In Part 1, we talked about the well-known tradeoff that product bundles are advantageous for producers while a la carte offers are advantageous for consumers. This time we will discuss from an entitlement management standpoint, product bundles versus a la carte and the tradeoffs.
- SKU management. Suppose your app, EZ Calculator, offers features like add, subtract, multiply, divide and so on. You want to target casual users, accountants and scientists. The table below lists the SKUs you could offer as bundles or a la carte to monetize the features in EZ Calculator. Notice that a la carte offers can achieve the same business results with fewer SKUs. When you add upsell paths (e.g. Basic Edition to Scientist Edition), the number of SKUs grow for the product bundles approach.
A la carte
EZ Calculator Basic Edition: add, subtract, multiply, divide
EZ Calculator Base: add, subtract, multiply, divide
EZ Calculator Accountant Edition: add, subtract, multiply, divide, average, NPV
EZ Calculator Accountant package: average, NPV
EZ Calculator Scientist Edition: add, subtract, multiply, divide, exponent, logarithm
EZ Calculator Math package: exponent, logarithm
EZ Calculator Basic to Scientist Edition Upsell: exponent, logarithm
EZ Calculator Basic to Accountant Edition Upsell: average, NPV
EZ Calculator Complete Edition: add, subtract, multiply, divide, average, NPV, exponent, logarithm
- Sales positioning & ordering experience. For the initial sale to a new customer, product bundles can be easier to position and order. In the EZ Calculator example, if you are an accountant, you just buy the Accountant Edition if the bundle is offered. But, an accountant would need to buy Base plus the Accountant package in the a la carte model. Too many a la carte offers could end up in a complex and confusing selling and ordering experience. Note that if you do offer upsells between bundles, the ordering experience post the initial sale could be just as complex for product bundles.
- Dependencies between features could be hidden from customers in a product bundle. Too many a la carte options with dependencies between them might require a product configurator to get orders processed correctly.
- Packaging evolution over successive software releases. With product bundles, new and chargeable features have to be added to an existing bundle. To monetize the extra value from these features, bundle prices have to inevitably increase over time, if you stick with the same set of bundles. Case in point: between 1995 and 2011, cable channels included in Basic Cable grew 5% per year and monthly prices for Basic Cable went up 6.1% per year, almost in lockstep. Eventually, price increases will force some customers to drop out. In contrast, new features can be added to existing options or to new a la carte options – so a la carte is more flexible for producers without the inevitable price increases for customers associated with bundles.
- Product & software license fulfillment experience(or service provisioning for SaaS) for initial purchases are usually streamlined and simplified for product bundles. In contrast, a la carte offers can result in an error prone experience as there can be dependencies between them. But, if you do offer upsells between bundles, the product and softwa licensing experience could be just as complex for product bundles over time.
Interestingly enough, SaaS and cloud-based products seem to have picked the product bundle
approach to the extent that I could survey them. For example:
- Salesforce.com: http://www.salesforce.com/crm/editions-pricing.jsp
- Eloqua: http://www.eloqua.com/products
- Box.com: https://www.box.com/pricing/
Unlike on-premises software, pure SaaS/cloud-based apps can mitigate some of the downsides of product bundles:
- Because they use subscriptions, upsell SKUs can be avoided by waiting till the end of a term and renewing users/customers on a higher bundle.
- Product and software license fulfillment issues do not exist by definition – users/customers are simply provisioned for whatever bundles they ordered
However, pure SaaS/cloud-based apps:
- Would still run into the issue of evolving product packaging (for new, chargeable features) without price increases for customers if they use bundles
- For 3 or 5 year subscriptions (an industry best practice), they would need upsell SKUs if users/customers do not want to wait 3 to 5 years to move from lower to higher bundles.
On balance, other than the initial ordering and fulfillment experience for first time customers, product bundles have no compelling entitlement management advantages over a la carte offers. I have tended towards the a la carte option largely because of the flexibility they offer over the product lifecycle. Despite what some leading SaaS/cloud-based providers have done, my sense is that they will have to re-think their product bundles approach at some point.
In Part 3, I will discuss product and entitlement managementbest practices regardless of the course you pick.
Related Entitlement Management blog posts:
Posted by Deloitte:
Posted By Flexera:
- Why Producers Need a Proven Commercial License and Entitlement Management System to Support the Full Software Lifecycle Process
- App Stores for B2B Application Producers are Simply eCommerce Sites
- Publishers MUST Provide Entitlement Data to their Customers before Holding them Accountable for Compliance
- Consider How Software is Deployed to Drive Adoption of New Licensing and Entitlement Models
- Integrating Entitlement Management into Your Existing IT Infrastructure
- Best Practice: Publishers should provide software entitlement and maintenance information to customers and channel partners 7×24