Why bundling made sense?

As part of the TC Global Investments Investor Relations (IR) team, I was involved in pari-passu fund-raise
for real estate project overseas. The services that were being offered were as follows:

 IR team – conducting financial analysis and overseeing the transaction from business
development to remittance. We charged a success fee once the funds were remitted.
 Legal Team – conducting a thorough background check on the source of funds and the clients’
companies and promoters. We outsourced these services to a law firm with a presence in the
home country and India.
 Due Diligence (DD) – The investment opportunities were billion-dollar enterprises, outside the
expertise of most clients. These services were also outsourced to two different companies, DDA
and DDB1.
o DDA usually projected more conservatively and appealed to more risk-averse clients
o DDB was more realistic in its valuation

The type of consumer segments and their willingness to pay (WTP) and client type proportion is outlined
in the tables 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.
Consumer Type 4 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.
1
The to us was 0 as both the firms were on retainer and had to generate quarterly reports based on project
progress and any changes in business environment. The clients were not aware of this.
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
 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

Why Bundling?

A first-degree price discrimination could not be followed despite assessing a potential WTP for each
category as information exchange and communication between clients was unmonitored and free. Any
leak of differential pricing would lead to loss of credibility for the firm in a highly competitive
environment.

WTP Each Category

 WTP for each service Client # 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
Additionally, if the services were not offered as a bundle then the total potential revenue would be 3:
Success Fee Clients Revenue
110,000 1 110,000
100,000 2 200,000
85,000 4 340,000
80,000 8 640,000
75,000 10 750,000

Legal Fee Clients Revenue

50,000 2 100,000
30,000 4 120,000
20,000 10 200,000

Due Dilligene Fee Clients Revenue

30,000 6 180,000
10,000 7 70,000
5,000 10 50,000

Total Revenue 1,130,000

With Bundling:
Price # of Clients Revenue/Profit Total Surplus CS Potential 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 -

Thus, bundling of services was a more efficient strategy due to the reasons outlined above and a
revenue increase of 15%.

2) P<AVC

I was representing a well-renowned Middle Eastern real estate and infrastructure developer, seeking a
footprint in India. Boosted by Pradhan Mantri Awas Yojna (PMAY) or affordable housing for all by March
20224, the firm decided to start a fund of INR 2,000 Cr. 5 by inviting Indian developers, with a proven
track record and high credit rating, to invest and collaborate. The plan was to allocate 15%-20% (300-
400 Cr.) of the total corpus towards affordable housing in the 1 st phase and remaining later towards
infrastructure development and small to mid-segment commercial real estate.

3
Assuming MC is negligible for upto 500 clients
4
https://www.businesstoday.in/current/economy-politics/housing-for-all-scheme-gets-govt-nod-all-you-need-to-
know/story/220739.html
5
All figures in the document for revenue, expenses etc. have been scaled to protect the financials of the clients