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Tuesday, 4 May 2021

Corporate Strategy 1: Rundle, Recurring Revenue Bundle

 


We are starting a new segment in our articles.

We are now going to talk about corporate strategies and business models, something we picked up when learning about investing.

Today, more than ever, business models and strategies are playing an increasing weight in how we invest our money, and we think it's only appropriate that we also dive into it when talking about investing.

And in our first-ever dive into this topic, we are going to be talking about "Rundle".



What's a "Rundle"?


The Rundle, or recurring revenue bundle, was the term coined by NYU professor Scott Galloway, to explain how companies can mix 2 business models (recurring-revenue subscription and bundling) together as one to grow faster.

"Recurring-revenue subscription" was the in-thing a few years ago. Any startups that had "subscription" as part of its business model found no shortage of venture capital fund outbidding each other to invest in the startups.

"Bundling" on the other hand, is an old retail strategy of combining several products together to sell as a package. Think selling masks with hand sanitiser in 1 pack instead of as 2 separate items. Customers buy more because of the perceived discount, while businesses get a higher transaction size.

The "Rundle" is the combination of the 2, where businesses package several products together and sell them as a subscription, offering a better value proposition, better value, and make higher revenue.



Recommended Read: 9 Things I Learnt from my Internship at GIC


How It Is Being Used?


While companies in the subscription business are working hard to find products to bundle into their subscription, companies in the bundle business are working hard to get into a subscription relationship with their customers.

Case in point: Apple and Walmart.

Apple & Apple One

Source: Apple

Even on their service website, the first sentence states that it's a subscription that bundles several of Apple's services.

Originally, you can subscribe to the different services (Apple Music, Apple TV+, Apple Arcade, and iCloud) on their own. 

Maybe you're already subscribed to Apple Music and iCloud, but now at just a couple dollars more, you can get TV+ and Arcade, instead of paying for the full price.

That "lower entry price" would entice customers who are on the edge to give the service a shot, and give Apple the slight revenue boost in its services segment.

This is the classic subscription model pushing for bundling to achieve the "Rundle".


Walmart & Walmart+

Source: Walmart

The sleeping giant has awakened and it's starting to face its toughest competitor (*cough cough Amazon) head on!

Walmart is a supermarket giant in the US, and while it has been growing over the years, the growth has not been spectacular and it has been gradually losing market share to Amazon.com.

Being a traditional supermarket, it is in the "bundle" business, that is, you get a slight discount if you bought 2 bottles of Pepsi instead of 1.

Businesses of such nature are one-off: customers buy where it is cheap and convenient, and have a low cost of switching to another provider.

Customers don't build an entrenched relationship with Walmart because if today another shop is selling cheaper than Walmart, customers are going to go to that other shop.

What Walmart has decided to do, is to start offering its customers a subscription service to entrench their customers into a relationship with Walmart (copying the strategy of Amazon Prime).

For a subscription fee, customers can get free shipping and many other perks, which attracts customers to do more of their shopping with Walmart because they have already paid a subscription fee (a sunk cost) and wants to utilise that fee to the max.

This is the classic bundling model pushing for subscription to achieve the "Rundle".



How It Shouldn't Be Used


Source: Inc.com

While most companies are innovating ways around how they can offer a "Rundle" service to their customers, not every company will be able to get it right.

To put it simply, a "Rundle" is only a value proposition.

It is a good way to accelerate growth IF there is a good Product-Market Fit (we'll explain product-market fit next time).

If there is no product-market fit, pushing out a "rundle" service is not going to grow your business.


Example 1: Bundling business pushing for subscription

You have a retail shop that uses the bundling business model currently, and you're pushing towards a "rundle".

However, the prices you charge before and after the subscription fees, are higher than your competitors.

In this case, what's the value proposition you bring to your customers to entice them to enter into a subscription relationship with you?

Why would a customer pay a $10 subscription per month to buy from a grocery store that charges higher prices than the supermarket across the street?

Is it fast delivery? Is it monthly promotions? Is it any other value proposition that can make customers find the whole "rundle" valuable?

If there is no strong value proposition, you might not have a product-market fit, in which case you should work on improving the product instead of pushing out a "rundle" hastily.


Example 2: Subscription business pushing for bundling

You have a software subscription business that has 3 software products. 1 of them sells really well while the other 2 barely sells.

You hope to bundle your 3 software products together as a "rundle" so that your customers will be enticed to get all of them instead of just the best selling one.

Of the 3 software you offer, only 1 is of value to your customers while the other 2 are crap.

You can offer a "rundle", but no one is going to continue that subscription because no customers will want to pay extra money for things that they don't use or are lousy.

After testing out your "rundle", customers will eventually drop back to just subscribing for just your best product if the other products suck.

A "Rundle" doesn't solve the problem of having a lousy product.




Conclusion


A "Rundle" is a great way to accelerate the growth of your business. and build loyalty.

However, it is only one part of the whole strategy, and it only works IF your business has a product-market fit.



Recommended Read: What I Learnt 6 Months into My SGUnited Traineeship


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