,ReviewBundling StatusAndFind Quick Hits,Evaluate And PrioritiseOptions,Realise Value,BCG Bundle Enhanced Bundling Project,DevelopOptions,ProductKnowledge,CustomerUnderstanding,CompetitiveResponse,RegulatoryConstraints,DecisionPoint,FOUR STAGE ENHANCED BUNDLING PROJECT,Weeks,Enhan
29、ced Bundling Project Timeline,Key Objectives,Develop Execution plansRoll-out,Assess performance of current bundlesIdentify areas for improvement,quick hits,Understand bundling contextIdentify range of options,Analyse optionsPrioritise options,ENHANCED BUNDLING WORKPLAN OVERVIEW,Phase,Review Bundling
30、 StatusDevelop OptionsEvaluate And Prioritise OptionsRealise Value,Duration,4 weeks6 weeks4 weeks8 weeks,ongoing,Key Deliverables,Key Activities,Interviews with segment managersData collection on existing programBenchmarking of competitor/overseas bundlesApplication of bundling rules-of-thumbSizing
31、of quick hit opportunitiesAnalysis of Telco consumer/SME product offeringAnalysis of telecommunications bundle demand,including market researchScenario analysis of competitor responseIdentification of regulatory issuesWorkshop with Telco personnelTake-up estimationRetention estimationScenario NPV mo
32、delling Risk analysisWorkshop with Telco personnelWorkshop with Telco personnelNegotiations with partners and divisions,e.g.,PayTVCo,OnAirImplementation and roll-out planning,Understanding of strategic objectives of bundlingAssessment of current bundle performanceIdentification of key areas for impr
33、ovementIdentified and sized quick hit improvement opportunitiesFocussed project plan for remaining phasesUnderstanding of elements of bundling contextproduct knowledgebetter customer understandingcompetitor responseregulatory constraintsList of bundling optionsFramework for estimating retention and
34、cross-sales benefitsQuantified understanding of value of bundling opportunitiesPrioritised list of viable bundling opportunitiesPreliminary understanding of implementation issuesOperational,organisational,communication and roll-out plans for priority bundle options,STATUS REVIEW ASSESSES SUCCESS OF
35、EXISTING BUNDLES,Key Issues,What are the strategic objectives of bundling for Telco?Are existing Telco bundles creating value?What is the cost of the existing program,including discounts?What level of take-up of bundles have been experienced?What retention benefits are being realised?What cross-sale
36、 benefits are being realised?What volume increases are being realised?How is bundling being done by other telcos?What quick hit improvements could be made to current bundling strategy?,Analysis,Interviews with segment managersCost analysis of the existing programMeasurement of take-up ratesMeasureme
37、nt of existing bundle discountsComparison of bundle customers with control group of non-bundle customersProbability of retentionModeling of customer lifetime value to estimate retention benefitsComparison of bundle customers before and after bundle take-upCross-sale benefitsVolume increasesBenchmark
38、ing of competitors/overseas bundlesdiscount levelspricing mechanismtake-up rates(where available)quantification of benefits received(where available)Application of bundling rules-of-thumb to Telcos environmentPreliminary sizing of value created through quick hits,Output,Clearly defined strategic obj
39、ective of pricingAssessment of value created/destroyed by existing bundlesbroken down by type of benefitbroken down by segmentList of potential areas for improvement in the bundleRange of benchmarks for comparisonList of ideas for improvement of bundlingList of potential options for future bundlesPr
40、eliminary list of suggested bundling improvements and estimated size of benefits,Workplan For Phase I:Review Status Of Bundling,PHASE II REQUIRES UNDERSTANDING THEBUNDLING CONTEXT TO DRIVE OPTION DEVELOPMENT,DevelopOptions,AssessProducts ForBundling,Gain Better Customer Understanding,PredictCompetit
41、iveResponse,UnderstandRegulatoryConstraints,Elements Of The Bundling Context,EACH ELEMENT OF THE CONTEXT POSESKEY QUESTIONS FOR BUNDLING,Key Questions In The Bundling Context,What is demand for individual products?What products do customers want bundled?What value do customers place on the bundle ve
42、rsus individual components?How does demand differ by segment and sub-segment?,How do competitors currently bundle?What products can competitors include in a bundle?How will competitors bundling strategies change in response to Telcos strategy?,What are the regulatory constraints that govern bundling
43、 for Telco?What is the likely response of the regulators to Telco bundling?,What products can be included in the bundle?Telco and beyond telcoWhat value-added services,and linking services can be included in the bundle?What are the relevant product characteristics,which affect the bundling decision?
44、,ASSESSING TELCOS PRODUCTS FOR BUNDLING WILLHELP UNDERSTAND THE ECONOMICS OF A BUNDLED OFFER,Workplan For Phase II:Assess Products For Bundling,Key Questions,What products can be included in bundles?What value-added services and linking services can be included in the bundle?What are the relevant pr
45、oduct characteristics,which affect bundling?Cost structureCurrent pricing mechanisms and levelsComplementarity/substitutability,Analysis,Interview segment representativesReview segment plansDetermine revenue and customer splits for productsInterview product managersInterview development laboratories
46、Use of available strategic cost analysesBenchmarking of current pricing practices at Telco and competitorsCustomer activity analysis to understand complementarities/substitution of usage,Output,List of potential products to be included in bundles for different segmentsList of potential services to b
47、e included in the bundle and timeline for availabilityTable of relevant cost information versus productTable of current pricing practices versus productUnderstanding of interactions between products,GAINING A BETTER UNDERSTANDING OFCUSTOMERS WILL LEAD TO BETTER BUNDLE DESIGN,Workplan For Phase II:Ga
48、in Better Customer Understanding,Key Questions,What is the demand for individual products?What products do customers want bundled?What value do customers place on the bundle versus individual products?,Analysis,Elasticity analysis for individual products using:relevant existing external informationT
49、elco usage dataconjoint analysis(only where necessary)Take-up analysis for young/new productsAnalyse demand for various bundles or components in bundlesexisting market research further market research through Telco experimentation capabilityMarket research on customers willingness to pay for value-a
50、ddedexisting market researchfurther market research through Telco experimentation capability,Output,Demand curve/elasticity for individual products by segment,over timePotential combinations of products in bundles by segmentEstimate of potential premium or discount required with proposed bundles,PRE
