Marketing Telecom Services to Small Businesses: The Bundling Paradigm November 12, 2000

1. Marketing Telecom Services to Small Businesses: The Bundling Paradigm November 12, 2000 Eugene Bala

2. Eugene Bala The Bundle Paradigm The Bundle Paradigm • In today's telecommunications business, marketing capability and business functionality are more important than the hardware platform. • Combining voice and data traffic over a single digital subscriber line enables telecommunications service providers to deliver integrated bundled services. • One way to lock in customers is by offering a single, convergent bill that includes bundled products and services. • Service providers are determined to offer bundled services creating a need for convergent billing systems that can handle complex requirements.

3. Eugene Bala The Bundle Paradigm What defines a bundle ?A product bundle is characterized by the grouping of two or more productsand services into an integrated offering that provides "added value.” A simple example : McDonald's Value Meal offering, which bundles a sandwich,fries, and drink at a lower price than if the items were purchased separately. A good bundle should provide a mutually beneficial relationship betweenthe buyer and the seller.

4. Eugene Bala The Bundle Paradigm What makes a good bundle for the customer? For the customer, a good bundle will be seen as providing additional valueon a number of fronts: • added convenience • better value • enhanced performance as a result of integration

5. Eugene Bala The Bundle Paradigm What makes a good bundle for the company? For the company, a good bundle is one that increases sales at a lower delivery expense and simultaneously builds profits by attracting and retaining customers.To do this, the bundle should provide the opportunity to accomplish the following: • Create customer bonding • Build a deeper relationship with additional products • Enhance the brand image • Build targeted market share and share of wallet • Realize cost savings • Achieve premium pricing

6. The Bundle Paradigm The Bundling spectrum UnbundledBundled Degree of Integration Services offered separately or part of an optional package Services offered only as package with added value implied or stated Two or more services sold separately Offerings Travel services purchased without an agent Microsoft Office add on software components America Online no-option package Relationships Separate business relationship for each service Relationship integrated to degree determined and chosen by purchaser Single integrated relationship Customer’s Expectations Lower Higher

7. Eugene Bala The Bundle Paradigm Bundled services for small businesses - Banking • Today, most financial services providers offer consumers combined statements; • The small business owner needs ready and frequent access to information on the status of funds, the capability to move funds between accounts, and more day-to-day tools for cash management and investments than the average consumer • Fleet introduced the Corporate One bundle in 1994 to build deeper businessbanking relationships. At its core are the most frequently requested business banking products • As with the bank's consumer offering, the most powerful and useful manifestation of this integrated business bundle is the combined monthly statement combined with the added value of a free ATM/debit card and premium interest rates on qualified deposits..

8. Eugene Bala The Bundle Paradigm Bundled services for small businesses-Banking Option 2 • 20 transactions • 10 items deposited • $2000 cash deposited • electronic banking access Teller Service Monthly Plan Fee: $15.00 Non -Teller ServiceMonthly Plan Fee: $10.00 Option 3 • 50 transactions • 30 items deposited • $3,000 cash deposited • electronic banking access Teller Service Monthly Plan Fee: $35.00 Non -Teller ServiceMonthly Plan Fee: $25.00 Option 1 • 10 transactions • 5 items deposited • $1,000 cash deposited • electronic banking access Teller Service Monthly Plan Fee: $10.00 Non -Teller ServiceMonthly Plan Fee: $5.00

9. Eugene Bala The Bundle Paradigm The complete telecom bundle for small business Combining voice and data traffic over a single digital subscriber lineenables telecommunications service providers to deliver not just bundledservices to the small business market segment,but also integrated bundled services

10. Eugene Bala The Bundle Paradigm Bundled services for small businesses-Telecom

11. Bundle Delivery Bundle Design Business Strategy Eugene Bala The Bundle Paradigm The three-ring customer-fulfillment process

12. Wireless Cell phones Pagers Internet and e-Commerce Services Data Services Local Voice Long Distance and Toll Free The bundle of services

13. Eugene Bala The Bundle Paradigm What may cause the bundle strtegy to fail? • As with any marketing strategy, the bundle delivered should not overpromise or underdeliver. • Failure is likely when a bundle's inherent value-cost savings and enhanced performance cannot be clearly demonstrated and delivered to the customer. • Weak value or benefits (perceived or actual) beyond those offered by thesingle products acquired separately or compared to competitors' offerings. • Weak relationship with the existing customer (if the basics have not beendelivered well, the customer is not likely to deepen the relationship). • Complex or confusing bundle (the benefits should be obvious and realizingthose benefits easy). • Less selection or fewer options than those available through a la cartepurchases.

14. Eugene Bala The Bundle Paradigm ATT’s bundle pricing Objectives • track incremental features and services added to the bundle - work pricing solution • end-user objectives • market chain objectives • competitive objective • internal objectives - corporate objectives

15. Eugene Bala The Bundle Paradigm ATT’s bundle pricing The market challenge • What is the current pricing for individual and bundled services ? • What should go in the bundle of services, and how? The internal challenge • Target costing in price setting (might determine VC, is it significant ?, etc) • What end-users and chain members will receive what price for what technology? • Determine the EVC (economic value to the customer) of current and potential new solutions

16. Pricing to share benefits SBS economics ATT economics Customer inducement ATT’s Competitive Advantage Incremental Value ATT’s profit EVC Purchase Price ATT’s Cost Selling price Start-up costs Post Purchase costs Individual service Bundle of Services Eugene Bala The Bundle Paradigm ATT’s bundle pricing

17. Eugene Bala The Bundle Paradigm ATT’s convergent billing Objectives • lock in customers is by offering a single, convergent bill that includes bundled products and services • to become total telecommunications providers. • facilitate a variety of services now and in the future. • help ATT react to changing market conditions and ultimately overcome the revenue-sapping effects of customer churn.

18. Eugene Bala The Bundle Paradigm ATT’s convergent billing The billing system must address 3 network issues: • develop business systems based on relational databases that support electronic interfaces that capture customers' requests; • capture customer-generated events at the switch and at the server, rating the events, calculating the bills, and feeding the data back to the customer via the preferred medium; • meshing customer care with service deployment so a company can developa single image of its activities.

19. Eugene Bala The Bundle Paradigm ATT’s convergent billing Deep behind the bill itself • Given the investment in legacy computer systems at ATT’s component companies, the chosen billing platform must be able to work effectively on different platforms. • In today's telecommunications business, marketing capability and business functionality are more important than the hardware platform. • Adding new business software to the existing enterprises, or even to a new enterprise, can be arduous and time consuming.