Content area
Full Text
INTRODUCTION
Owing to their tough competitive environment (growing customer expectations, increasing market transparency, increasing price competition, etc), many industries are under great pressure to develop innovative solutions to maintain or grow margins and market share. In the financial service industry, price bundling plays an increasingly important role. Many banks are learning from the success stories of companies in other industries (eg telecoms, software, automotive). A renowned case is Microsoft. By smartly combining its application software into the 'Office' bundle, Microsoft extended the quasi-monopoly of Word to Excel, Access and PowerPoint. The 'Office' bundle represents the standard in the application software market and has a share of over 80 per cent. In a similar way, Microsoft has tried to monopolise the web-browser market: In mid-1996, its Internet Explorer had a market share of 7 per cent, while Netscape's Navigator had over 80 per cent. By bundling the Explorer with its operating system Windows, Microsoft's share rose to 38 per cent and Netscape's lead in the browser market had dropped to 58 per cent by early 1997. Nowadays, Microsoft dominates the web-browser market with a market share of more than 90 per cent.
Bundling is not always as successful as it was for Microsoft and many banks are not fully exploiting the opportunities bundling brings because they lack a systematic approach to developing customised bundles for selected segments in retail, private and commercial banking. The objective of this paper is to introduce such an approach, which helps identify optimal bundles from the many options available so that they achieve higher success rates in the market.
PRICE BUNDLING IN BANKING
Many banks already offer bundles, especially in the retail business. They usually combine a core product such as a current account with additional products such as credit cards and ARP reduction on personal loans. Even a current account in its basic form can be regarded as a bundle of various products and services such as account-keeping, online banking, usage of cash machines (ATMs), provision of overdraft facilities, standing orders and bank transfers.
As the core products in the banking sector are homogenous, supplementary services are levers for differentiation against competitors. For example, Barclaycard Platinum offers supplementary benefits such as an identity protection service, fraud protection, online account...