‘Decoupling’ Adds Value to Consumer While Cutting Cost

Clever companies have found a way to add value to the products and services consumers want and need by separating them from those they don’t. The trend is called “decoupling” and Michael Blanding explains it in a Harvard Business Scholl Working Knowledge article in the February 2, 2015 issue.

The article reports on the work of Thales S. Teixeira, Harvard Business School assistant professor of marketing.  Decoupling is a far more sophisticated advancement from unbundling, according to Teixeira.

Unbundling has been developing over the past two decades and has created an upheaval in certain consumer industries. Teixeira uses as examples: newspapers losing out to Google and Craigslist for employment advertising; record companies losing out to iTunes and Spotify and travel agents losing out to Expedia and Hotels.com.

“Despite this upheaval,” writes Blanding. “some businesses were immune to the digital onslaught—companies whose products and services couldn’t be easily turned into 1’s and 0’s and put online. A television set can’t be digitized. A telephone can’t be digitized. So those companies seemed to be safe.”

Teixeira describes “decoupling” as a second wave of Internet disruption.   This new phenomenon “threatens not only electronics and telecom businesses, but also industries as diverse as banking services and cosmetics,” writes Blanding.

“Decoupling” takes “unbundling” to the next level, according to Teixeira who explains that watching TV involved viewing both programming and commercials, but when TiVo came along people could watch the programming and fast-forward through the commercials.  Another early disrupter, according to Teixeira was Skype.  People could take advantage of existing Wifi networks without having to purchase extra minutes from their cellular providers.

“The user benefits from lower cost, lower effort or saved time,” writes Blanding.  He takes the concept into fashion by showing that one can “rent the runway” instead of purchasing the ultra-expensive designer fashions.

Another decoupler that jeopardizes the traditional brick-and-mortar retailer is “PriceGrabber.”  Traditional consumer electronics retailers depend on customers to come into the store and experience the products, according to Blanding.  “But the PriceGrabber app and those from plenty of other competitors allow customers to find cheaper products online — even as they stand in the store” writes Blanding.  He points that various shopping apps decouples the traditional store function of testing and trying with the non-value portion — buying.

The fundamental difference between unbundling and decoupling is that unbundling can occur anywhere through the buying chain that begins with evaluating and ends with consumer with the steps of choosing and purchase in-between.  Decouple only takes place at the end of the chain – the consuming phase.

Teixeira sees banking as an industry that ripe for decoupling. Blanding points out that traditionally banking is based on essentially the loss-leader products of savings and checking to get customers in the door only to make the major profits on the loan products like home mortgages.  “Already, entrepreneurial competitors are pecking around the margins of banking,” Blanding writes. “Paypal offers essentially the equivalent of an on-line checking account, and other companies are getting into the action.”

Teixeira does believe there is a limit to decoupling.  “Some products like electronics you don’t mind waiting a few days for Amazon to deliver – others like fresh groceries you need right now,” he says.  “It’s unlikely people will ever decouple show rooming from buying milk online.”