Wednesday, September 17, 2008

Is Unbundling The Opposite of Bundling?

As we saw before, bundling is selling two or more products together. Is Unbundling the opposite of bundling?

Unbundling is not just undoing the bundling effect. It is deliberately separating product and service components that used to be treated and charged as part of the monolith.

For example, take the case of product warranties. Almost any product we buy come with 1-2 year warranties. It is taken for granted by all consumers. Manufacturers account for it in their balance sheet with deferred liability based on their model for warranty expenses. The stores usually sell additional service plan, for an additional fee,that extends the warranty period. This is optional but many retailers end up making considerable profit from these sales. Suppose the manufacturers decided to do away with automatic warranties and decided to sell a 3-year service plan, that is unbundling.

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