The Urge To Unbundle

From music to PR, consumers are increasingly demanding products and services a la carte.

When Courtney Lynch and Angie Morgan launched their leadership consulting firm Lead Star last summer, they knew exactly what they wanted from a public-relations firm: national media exposure. But prospective PR firms quoted monthly retainer fees of up to $15,000 for a broad package of services -- and none would guarantee results.

Then Lynch and Morgan found PayPerClip. The newly launched division of a traditional public- relations firm, PayPerClip bases its fees on very specific results -- $750, for example, for a mention in a small-market newspaper. PayPerClip promptly landed Lead Star appearances on CNBC and CNNfn. The tab: $8,000.

Welcome to the Itemized Economy, where everything has its price. In more and more industries, customers are demanding (and getting) the opportunity to buy exactly what they want and nothing more. For this, thank the Internet, which has made us all better shoppers. And thank the Wal-Mart phenomenon: These days, we're all cheapskates in search of a spend-less strategy.

The most telling example of unbundled, results-based pricing, of course, is the pay-per-click advertising industry. Rather than buying an estimated audience, customers of Google and Yahoo's Overture Services pay only for surfers who actually respond to their ads. In 2001, before Google embraced pay-per-click pricing, it had $86 million in revenue; in the 12 months ending September 30, sales hit $2.7 billion. (PayPerClip, which won't discuss revenues, went from 65 client placements in August to 161 in November.)

But a la carte pricing is creeping into all sorts of everyday transactions that traditionally have bundled stuff together. We've now seen the music, brokerage, and real-estate businesses flirt with -- or submit to -- itemization. Get your 99-cent U2 download here! Your $5 stock trade! Your $299 open house!

Now mutual funds, too, are questioning whether they should be paying for research and other services through so-called soft dollar commissions; law firms are breaking out charges for partners and associates on their bills. Lawmakers ask cable operators why viewers can't just subscribe to their favorite channels rather than an 70-channel package.

"[Knowledgeable buyers] will search for sellers who allow them the option of picking and choosing."

Expect more of the same -- in part because technology is forcing it. Comparison shopping once meant driving around to check stores' selection and pricing. Now buyers on the Internet can mix, match, and price with a few mouse clicks. Inexperienced customers may appreciate the convenience of a package, says University of Mississippi economics professor William Shughart. But knowledgeable purchasers, he says, "will reject bundles that are not the right mix from their point of view. And they will search for other sellers who allow them the option of picking and choosing."

At the same time, the rise of digitized content -- plus developments such as online self-service -- makes it easier for sellers to atomize previously linked goods. "Any product that can be digitized lends itself to being taken apart," says Manjit Yadav, associate professor of marketing at Texas A&M University's Mays Business School. Instead of buying a year's subscription to The New York Times for $481, or even one issue, you can purchase a single article from the online archives for $2.95.

What's a marketer to do? First, don't see the trend as an attack on your established market but as an opportunity to create a new one. Until 2002, employers who wanted to sift through resumes at Monster.com had to pay a reported $10,000 for a one-year license to the entire site. Then Monster began offering geographically targeted access with three- and six-month licenses.

"We realized that some companies only hired locally, and therefore the whole national database wasn't necessarily relevant to them," says Troy Hatlevig, Monster's vice president for employer products. The shift, observes Brad Bray, director of consulting services at Strategic Pricing Group, opened up the low-end market without hurting Monster's ability to extract full value for its all-access product. " 'One size fits all' is a major marketing problem for a lot of technology and software companies," Bray says.

What's more, the same digitization employed to disassemble CDs and newspapers, says Yadav, can be applied to reassemble the components into new products of higher value. That presents an intriguing challenge: "How can we creatively put together different songs, from different albums, in a different context, to create a more satisfying musical experience for consumers?" he asks. Starbucks, for one, is trying to answer that question with its launch last fall of "media bars," which enable customers to burn custom CDs while sipping Sumatra.

It's an enormous opportunity. But whatever happens, itemizing won't kill off the bundle completely. Though America Online's subscriber base is declining, it still has more than 20 million members paying full fare for a package of online access, content, customer service, and email accounts they may or may not use. For customers who don't know enough to make a choice, the package is just easier. And for many who do, the right bundle can still be a good deal. Courtney Lynch says Lead Star will soon be looking for a full-service PR firm it can put on retainer. "If you look at PayPerClip," she says, "it eventually gets expensive."

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