Problem Statement

From your businesses identify the list of products/services you were selling, and think of various ways
in which you can bundle those to make better sense. To do this, you will have to work harder in
identifying consumer types, their tentative valuations, and how integration makes/doesn't make
sense. Please comment on whether or not it should be pure bundles or mixed bundles. Also, think
about legal ramifications. For folks from PSU, please consider any other industry that you are
comfortable with.

Offerings and background

As part of TC Global Investments Investor Relations (I.R.) Team, we were raising funds pari-pasu from
Indian and southeast Asian investors to be invested in international businesses. Our partners were
respective countries’ Hedge Fund or Asset Managers who would lend to such business usually as
preferred equity or Jr. Debt.

The investment opportunities were usually multi-billion-dollar establishments with high returns.

Clients
The clientele was primarily business houses or UHNI’s exploring business interest in these countries
though had run into various foreign investor hurdles. The Asset Managers Hedge Funds had tie-ups with
such businesses to lend money at lower than respective countries’ prevailing interest rates in return for
businesses were required to abide by and help clients overcome such regulatory hurdles. Once the
minimum germination period was over the clients could stay invested with us in higher return business
or having abode by the regulations could independently invest in the country as majority stakeholders 1.

Fees

1. Investment Amount – The investment amount per investor varied from $.5 Million to $10
Million. Usually, it was similar across the industries and this was not a differentiating factor for
us or our competitors. For simplicity of analysis in the document, an average ticket size of $5
million has been taken.
2. Admin/Success Fee – The success fee was paid once the client and business had been satisfied
with commercial, legal due, etc. diligence reports. The industry average was between $50k to
$200k depending upon the ticket size of investment and business alliance. Our fee on $5 million
ticket size and corresponding willingness to pay are outlined below.
3. Legal Fees – Since these were cross border transactions, a thorough background check on the
source of funds and legal check on clients’ companies and promoters was mandatory. We
outsourced these services to a law firm with a presence in the home country and India. The
industry average was $20k to $100k depending upon the same factors as the admin fee. We had
requested a fixed amount based on an average number of hours the law firm would invest on a
case and any premium depending upon the complexity of the transaction.
Even though independent the law firm services were part of our bundle.
4. Due Diligence (DD) – Since the investment opportunities were billion-dollar enterprises, outside
the expertise of the majority of clients, and based in another country, these services were
critical in winning a client's confidence. To avoid a conflict of interest these services were also
outsourced. Since clients could not conduct due diligence on their own due to geography and
time constraints, clients would rely on such reports.

1
Without meeting the regulations for a minimum time period, clients couldn’t invest as majority stakeholders or
withdraw funds from businesses without a local partner’s permission.
 These services were also outsourced to two different companies, DDA and DDB. Both the firms
were on retainer and generated/updated quarterly reports for the clients based on progress and
changes in the business environment. Additionally, both the DD firms were very well recognized
in India and business country. DDA usually projected more conservatively and appealed to more
risk-averse clients while DDB was more realistic in its valuation. The MC per client to the
company was almost zero and the retainer was almost the same. Depending upon a client’s risk
profile either report was shared, and more risk-averse clients were charged a premium. These
were also offered as part of the bundle.
5. Marginal Cost to TC Global – Marginal Cost per client could be assumed to be zero as almost
90% of the IR team's cost was in financial services and business development teams’ salaries,
travel, etc.

Consumer Type and Segmentation –

The type of consumer we encountered are outlined below

Consumer Type Traits WTP Elasticity

Most sophisticated but rarest of clients, Very High Highly price inelastic
value time above everything, and want but highly time-
Bankers to run the transaction with sensitive
minimal involvement themselves and
willing to pay a high premium for it
Consumer Type 1
Sophisticated clients but not time- Very High Highly price inelastic
sensitive. Appreciate the risk that goes
with any investment but wants bankers to
carry the burden with minimal
involvement themselves.
Consumer Type 2
Straightforward clients but risk-averse. Moderate to More price-sensitive
Don’t want to pay a premium on the High than 1&2 but less
offerings but willing to pay a premium on than 3&4
Consumer Type 3 risk-aversion.
Clients with past or current issues with the Low for Highly elastic for
financial system, the legal system (Legal Admin/Succes admin/success fee but
would mean wrt outstanding cases against s and Due highly inelastic for
the business)2 diligence fee. legal fee
They are open to paying a premium for Very high for
legal and related services but still bargain legal fee
hunters w.r.t admin fee.
Consumer Type 4
Bargain hunters for success/admin fee, no Low for Highly elastic for
outstanding legal issues but highly risk- Admin/Succes admin and legal fee
averse s and legal fee. but inelastic for due
Very high for diligence
due diligence
Consumer Type 5 fee

2
Legal issues would mean not guilty verdict in court of law, or outstanding issues in consumer court,
environmental cases etc.. Clients with offenses of moral turpitude were refused our offerings after preliminary
legal review of documents
Consumer valuation by segments
Almost 95% of the clients preferred to go with the bundle. As part of maximizing revenues IR Team also
encouraged clients to subscribe to all three services from us. The remaining 5% have been excluded
from the analysis. The approximate WTP for each client segment and the number of clients (as a
percent) in each segment is outlined below.

Client
 WTP for each service # Success Fee Legal Fee Due Diligence Fee Sum

Potential Fee NA 100,000 30,000 10,000 140,000

Consumer Type 1 1 110,000 30,000 5,000 145,000

Consumer Type 2 1 100,000 30,000 10,000 140,000

Consumer Type 3 2 85,000 20,000 30,000 135,000

Consumer Type 4 2 75,000 50,000 5,000 130,000

Consumer Type 5 4 80,000 20,000 30,000 130,000

Based on empirical data client-wise and service-wise valuation was broadly defined and after almost a
year or two the above fees were offered the asset manager and IR team arrived at the above numbers
and offered a bundle based on calculations outlined in the analysis section. The maximum potential
revenue based on perfect discrimination for 10 clients is $1.35 million.

Furthermore, for risk-averse consumers, only DDA numbers were shared and with others, DDB or
average of the two reports were shared.
 Analysis
# of Potential
Price Clients Revenue/Profit Total Surplus CS Revenue Lost DWL

145,000 1 145,000 1,335,000 - 1,190,000 1,190,000

140,000 2 280,000 1,335,000 5,000 1,055,000 1,050,000

135,000 4 540,000 1,335,000 15,000 795,000 780,000

130,000 10 1,300,000 1,335,000 35,000 35,000 -

As evident TC Global’s revenue was maximized when a price bundle of $130k was offered with zero DWL
and CS was maximized. Given that MC per client is 0. The idea was to maximize profits.

Conclusion
Based on analysis it appears that TC Global was practicing pure bundling.