Bundling the Kachingle Way - Is This the Holy Grail for App Developers?

The Kachingle Genesis
From the very beginning our founder, Cynthia Typaldos, loved micropayments. In a big world little things can add up, she reasoned. And micropayments will be a key in the new global economy. With this inspiration she attempted to help people enrich the web. With a little financial encouragement from those who read blogs, newspapers, and community websites, all of us might benefit. This was her thinking. Content providers could be supported, and news outlets on the web could have a new source of revenue. To this end, she founded Kachingle. The premise was simple — people want to give. They want to support the web sites they value. But how can someone on a budget donate to so many websites easily and without too much of the money eaten up in transaction fees? The best way she found is for subscribers to deposit a small amount into an account for donations, visit their favorite websites, and then have their donations automatically distributed from their account to their favorite web sites. But, what is the best way to disperse the monies? What is the fairest and simplest way to do it? The answer she discovered is to pay each website in proportion to how often it is visited. And this is the distinction that makes Kachingle so unique today after its pivot into helping app vendors and content providers with this technology. The Kachingle model works well with mobile, PC and SaaS web apps as well as content. Apps and content of all sorts can be packaged together in bundles and subscription fees are then distributed fairly to the participating vendors.

Where Bundling Works
Just look at television cable and satellite offerings. They bundle at every possible price point. It is obvious how effective bundling is by offering a better deal for the subscriber while extracting more revenue from them. Bundling cable channels works well for viewers. There are movie bundles, sports bundles, and special premium packages. There are also plenty of specialty channels. If viewers had to watch all the channels to decide which ones they wished to pay for, and cable providers priced and sold the channels individually, customers would become frustrated from ‘shopping’, buy less and only buy what they needed. But with bundling, the viewer pays more and gets more, much more — all with a single purchase. This is another advantage of bundling — choices are narrowed for customers and every choice is an upsell. Plus, research has shown that customers prefer to buy from a single vendor.

Why Bundling Works
Bundling works when customers have an interest in more than one product in a bundle. Bundling is upselling. Customers are upsold because of the additional value. It is through the enticement of this additional value that bundling works to maximize sales revenues. Bundled products need to be relevant — and to be relevant they need to be complimentary to each other. Most importantly, they need to be enticing which can best be accomplished by bundling offerings from various vendors, and offering them at an irresistible price. Bundles can be assembled to satisfy different groups of users. A vendor with an offering in a bundle can then point their customers to that bundle and say “Buy this bundle. It has everything you need.” Bundling works best where product costs are low. Apps and content of all sorts are perfect for bundling because additional products can be offered at marginal incremental costs to vendors and pricing can be very flexible.

How Bundling Works
If a potential customer comes to your SaaS website and they have $100 to spend; you want that $100. What products you need to sell those customers to get that $100 is really irrelevant as long as those products have value to them. From this perspective, and assuming your cost of providing extra products is low, bundling brings you the most profit. Bundling is a proven profit maximizer and that is why it is used as a major marketing strategy across numerous industries. When product costs are marginal, bundling is the marketing strategy that wins the day. Place yourself in the shoes of a vendor who has three SaaS products for sale; A, B, and C. Product A sells for a very reasonable monthly price of $10. For product B the vendor charges $15/month, and C is priced at $20/month. The total retail value is $45/month. They then decide to put them into a bundle and offer all three products for $25. Along comes Joe and Joe is looking to buy product A for $10/month. He would also like product B but is only be willing to pay $10/month for it. Joe might be interested in product C but he is only willing to spend another $10/month. He buys the bundle. Our second customer is Mary who is looking to buy product B for $15/month. She doesn’t need A, but would pay $10/month for C. She buys the bundle. Our third customer is Al who would like all three products but is only willing to spend $5/month on A, $10/month on B, and $10/month on C. He buys the bundle. Our fourth customer is Jen and she is only looking to buy C, but because it only cost $5 more to get both A and B, she is compelled to buy the bundle. All four customers are upsold. And all four customers found value that they will likely want to keep. You see bundling can also increase customer retention. A customer who chose not buy the bundle likely could not have been upsold anyway. Our vendor is now receiving $100/month from selling the four bundles. Without bundling, their sales would have only been $45/month.

Next, let’s look at what would happen if their strategy had been to undercut the competition. To do this they might have lowered their prices on each product by $5. Product A would sell for $5/month, product B for $10/month, and product C would sell for $15/month. What sales would they have made with our four customers? The sales results are here: Joe would buy A and B for a total of $15. Mary would buy only B for $10. Al would buy A and B for $15. Jen would only buy C for $15. By discounting products A, B, and C, their sales would have only been $55/month.

Bundling and Virtual Partnering with Kachingle
The Kachingle Platform allows subscribers to buy bundled apps and content, and allows the vendors to earn revenue every time their apps are used or content is accessed. Kachingle is not an app store — it is a behind-the-scenes player enabling vendors to distribute, bundle in various ways, and off-load billing. A bundle represents a community of vendors. Vendors work together as they would in a co-op. They each bring value to the bundle and they bring in subscribers by offering their customers their Kachingle bundle option. Vendors also receive referral fees for every customer they bring into Kachingle. Cross-marketing, also referred to as co-marketing, is a powerful tool especially when coupled with bundling. Vendors can display a bundle’s offerings prominently, often with other vendor’s offerings that are complimentary to their own, show a bundle as a special offering, or only offer the bundle as a last resort to sell to a tough customer. If a vendor’s app is in a bundle with ten other complementary apps, and each vendor is promoting all the apps in the bundle, then the exposure of each app is over ten times as great. Vendors get greater exposure and potential users discover apps they may not have been able to do otherwise. The Kachingle Platform has two basic types of bundles — point-based and set-based. Point-based bundles allow subscribers to build customized bundles. Subscribers purchase a fixed number of points that are then used to turn apps on and off. For example, 50 points would allow concurrent use of a two 25 point apps. If a subscriber wanted to turn on an additional 10 point app, they could either purchase more points, or simply turn off one of their 25 point apps. Set-based bundles are basically fixed bundles that are pre-built by vendors or by Kachingle. You can try them out at the www.Kachingle.com or read more about Kachingle bundles in the FAQ. Bundles can be structured in a number of ways to best address subscriber offerings and vendor needs. Each type has an owner/manager that manages the bundle and makes revenue-related decisions.

Anchor Bundles – The lead app vendor is the owner of the bundle and can completely manage the bundle with regard to subscription cycles, apps in the bundle, revenue-sharing across participating vendors, etc. Co-op Bundles – This would be used for a group of vendors or providers and is owned and managed by the group. A group could be a trade association as an example. Partnership Bundles – Vendors and providers can partner directly with Kachingle to utilize the Kachingle Platform. Kachingle owns and manages the bundle and works with partners regarding revenue-sharing. White Label Bundles – This is the same as an Anchor bundle with the exception that Kachingle remains anonymous for the most part. This would have application to an existing app store. With the Kachingle platform, vendors, by way of being a Kachingle partner, can virtual partner with any other Kachingle partner. Virtual-partnering sidesteps conventional vendor-to-vendor partnering. Each vendor is free to do what they want inside or outside the Kachingle platform as well. Without virtual-partnering companies making combined offerings would need to agree on pricing, revenue splits, marketing strategies, promotions, and sign contracts with every vendor. This is why bundling is difficult for others. But with Kachingle, vendors can virtually partner with each other using a simple API call.

Summary
Bundling is a proven marketing strategy that can help app vendors and content providers realize new sources of revenues. The highly flexible bundling capabilities in Kachingle combined with its unique virtual partnering functionality takes bundling to a new level by allowing digital goods providers to build bundles around their products that include complementary offerings of other Kachingle partners. With Kachingle’s usage-based revenue sharing and patent-pending micropayment technology, app vendors and content providers have a single platform for discovery, monetization, and billing. To learn more about Kachingle, visit us at http://www.Kachingle.com, or contact Daniel Reid, Director of Business Development at Kachingle. ---------------------------------------------------------

Glossary
Price bundling is a strategy whereby a seller bundles together many different goods/items being sold and offers the entire bundle at a single price. Pure bundling is price bundling where the seller does not offer buyers the option of buying the items separately Mixed bundling is price bundling where the seller offers the items separately at higher individual prices

Multiproduct bundling combines products that satisfy different needs for the consumer, for example, Hasbro Play-Doh bundled with Lucky Charm cereal Cross-Marketing (also referred to as co-marketing) is a partnership of at least two companies with the objective to tap the full potential of a market by bundling specific competences or resources. It is also referred to as marketing alliance, marketing partnership, and co-marketing.

Related Articles and Papers on Bundling
Bundling and Competition on the Internet
This academic paper looks at bundling and its impact on internet software markets. It concludes that with bundling, entrants can dislodge incumbents and even drive them out of business, larger bundles are able to outbid smaller ones, and bundlers may have higher incentives to innovate.

Bundling Information Goods: Pricing, Profits, and Efficiency
Yannis Bakos and Erik Brynjolfsson February 1999 This academic paper concludes that “…by offering a menu of different bundles aimed at each market segment, bundling makes traditional price discrimination strategies more powerful…” , and the authors found that bundling for a multiproduct monopolist in “very large numbers of unrelated information goods can be surprisingly profitable.”

Bundling Interactive Webtour on Pricing. 17. Product mixing pricing strategies. Product bundle pricing.
Artur Shokin Webtour is an overview of every type of pricing — general pricing approach, pricing factors, pricing change and strategies.

Bundling May Blockade Entry
Martin Peitz September 2006 This academic paper considers the bundling of two products by an incumbent as a response to an entrant’s differentiated product. While the gains for the incumbent are small, it is effective in dissuading the entrant not to enter the market, and if the entrant does enter, the entrant’s losses can be great.

Competition Between Firms that Bundle Information Goods
Scott A. Fay and Jeffrey K. MacKie-Mason 1999 This academic paper concludes “Finally, when firms are allowed to sell items both as a bundle and individually, we find that most revenue will be obtained from bundle sales. These results indicate that bundling will persist in a multi-firm setting and suggest that only firms of substantial size will be able to survive in such a market.”

The Dynamic Effects of Bundling as a Product Strategy
Timothy Derdenger and Vineet Kumar December 2011 This academic paper investigates the practice of bundling as a product strategy, and identifies how consumers make choices between products and bundles in the handheld video game market. While consumers in this case were not willing to pay as much for bundles as separate products, the authors found a strong effect that they were likely to purchase games earlier and purchase more games.

Wikipedia — Product Bundling

This encyclopedia entry gives an overview of product bundling and gives examples of how bundling can improve sales to customers with heterogeneous demands.