Unbundling

Unbundling term is the practice of separating and selling one’s previously joined products or services. This practice is mostly seen as a response to the imposition of deregulation policies, which gave rise to price competition in the Market followed by the introduction of new products. Besides, financial institutions started realizing the need for pricing each product separately.

Unbundling is also used to describe a “demerger” or, more precisely, a conglomerate company that sells a certain number of its business divisions. The process also involves Offering products/services separately that the business previously used to sell together.

Causes and Benefits

A company may practice unbundling due to a variety of reasons. However, the main goal is to create a better performing business. It enables companies to focus on fewer, more optimized, and efficient lines of business.

Unbundling allows companies to focus on their core business areas. It might also happen when a company acquires another business having multiple product lines to grow more efficiently. Alternatively, a purchasing company may even choose to sell off the several arms of the acquired company. It’s either because they are no longer required or because the purchasing company isn’t interested in those acquired divisions, product lines, or subsidiaries anymore.

The practice of unbundling might also occur if a business finds that it needs to make more cost-effective or cost-cutting strategies, and therefore, decides to split or sell off the unwanted or non-essential sections of the company. It lets the company optimize its main operations better.

shareholders, too, can ask for an unbundling, especially when a publicly-traded enterprise has certain underperforming stocks. It helps to strengthen the business and hence, its stocks.

If the firm’s share price is not performing well, its board of directors may decide to go for an unbundling. This way, they can raise their Capital or even distribute the cash to the company’s shareholders. Because many business owners believe that this process will improve the company’s performance.

In short, unbundling enables businesses to improve their operations by focusing only on the core.

Product unbundling can be beneficial for businesses willing to expand for their target market. In other words, a company may choose to unbundle its products to cater to the specific needs and preferences of its consumers.

This may, in turn, boost its sales and revenue, since the company is able to offer its customers more. Besides, unbundling can give the buyers more choices by providing multiple offerings, each meeting their unique needs.

How Unbundling Works?

The board of directors or the company managers can decide to “unbundle”, if the company’s stock is underperforming, and if the management believes that unbundling can raise their capital and enhance its performance. Unbundling can also improve the stock price of the company.

Additionally, the process might occur when a company purchases another company for one of its specific aspects or valuable divisions, but soon the purchasing company feels that the other aspects of the acquired business are of little to no use to them.

In another type of unbundling, a company might have split its operations or sold off its several business lines. However, it still does retain its control over each of those business areas. In this case, the newly-formed businesses generally get a better opportunity for growth and success in the future.

A good example of product unbundling can be cellphones, which are no longer packaged together with various cellphone plans.