Bundled pricing
Bundle pricing is a strategy by which a company combines complementary products and offers them at a single discounted price. These bundles bring greater perceived value to customers and bring many benefits to the business such as higher average revenue and user retention. Bundle pricing is ideal for businesses that offer multiple complementary products; when sold together, they provide the greatest value to customers, enhancing the shopping experience and leading to a more engaged and loyal customer base. Another situation where bundling is useful is discounting, which is a necessary part of doing business and can help stay competitive when the market is saturated, or customers lose engagement. It also forces customers to buy more, so a compromise can be made by giving them a discount. Bundling is common in e-commerce and retail, where product bundles are made of cheap or discounted items. However, it isn’t the only application for price bundling, and companies in all sectors from software to utilities use bundles to sell their products.
Types of Bundle Pricing
There are two main types of bundle pricing (Zhang, Li, Shang 2022, p.2):
- Pure bundling give customers the option to buy the bundle as it is or not buy the bundle at all. This is the easiest way to bundle because the products in the bundle are under control. Pure bundling also comes in two variants: joint bundling and leading bundling. A joint bundle is when two or more products are offered together at one price. Bundled together, customers cannot buy the products individually, if bought in a bundle, they can receive all the products. Conversely, with Leader bundling, one product in the bundle is more valuable than the rest (the "Leader" product). It helps move less valuable inventory when bundled with non-leading products.
- Mixed bundling like pure bundling doesn't give the customer the ability to decide which products to bundle. However, unlike pure bundles, they have the option to buy each product together for a lower price or individually for a higher price.
Advantages and disadvantages of Bundle Pricing
Each pricing strategy has its pro and cons. While bundling is a useful pricing tool, not all products need to be bundled. Here are some key advantages of this approach (Yan, Bandyopadhyay 2011, p. 356):
- Simplify the buying experience: bundling complementary products often encourages customers to buy and simplifies the buying experience by reducing the number of choices customers have to make. As a result, your sales and profit margins may increase.
- Promote the sale of small batches of products: not every product is a bestseller. In fact, some might even underperform. In this case, bundle pricing can help you increase sales by bundling low-volume products with popular products.
- Attract new types of buyers: while one product can appeal to a specific type of consumer, bundling pricing can attract buyers looking for deals and discounts, or buyers looking to find complementary items. New types of buyers can increase overall popularity of the company among consumers and increase profits.
Instead, some disadvantages are (Gurler, Oztop, Sen 2009, p. 443):
- Customers may prefer individual products: some customers value their ability to choose what to buy. By bundling pricing, it is take away their freedom, which negatively impacts their buying experience. This is especially true in industries where customers have greater purchasing power, so it is needed to give customers autonomy.
- Customers may not need all of the product in the package: the perfect package depends on how much value you add to the customer and to the business. Customers who don't need or value certain products in the bundle feel they're paying too much and look for other options.
- Complex bundles increase cognitive load: the mental energy required to complete a task or make a decision is called cognitive load. Complex bundles increase the cognitive load on customers and make decisions difficult.
- Influencing perceptions of products and companies: while this is not always the case, some customers may perceive bundled items as less valuable, assuming the retailer intentionally bundles these items together to avoid old or excess items being thrown away. One way to counteract this is to invest in marketing techniques that highlight their characteristics and value.
Conclusion and final remarks
Bundling works because the price remains the most important factor for consumers. In fact, price is the most important differentiator when choosing a product, and by offering bundled prices on products consumers love, they feel like they’re getting the best deal. There are advantages and disadvantages to product bundling pricing. On the one hand, moving a product quickly or delivering great value to customers is a great strategy. On the other hand product bundling pricing can weaken a brand if not done properly.
Author: Laura Valenti
| Bundled pricing — recommended articles |
| Differential pricing — Price bundling — Discriminatory pricing — Competition-based pricing — Optional product pricing — Prestige products — Price-Taker — Trade allowance — Customer price sensitivity |
References
- Gurler U., Oztop S., Sen A. (2009), Optimal bundle formation and pricing of two products with limited stock, Int. J. Production Economics
- Yan R., Bandyopadhyay S. (2011) The profit benefits of bundle pricing of complementary products, Retailing and Consumer Services Journal
- Zhang G., Li G., Shang J. (2022) Optimizing mixed bundle pricing strategy: Advance selling and consumer regret, Omega 115
