A hamburger combo at the local fast-food joint. An internet-phone-cable bundle from a telecommunications company. An all-in-one computer package from an electronics depot. Whatever the sector, and whatever the product, bundle pricing is one of the most prevalent types of pricing – and most customers love it.
But is it too good to be true? Is it an excellent method for generating more revenues, or are there better, more proven pricing strategies that you can adopt before the next quarter? To answer these questions, we have compiled a breakdown of the various advantages and disadvantages of a bundle pricing strategy, and whether it is suitable for your organisation.
What Is Bundle Pricing?
Bundle pricing is a proven pricing strategy that involves putting together two or more products, and offering them for sale in one combined package. Customers like it because they can purchase the items in the bundle at a reduced cost than if they had bought them separately, while for you – the business owner – it is a great way to attract more customers, sell less popular goods or services, and create brand loyalty.
Generally, there are five types of bundle pricing that a company can adopt, as seen below:
Pure Bundling: Pure bundling happens when products are only sold together. In other words, customers cannot purchase some of the items in the bundle individually, and must buy the whole thing. This is a great tactic when you have a highly popular product, but you also want to offload some of your less attractive products, too.
Joint Bundling: A joint bundle is when two products are offered to customers for one bundled price.
Leader Bundling: A leader bundle is when a leader product (a popular item or service) is sold for a discount when bought with a non-leader product.
Mixed-Leader Bundling: A mixed-leader bundle is a variation of leader bundling, but with the caveat that it is possible to acquire the leader product by itself.
Mixed Bundling: A mixed bundle is when shoppers are encouraged to buy either a bundle or separate products on their own. The most common example of this is in telecommunications, where customers can order a package complete with cable, telephone and internet. The price may vary on the level of service of each package, but they can also select high-speed internet and additional channels, which would be more expensive than requesting a package with low-speed internet and basic channels.
The Advantages and Disadvantages of Bundle Pricing
As you might guess, bundle pricing is a highly effective and useful pricing tool, but it is extremely rare that every product a company sells is priced in this way.
Here are some of the key pros and cons of this approach:
Pro: Lower Marketing and Selling Costs
In the post-COVID world, businesses – large and small – are tightening their belt, and bundling is a good way to do this. Why? By bundling two or more products, you do not need to market single items in your inventory. Your marketing expenses can go to a package of goods that can help rein in your outlays.
Moreover, selling products can be expensive for businesses. For instance, the cost of goods sold might involve promotional materials, shipping, affiliate commissions, total per-product cost and so on. Bundling your products can save on a lot of these expenses, especially in the short term.
Pro: Subsidised Long-Tail Product Development
One of the biggest advantages of bundle pricing is that basic users are the ones subsidising the long-tail product development. Indeed, most customers might only utilise a small number of your goods or services, but these individuals are allowing you to cater to the most dedicated and advanced users.
Pro: Personalised Pricing
Studies have routinely identified that customers appreciate personalised experiences, whether it is pricing or marketing. Indeed, research in 2013 by Harvard professor Vineet Kumar found that shoppers are more likely to frequent a store or spend more if the company tailors its business to the customer.
Therefore, the potential for appealing to customers by bundling select items is obvious. This requires additional market research and classification of your customers into two more groups; the first category might involve clients who are more focused on price, while the second class may consist of customers who value dynamism. Either way, bundle pricing is a great way to exploit this rising consumer trend.
Pro: Simplification of Output
From tax filings to form completions to shipping headaches, it requires a lot of work to either produce goods and services or to execute a transaction. But if you can simplify your output in half by bundling, then you can save a lot of time and money, which are resources that could be put to better use.
Pro: Reduced Pricing Disputes
A chief benefit of bundle pricing is that you eliminate pricing disputes with customers, reducing customer service resources and avoiding bad publicity on social media. If the client is aware of all the things in the package and the final cost, there can be little room for anger.
Pro: Speed Transaction Process
Many people do not realise how much time it can take to execute a transaction for one product. This is as true for something as simple as a cheeseburger as it is for something more intricate, such as satellite television. By bundling your products or services, you can speed up the overall execution process. Instead of wasting time on a single good or service – and then doing it over again – you can allow the business-customer relationship to speed up by bundling.
Con: It Affects More Popular Products
If bundle pricing is not done correctly and you fail to understand how well your merchandise is being sold, you could potentially lose out on profit. Say, for instance, that you sell a smartphone and a tablet either together or separately. If more tablets are being sold through the bundle than by themselves, then your bottom line will be significantly affected for that particular product.
Con: Barriers to Entry
A barrier to entry is one of the worst business practises you could possibly employ, as it diminishes the chances of striking a sale. Despite all of its advantages, a bundle pricing strategy can sometimes do just that. This is because consumers may not want all the other items in your package, so they may reject the bundle and look elsewhere for whatever it is they want.
Balance is critical in this context. On the one hand, bundles are a highly effective component of promotions and sales. On the other, though, you cannot make your bundles too restricted and constrained.
While it is your job to highlight the value of all the components in the bundle, you cannot force a corporate mandate: if the customer wants just one of the four items in your package, then give it to them.
Con: Customers May Decline the Package
If someone walks into your store for a laptop, but they also leave with a printer, then this is good, right? Not always. Many customers dislike this idea because they have a mission of acquiring a particular product and do not want to be burdened with extras, even if they are getting them at a discounted rate. If something is not sold separately, many of your patrons may feel pressured into buying more, which can turn them off before they've even set foot in your store.
Whether you are an automobile dealer or a small restaurant, the benefits of bundle pricing arguably outweigh the drawbacks. Grouping whatever it is your company specialises in can be as beneficial to your bottom line as cost-plus pricing and value-based pricing.
Indeed, it is often described as a retailers' secret weapon, and if the data indicates that there is tremendous success to be had with this method, then perhaps it is a good idea to start bundling your goods and services. The key, as with many things, is to incorporate such a strategy in moderation, and remain flexible with your approach. Frequently monitor your sales performance closely, too, and make sure the items you select for bundling make economic sense for your business.
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