In this article, you’ll find:
- What is Bundle Pricing?
- Types of Product Bundling
- Bundle Pricing Strategies for 2023
- Advantages of Bundle Pricing
- Downsides of Bundle Pricing for Businesses
- Application of Bundle Pricing Across Domains
- When Should Businesses Use Bundle Pricing?
- Product Bundling and Consumer Psychology
Have you ever purchased a value or a combo meal at McDonald’s or an In-N-Out? Or you can buy your latest smartphone and a pair of earphones at a discounted price. If the answer is yes, you are familiar with bundle pricing. While some call it a sales strategy, others deem it a marketing strategy to increase sales and drive revenue. Regardless of what side of the spectrum you are on, e-commerce and offline companies utilize this pricing strategy to improve upsells, increase the average order value, and entice customers to buy more and pay less.
Online retailers have consistently questioned the relationship between bundle pricing and sales to get a grip on how it impacts their bottom line and its influence on consumer behavior. Does this pricing technique favor customers or retailers? Is it really a win-win scenario for both parties, as it appears?
This article explores the ins and outs of bundle pricing, the strategic use of this pricing strategy, how and when it benefits retailers, and whether it is worth it. We will also explore the different types of bundling and other insights related to the topic, offering an in-depth understanding of this powerful strategy used in the commercial world.
Let’s start by understanding what bundle pricing is.
What is Bundle Pricing?
Bundle pricing is a strategy deployed by businesses in which multiple products are clubbed together in a bundle and sold at a discounted price. With this, customers buy multiple products as a package at a discounted price compared to purchasing them individually. It encourages customers to buy more products together, adding value to their initial purchase.
Businesses utilize this pricing strategy for different reasons, including improving customer experience, clearing inventory, and improving revenue.
Types of Product Bundling
We have identified three main product bundling techniques deployed by online businesses and brick-and-mortar stores. Although these techniques are commonly used during seasonal events, including the Black Friday Sale, Cyber Week, and Christmas, some businesses use them throughout the year.
Let’s check them out.
- Pure bundles: Pure bundles are those bundles that consist of products that cannot be bought individually. That means a customer can buy a particular product only by buying the whole bundle. A good example of pure bundles is that of a hair dryer and its attachments. When you buy a hair dryer, the attachments that come with the bundle cannot usually be bought individually. When a customer loses an attachment, the only option for them is to buy the whole bundle. Because of its limiting nature, many people may not find this bundling strategy convenient.
- Mix-and-match bundles: Mix-and-match bundles allow customers to customize their bundles by choosing from a selection of products. Since this approach provides flexibility, allowing customers to tailor the bundle to their preferences and needs, it gives them a sense of control over their purchase decisions. This perception of control enhances their overall satisfaction. In fact, a study from Harvard found that mixed bundling is more effective than pure bundling, with pure bundling reducing sales by over 20% compared to mixed bundling.
- Buy-One-Get-One bundles (BOGO): Everyone loves freebies, and BOGO bundles offer just that. They grab customers’ attention by rewarding them with a free or discounted item when they purchase a specific product. This bundle type is an effective way to drive sales for particular products while rewarding customers with an incentive. Making BOGO offers time-sensitive can be a good strategy to create a sense of urgency and encourage immediate purchases.
Bundle Pricing Strategies for 2023
Thanks to years of combined efforts roped in by marketing and business leaders, you have the luxury of choosing from many bundle pricing strategies. We will explore some of them in this section.
- Bundle Price Should Not Exceed the Sum of Individual Items
One of the golden rules you should follow while implementing bundle pricing is to ensure that the bundle price is lower than the sum of individual items in the bundle. Give it a thought. Why would your customers buy the bundle if they can buy each item individually? How does bundling help them? How is it adding value? Simply put, your customers will only purchase bundled products if they will save money.
With this bundling pricing strategy, you can offer the entire package at a discounted price, offering your customers excellent value for their money and enough motivation to make the purchase. The key is creating bundles that align with your customer’s interests, increasing the perceived value and boosting sales.
Now, how do you decide what products to bundle? Read on to find out.
- Understand Customers, Choose the Right Products to Bundle
Do not take this step for granted. Before creating a bundling pricing strategy, you should understand your customers’ online behavior, preferences, and interests. After all, you create product bundles for them. Make the most of data analytics to slice and dice customer patterns and create product bundles for every product category. For instance, if you sell sportswear, you can create bundles for different sports and exercise regimes. Now, onto the next step: identifying the right products to bundle.
Average order value, annual product growth, and customer reception to different products are some of the key metrics you can use to measure the performance of your bundle pricing strategy.
One of the best ways to create product bundles is to include products that complement each other and value for your customers. For example, you can bundle a pair of shoes with socks, shoelaces, shoe wipes, and polish. These products complement each other, add value, and improve the shopping experience by providing everything your customers need for shoecare.
Remember to visit past and current data to identify which products are frequently bought together, high-selling bundles, products that fail to impress customers, and more. Also, consider mixing and matching things up and experimenting with products like bundles to evaluate what your customers like and dislike.
- Calculating Bundle Prices
How do I set a price tag for my product bundles? What are the key considerations? Is bundle pricing based on perceived value and cost benefits, or is it a blend of both? This section takes you through the basic framework of calculating bundle prices and provides precious insights into how you can create enticing offers for your customers.
Calculating bundle prices is relatively easy if you are not offering any discounts. The first step here is to evaluate the gross margin of every product in the product bundle. How do you calculate the gross margin of a product? Subtracting the cost of goods sold (COGS) from the selling price.
Here’s the formula:
Gross Margin = Total Selling Price (Ticket Price) – COGS
Now, picking the best discount baseline for your business is up to you. You should also measure the performance of every discount type before making any significant decisions tied to bundle pricing and long-term pricing strategy.
- Communicate the Benefits and Value
Imagine this. You spend hundreds of hours brainstorming over various aspects of product bundling to craft and implement a perfect bundle pricing strategy, but your sales are not improving. Wondering why? Your customers are clueless about the benefits and value your bundles offer. This is why clear communication and effective marketing is very important.
Leverage the power of email marketing, banners, pop-up ads, landing pages, and social media to highlight the benefits and value your product bundles provide. Additionally, the onus is on you to identify where you can place this information, including the home page, checkout page, separate landing page, newsletters, and more.
Your pricing strategy will help customers save money, so highlight the discount percentage clearly to ensure your customers know they are getting a good deal. Remember, your customers are always looking for different ways to save money, so it is a good idea to remind them how much they will save if they buy your product bundle. You can use large and bold dollar numbers or discount percentages to communicate the cost savings effectively.
- Personalized Product Bundle Recommendations
Who doesn’t like personalized product recommendations? Your customers certainly do. It saves them the headache of navigating through your entire store to find the products they seek, improving their shopping experience. Consider offering personalized bundle recommendations to your customers to drive more sales based on their interests. Personalized product bundle recommendations boost customer satisfaction, improve average order value, enhance customer loyalty, and encourage repeat purchases.
Now, let’s understand how product bundling helps both businesses and customers.
Advantages of Bundle Pricing
Product bundling is one of the most used pricing strategies in the retail sector. Have you wondered what drives its popularity? How does it help businesses, and why are customers interested in purchasing bundled products?
Let’s explore the benefits of bundling for businesses and customers.
- For Businesses
- Positive Brand Impression
As mentioned before, consumers are constantly looking for ways to save money, and product bundling is the best way to offer them affordable product options while increasing their sales and revenue. Customers will begin to trust your brand if they find value in your bundled offerings and perceive your brand as customer-centric and economical.
- Clearing Excess Inventory
Clubbing popular items with low-selling products enables businesses to clear excess stock, optimizing their inventory and creating room for new and profitable products.
- Save Big on Marketing
Product bundling is an excellent way to save marketing costs, as most products are sold as a package deal, so you do not have to market them separately. Although you are marketing for a single product, i.e., the product bundle, you are marketing for all the individual products inside the bundle.
- Introduce New Product Lines to Customers
There is a strong chance that customers are unaware of specific product offerings. Product bundling allows businesses to introduce these less-known or unpopular products to their customers.
- Drive Sales During Peak Season
Can you think of a better way to create a sense of urgency and invoke fear of missing out (FOMO) than bundle pricing? Product bundling is one of the most effective ways to encourage customers to keep buying during the holiday season.
- Minimize Shipping Costs
Which option is cheaper? Shipping every product individually or shipping multiple products in a single bundle? The second option, right? Businesses can keep their shipping costs in check by bundling and shipping products instead of shipping them individually.
- For Customers
- Saving, Saving, and more Saving
Remember when we highlighted that the price of bundled products is lower than the combined price of all items sold individually? Buying bundled products prevents customers from making individual purchases and overspending.
- New Products
While bundling allows businesses to introduce new products to their customers, customers can try out new, unknown products.
- Save Time on Research
Product bundles include a leader product and complementary products, saving customers the hassles of researching and looking for products that enhance the usability of the leader product.
Downsides of Bundle Pricing for Businesses
Surprised to find this section? Well, the truth is that although product bundling offers significant benefits to businesses, unfortunately, there are a few downsides, too. This section lists some glaring disadvantages of product bundling for businesses.
- Businesses may suffer if customers only purchase product bundles instead of individual products.
- Adding low-value and less popular items to product bundles is an effective way to clear out unwanted stock. However, customers may refrain from buying bundles if they find value in complementary products.
- Another major downside of bundle pricing is revenue optimization, as most businesses struggle to balance offering great deals and making a profit.
Application of Bundle Pricing Across Domains
Although bundle pricing is extensively used across many industries, the ambition or the goals are the same: increasing the average order value, driving more sales, better customer satisfaction, and boosting revenues.
- Business-to-business (B2B)
Often observed across different businesses, particularly software companies, where one company offers its products and services as a bundle to another company.
- Business-to-consumer (B2C)
More common than B2B, many B2C companies offer products that complement each other to increase the average order value.
Hotels, restaurants, and quick-service restaurants use product bundling as a packaged deal or a combo offer to entice customers into spending more money.
- Service Providers
Service providers combine their services into tier-based packages to provide a blend of different features and services.
When Should Businesses Use Bundle Pricing?
When should I use bundle pricing for my business? Read on to discover the most common reasons businesses implement this pricing strategy.
Most businesses implement product bundling to increase the sales of less popular items.
- Value Perception
You should consider implementing product bundling if you aim to tap into a market where customers have a relatively low willingness to shell out money.
- Stay Competitive
Implementing product bundling is an effective way to bite away your competition by luring customers by offering attractive deals and offers.
Product Bundling and Consumer Psychology
Let’s admit it. Not everyone is drawn toward shopping. Many people do not enjoy shopping at all due to various reasons such as unwillingness to spend money, decision fatigue, stressful shopping and checkout processes, etc. However, bundle pricing does an excellent job of fighting these apprehensions and convincing customers to shop, making shopping slightly more pleasurable than expected. In short, it makes shopping less painful.
Additionally, it has a substantial psychological impact as it convinces customers they are getting a better deal even if they didn’t intend to buy the additional products initially. It is crucial to study the psychological behavior of your customers while crafting, implementing, and adjusting your bundle pricing strategy.
We hope you have realized the importance of bundle pricing and its benefits and identified the most effective bundling strategies. That said, it is vital to understand that your competitors also closely monitor these trends, so you must stay on your toes to stay ahead of the curve. Think about how you can do things differently.
Additionally, it is essential to use data analytics tools to gain precious insights into customer behaviour purchase patterns and measure the performance of different product bundles. Now, it is up to you to leverage this information to refine your bundle pricing tactics.
- What is product bundling?
Product bundling is a strategy used by businesses where they offer additional relevant products as a packaged deal to increase average order value, drive sales, and boost revenue.
- What are the different types of product bundling?
The three main product bundling strategies are pure bundling, mixed bundling, and pricing bundling strategies.
- How can I pick which products to bundle?
You can pick products by analyzing recent sales and identifying which products are often bought together.