You gotta love the progression of the communications bundle. After a decade of getting into each others’ businesses, the cable companies and telecoms operators are thinking long and hard about their bundles. Brian Stelter at the New York Times has written an interesting piece about how internet service providers are starting to look at the meaning of “unlimited” internet access. Evidently, many large ISPs are thinking twice about the levels of bandwidth and traffic that they’re honestly willing to provide for a fixed rate. And Brian hits the nail on the head by talking about online media consumption. In the world of flat-rate internet access, iTunes, Netflix and Hulu are free riders.

Last week, I was listening to the radio and heard a nearly identical story about airline travel. The editor for that piece took the angle that airlines are nickel-and-diming the flying public by charging for baggage, seat upgrades and so on and so forth. Because now that the load factor for major airlines is over 80%, those seats are filled with people who buy their tickets based solely on price. And with rising fuel costs, airlines are looking to the amount of weight they’re carrying around, and those 90 lb suitcases are coming to mind as a way to cut costs…or at least grow revenues.

As a marketer, I see this very differently. This is just the natural evolution of a marketplace bundle sold around a single value proposition — price. Managing the value proposition

You see, the thing about selling a bundle is that you have to work to continuously define the value of that bundle in both of two ways: first by articulating the value of the bundle (a promise) to your customers, and second by delivering on that promise each and every day.

So you can sell the product bundle, but if the customer doesn’t perceive the value, then you won’t have that customer for very long.

When the value is…well value, then you’re selling on price or price/performance. And there’s only one place to go, and that’s to a lower price. Which means in many cases a lower nominal price.

Charles Fishman’s book, The Wal-Mart Effect investigates the impact of price-as-value-proposition on a large scale in our economy. He writes of how an adherence to this value proposition changes the nature of major consumer brands. He even talks about companies that have chosen not to sell through Wal-Mart because they wanted to manage their value proposition differently.

More for less

But the airline and communication industries are a little different, because the companies that sell the services are also the ones tasked with delivering those very services. So there are fewer options when profits get slimmer. And this applies to Southwest, Jet Blue, cable television and even the triple play.

And “more for less” can only go so far past the point where the price of Jet A has been hedged. Maybe Southwest can keep their fares lower than their competitors, but how many Southwests can there be? And can everyone sell the bundle of more for less?

Welcome to the bottom

This is what the bottom looks like. No money. Slim margins. A generation of customers who care only about how much something costs…and with little brand loyalty.

On the bottom, branding becomes difficult. Differentiation remains a challenge. And the biggest measure becomes price.

So much for innovation. Customers don’t want value, they want a price. In their world, price and value are the same, at least until their connecting flight gets cancelled due to weather, and they find themselves sleeping on the floor in the Denver airport. Then they want a different bundle. We could remind them that such a bundle once existed in the immortal “Y” full-fare coach class ticket. Remember those fully-refundable tickets that you could change at a moment’s notice? And if your connecting flight was cancelled, the airline would put you up in a hotel.

Of course, those days have gone the way of long distance telephone bills that racked up at a rate of 25¢ a minute, rounded up to the nearest minute. It was Nextel that marketed around six-second billing and that was just another way to slice things in the consumer’s favor.

And we committed to the bottom for internet access all the way back in ‘96 when some brilliant internet visionary (who is probably sitting on an island talking on a satellite phone today) pegged the idea of dial-up internet access for $19.95 a month. It sounded good on paper, though subscriber acquisition was approximately $300, and churn was averaging 14 months. Do the math, and you’ll see why that one didn’t work.

Communications bundles used to make sense

Back when communications services were complicated and difficult to explain, bundling made a lot of sense. Remember when you had to order caller ID? call waiting? three-way calling? Those were services that the telephone companies had to sell and explain separately. Throw in local, long distance and voice mail, and you’ve got a clear value proposition.

Of course, that value proposition lasted for only so long. Once we started to forget about writing all those checks, that’s when price became a key component of the value proposition. You can thank long distance for this, but mobile telephony took the baton readily.

The un-bundle

Once marketers have gone down the price path, there is a way to recover revenues. I call this “Bundling 2.0.” Or more appropriately, the un-bundle, which is a way to put the bundle in its place and to start charging for the premium services that customers demand.

Want that first class seat? Why not pay for it? How about an auction for an aisle seat, more bandwidth or better video downloads?

The point is that the bundle is now the price of entry. We buy the bundle because it’s cost-effective. And companies sell us bundles, because it makes us “sticky” and more difficult to churn. But what we all need is a way to build the services we truly want.

Sure, I like the triple play as much as my next-door neighbor. But what if I want to watch video online? Is that a new bundle? Or an add-on feature to what I’m already buying?

In the past, we sold services a la carte and aspired to the ability to sell a portfolio of services to our customers. The banker wanted to sell checking, savings, credit cards, home loans, retirement accounts and so on and so forth. The communications company packaged up local and long distance telephone, internet access, and pay television services into the triple play. And then came the idea of making the bundle more cost-effective.

Today, the future of the bundle is in à la carte pricing.

Perhaps a few years from now, we’ll look back at these bundles in the same way that we view shag carpets and waterbeds. Those of us who were around for those things remember them for what they were. We’ll stay away from them. And then a new generation will emerge, and they’ll think that those very things are interesting and campy in a way that others simply cannot.

What I find uncertain is whether this is a one-time deal or if we’ll revisit Bundling 3.0 at some point in the future. Whatever the case, I hope that someone like Charles Fishman takes the time to investigate this core marketing question and how it managed to impact so many industries at the same time.