Option bundling offers a particularly powerful way to keep policies simple. Let’s look back at the airline industry. In addition to pricing differences, the airlines offer a host of different services to customers paying premium prices. Not just different seats, but different check-in lines, plush lounge areas, advance boarding, and, of course, different food service on board. Clearly some customers might pay more for early boarding — but unbundling the range of options would create too much complexity and probably disrupt operational execution.
As customers develop a clear understanding of the options, more complexity can be added to further differentiate customer segments, offering more value by better matching specific needs. The best companies keep a forward eye on changing economics and customer value perceptions to anticipate these trends in each new evolution of their programs.
How to Begin
The variety of examples cited highlights the power and far-reaching applicability of Differentiated Service Policies. And the five principles offer experience-based guidance to developing appropriate policies and evolving them over time. But with such a broadly applicable tool, where does a company begin? The answer lies in our original observation that marketing and operations seem always in conflict. Look at those conflicts — which often emanate from debates that have gone on for multiple years — and consider how Differentiated Service Policies might offer a compromise that meets the needs of both disciplines. In the process, you might create an industry-changing model that better addresses customer value based on an appropriate economic understanding.
Reprint No. 02102
Also contributing to this article was Booz Allen Hamilton Senior Associate James Kaboski [email protected].
Tim Laseter, [email protected], serves on the operations faculty at the Darden Graduate School of Business at the University of Virginia. Previously he was a a vice president with Booz Allen Hamilton in McLean, Va. Mr/ Laseter has 15 years of experience in building organizational capabilities in sourcing, supply chain management, and operations strategy in a variety of industries.
Alex Kandybin, [email protected]
Alex Kandybin is a principal with Booz Allen Hamilton in New York. He concentrates on operations and innovation strategy in the consumer products and health-care industries.
Pat Houston, [email protected]
Pat Houston, a Booz Allen Hamilton principal based in New York, focuses on driving organizational performance improvement through strategic and operational transformation.