Unbundling of Services

A dwarf standing on the shoulders of a giant may see farther than a giant himself.
— Robert Burton

There is no question that small firms are getting hit hard by the increase in fuel prices as well as by the rising cost of so many other materials, from copper to rice. Combine these significant cost increases with an economy that is slowing down, and you have the recipe for low profit margins and/or profits slipping into the red.

For most small businesses, now is not the time to increase prices that are very obvious to your customers. Your customers are being squeezed as well, and raising prices now is a sure way to lose sales. However, one very effective way to increase your profits without increasing your prices is through unbundling the services you provide.

In the past with high profit margins and growing sales, you could afford to lump services into the price of the product. Now, however, is the time to consider unbundling your services and pricing them separately?

One of the biggest services that you can unbundle is delivery. We were dealing with a company that bundled its services with delivery in order to bring in customers. Recently however, they began assessing a trip charge per service call in addition to the normal fees. With gas prices so high, the majority of their customers clearly understood why there had to be an extra charge. This firm was able to maintain its margins and protect its profits just by unbundling their delivery fees.

Another way to unbundle services is to separate as many of the expenses as you can, and charge accordingly. Another firm that we are assisting provides signage to businesses. In the past, they just showed one price without any breakout. Now they show on the estimate and the bill each service that will be provided. This helps to increase margins while making price comparisons so much more difficult.

One of the best examples of unbundling can be taken from the airline industry. The other day, I went to curbside check-in only to find out that there was a $3 charge for each bag they checked — and that did not even include the tip.

In addition, airlines are now charging to check a second piece of luggage and are frequently charging for meals on the plane. Recently, American Airlines announced that it was starting to charge $15 for each checked bag even the first one. US Air just took unbundling to a new level when they began charging $5 to $30 more for a window or aisle seat. Clearly, the airlines are clearly using this unbundling tactic to mask so much of the higher fuel costs.

Dell Computer is another company that thrives on unbundling products. Their computers are priced with just the components the customer wants.

Now go out and see where you can unbundle some of the products or services that you currently throw into the price of the product or service being sold to protect your margins and profits.

You can do this!

Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at jostery@comcast.net or by phone at 850-644-3372.

Tags: Florida Small Business