What Is Bundle Pricing?
Bundle pricing entails retailers selling a set of products for a lower price than each of these products separately. Classical examples are a McDonald’s meal, which usually includes the inseparable mix of fries, a coke, and a hamburger, and Microsoft Office, offering a set of features with most customers using a small fraction, but paying for all of them.
Such an approach has both benefits and drawbacks.
Advantages
Customers like purchasing products in groups, as it usually ads value to their buying experience, as they:
- enjoy the versatility in a single act of purchase;
- are grateful cost and time savings;
- avoid frustration while choosing complimentary products.
Retailers use bundle pricing, as it allows:
- applying competitive pricing to a group of products and outselling competitors;
- intensifying sales;
- increasing cost efficiency;
- fueling revenue;
- testing new marketing channels.
Disadvantages
- Customers do not always need all the products in a bundle while paying for all of them.
- It is difficult for retailers to remain transparent in their pricing decisions for bundled products and find a balance between their and customers’ total value for the items.
How to Benefit from Bundle Pricing
1. Knowing the Audience
To build a winning pricing strategy for bundled products, businesses need to couple their up-to-date data about the market with the data about customers.
As the first step, retailers need to know their audience, taking into account that different categories of customers, which include but are not limited to:
- are constantly looking for deals;
- need advice on what to buy;
- value convenience and quality the most.
Once the categories are clear, businesses should answer the following questions about their buyers:
- Which products do they usually buy simultaneously?
- How much do they spend?
- Which products could encourage them to venture upon spending more?
- What budget-friendly products might be included in packages to give them added value?
To understand the market, retailers are required to collect and process data about the following aspects:
- estimated demand and marginal cost;
- pricing feasibility;
- competing offers and pricing;
- supply chain scheme;
- product liability risks.
Armed with all of these data and insights, businesses can draw a bundle draft reflecting their target audience and business goals. Before crafting the final version of the strategy, retailers need to test a variety of bundling approaches to ensure they use the best one every time in every case.
Another approach to determining what customers seek to buy is surveying them. This will contribute to the knowledge of the target audience and make the offer more beneficial for both the retailer and the buyers.
2. Offering Discounts
Every bundle does not require a big discount. However, retailers need to justify buying two or three products instead of one for customers, who should be able to consider the retailer’s offer a good bargain. Otherwise, there is a risk of buyers either purchasing only one of the products or even nothing.
Thus, it is necessary to make the benefit of the bundled offer obvious to the consumers.
To track competitors’ discounts and special offers, retailers can use Competera’s price and promotion monitoring software.
3. Pure Bundling
There are products which perform better when sold in bundles, as opposed to those which are better sold individually. It is important to group such products wisely and ensure that customers do not see bundling as a limitation to their freedom of choice.
There are several pure bundling (when it is not possible to buy products separately) subcategories which retailers use to sell products in sets:
- joint bundling – two products are sold together at one price;
- leader bundling – a core product is sold at a discount while supplemented with a complimentary product;
- mixed-leader bundling – a leader product can still be purchased on its own (but not extras).
4. Mixed Bundling
Harvard Business School researchers have established a correlation between the demand for bundles and the opportunity to buy each product separately: consumers want to feel they make the choice by themselves.
Deprived from the freedom of choice, buyers tend to develop a so-called “negative synergy” which works against the bundle and retailer. This causes a decrease in revenue.
Thus, retailers need to be cautious when choosing between pure (it is impossible to buy products separately) and mixed (it is possible to buy products separately and in bundles) bundling. The latter approach allows customers to be more creative and freer in their choices.
On a separate note, it is also extremely important for retailers to ensure their offer is clear. Clarity makes bundling an effective tool.
Psychological Pricing
In the multi-mission pursuit of customer’s needs and sales goals, businesses need to recognize the psychological aspect of product bundling pricing strategies.
Bundling less popular and best-selling products may be a beneficial strategy for both retailers and buyers, as long as the offer is appealing and factors in the needs of customers. Satisfied shoppers are ready to buy more and, thus, increase the retailer’s revenue.
Conclusions
To succeed in bundle pricing, retailers need to receive fresh and accurate data about their target audience and the market. There is a variety of bundling techniques which they can apply, including pure and mixed bundling, offering discounts and mixing more and less popular products.
However, businesses need to be cautious when selling in bundles, since they are required to ensure that customers have the freedom of choice. Otherwise, they would deter buyers and lose revenue.
Bundle pricing is an extremely beneficial way of selling products for both customers and retailers. It allows buyers to save time when shopping and retailers to increase revenue and reach their KPIs depending on their business goals.
FAQ
Bundle discount is a price discount offered to customers in case they buy to or more of particular products in group.
Customers like purchasing products bundled in groups, as it usually adds value to their buying experience, as they can enjoy the versatility in a single act of purchase and avoid frustration while choosing complementary products. For retailers, bundle pricing allows applying competitive pricing to a group of products so they can outsell competitors and increase cost-efficiency.
