Which pricing strategy is used if one sells a package for a lower price and they would charge when customer bought the items separately?

Reading Time: 4 minutes

In every store, you see signs that say “Buy one get one free”, “Buy this product and get a discount for that product”. The situation is the same at the fast-food restaurant “Buy meal deal, save $3”. Everywhere you look there are special offers, discounts for buying more products, etc.

This is called a bundle pricing strategy. It’s a very common pricing strategy, especially in the retail industry. But what is it really and how does it work?

We are going to answer those questions in this post.

Starting with an explanation of this strategy. A bundle pricing strategy is a pricing strategy in which the seller combines several products and then sells them at a single price instead of charging separate prices for each of them. This means that a bundle is a product on its own since it has an ID, price, attributes, etc. It’s important to say that this strategy works well for services too, not just products.

The best example for illustrating bundle pricing strategy is restaurants. If you go to eat at one, you can get dinner for $40. It will include starts, the main course, and dessert. But you can get all of those separately and pay more, for example, $10 for starts, $25 for the main, and $10 for dessert. So, if you take the deal they offer you’ll pay $5 less. If we are talking about fast-food restaurants, the situation is the same, only the prices are a lot lower.

There are two basic bundle pricing strategies, which are pure bundling and mixed.

Let’s see what each of them means and how you can apply them.

1. Pure bundling

Pure bundling represents a bundling strategy where the products are only sold together. In some cases, products don’t exist outside the bundle. The best example of that is TV channels offered by cable providers. They offer a number of packages and each one has a different combination of channels.

If you want a specific one, that is offered in only one package, you have to get all of the others from that one. For example, if you want HBO, you will have to pay for HBO2 and HBO3 too, and other channels that go with it (depending on the provider). When you think about it, it makes sense for such products.

Pure bundling has three subcategories: joint bundling, leader bundling, and mixed-leader bundling.

• Joint bundling is when the two products are offered together for one bundled price.
• Leader bundling is when a leader product is offered for a discount if purchased with a non-leader product, accessory, etc.
• Mixed-leader bundling is a type of leader bundling with the added possibility of buying the leader product on its own.

2. Mixed bundling

Mixed bundling, also called custom bundling, is when customers are offered to purchase a bundle or separate products on their own. Consumers are offered complete cable, internet, and telephone packages. The price will depend on the level of service that the package provides.

If you choose high-speed internet and maximum channels, it’s going to be much more expensive than getting a package with low-speed internet and minimum channels. Each of these services can be bought separately, but it’s just like the restaurant example – it will be more expensive.

What are the advantages and disadvantages of bundle pricing?

Bundle pricing has many advantages. The most important one is that it allows companies to sell their lesser-known or unpopular products with the popular ones. It will also help attract different kinds of buyers: buyers looking for deals, buyers looking for convenience, or buyers looking for advice on items that complement each other.

Some consumers will be spending more than they initially wanted when they see an offer they like. Especially if you offer the product that they already wanted to buy with something they wanted to try but never got the chance. Product bundles have lower marketing costs because you are promoting two or more products with an effort and resources for one.

No matter how great a strategy is there is always a downside to it. The biggest disadvantage of this one is that it can lead to cannibalization of your products that can be bought outside of the bundle.

For example, you are selling a laptop and a printer together, but also separately. Because of this more printers could be sold through the bundle than on its own. This does cause lower profit for that particular product. There is also a chance that some consumers won’t buy something if it can’t be bought separately because they feel forced to buy more.

So it’s crucial to choose the right products for the bundle.

Conclusion

Product bundles are very popular among customers. They make their lives easier because they save them time looking around the store for each product. Another plus is helping them decide on products they weren’t sure about trying, etc. When done right, bundle pricing strategy drives more sales and profit for the companies, which is why it’s one of the most used ones.

Click here to learn more about the benefits of bundle pricing.

What do you think about bundle pricing? Let us know, we would be happy to hear your thoughts!

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Reading Time: 5 minutes

Product bundling is a technique in which several products are grouped together and sold as a single unit for one price. This strategy is used to encourage customers to buy more products. McDonald’s Happy Meals are an example of product bundles. Instead of selling a burger, soda, and french fries separately, they are sold as a combination, which leads to more sales than offering them separately.

Advantages of product bundling

Bundling helps you do much more with your existing stock. Let’s take a look at the advantages of product bundling and how it can be beneficial for your business.

Increase your average order value

Product bundling can increase the profits and sales of individual items over time. By grouping your items together you can make your customers buy more than one product during a single purchase, which increases your average order value. For example: Instead of buying just one pencil during a single purchase, your customer can be given an option to buy a pencil, eraser and sharpener as a bundle, making them purchase more than one product thereby increasing your average order value.

Decreases marketing and distribution costs

Bundling enables you to sell more and decrease marketing and distribution costs. Instead of marketing every product you can group complementary products together and market them as a single product. By packaging different items together you only need one warehouse bin to store them instead of different bins. Also, bundling helps you ship fewer boxes of individual items and saves you money on postage. Instead of making print and wed ads for every single item you can show them as a bundle which helps you save more on your marketing costs and at the same time markets all your products. For example: if you have 10 individual products you need to market and sell 10 products, but if you bundle them you market and sell them as a single unit, helping you increase efficiency by reducing marketing and distribution costs.

Reduce inventory waste

Merchandise that doesn’t get sold remains in your inventory as dead stock, adding to your holding costs, and is eventually discarded as waste. You can use bundling to clear out this dead stock before it becomes a problem. If you bundle a slow-moving or stagnant item with a faster-selling product, customers will see the bundle as a bargain and be more inclined to buy it. This helps reduce your inventory waste, free up warehouse space, and decrease your inventory holding costs.

Types and Examples of Product Bundles

There are several different bundling techniques which are used to group products:

1. Pure bundles

2. New product bundles

3. Mix-and-match bundles

4. Cross-sell bundles

5. Gifting bundles

6. Inventory clearance bundles

7. Buy-one-get-one bundles

Pure bundles

In pure bundling, the individual products that make up the bundle can be purchased only as a bundle and not as standalone products. This technique limits the choices offered to the consumer. For example, HelloFresh is a company which does pure bundling successfully. It bundles the ingredients that their customers need to cook a healthy meal. They offer meal options based on the number of people and recipes the customer requires each week, but they don’t allow you to choose the ingredients as individual items that can be bought separately.

New product bundling

In this technique, newly-launched products are grouped along with existing or popular products as a promotion to help customers discover your latest product. This method is used by ecommerce stores, which mix new products with their well-known merchandise to gain some exposure for the new product. The more well-received the existing product is in the market, the more it brings the buyer closer to the new product. For example: The Nintendo switch + the legend with Zelda product bundle, is one of the fast-selling Nintendo’s bundle, in this bundle Nintendo introduced their brand new games which is grouped together along with their existing best selling products. This bundle offers an unique Zelda carrying case which is available with this bundle exclusively and two brand new games (Breath of the wild and Super Mario Kart) along with the accessories for gaming.

Mix-and-match bundles

The mix-and-match bundling technique allows the customer to choose among multiple similar products. This is mostly done by brick-and-mortar stores for fast-moving consumer products such as perishables or bulk items. Here, you specify a few products for your customers to choose from and they can create their own custom bundle from the options available. This method helps the customer feel that they’re in direct control of what they want to buy, thereby increasing the perceived value of the item. It’s the perfect method for encouraging your customers to buy products in bulk without forcing them to buy items which don’t interest them. For example, some retail stores offer a deal where you can match complementary pieces of clothing from an array of choices for a fixed price, such as any shirt along with any pair of trousers for $50.

Cross-sell bundles

In this bundling technique, retailers sell a complementary product as an add-on to a main product. This type of bundling works well with lower-priced items, or accessories or parts that go with a more expensive item. For example, if you buy an iPhone, you would probably like to buy a case along with it. So the iPhone and case can be sold together as a bundle.

Gifting bundles

Gift bundles are aimed at shoppers who want to give a bundle of complementary products together to a loved one. This type of bundle is mostly sold during holiday seasons. For example, beauty brand Estee Lauder offers a popular protect-and-hydrate gift set containing four skincare products that work together.

Inventory clearance bundling

In this bundling technique, you pair a faster-moving item in the inventory with a stagnant or slower-moving item to clear inventory space and decrease your inventory holding costs. This method includes discounts on your bundles so that shoppers who are interested in a top-selling item will see the whole bundle as a bargain and will be more inclined to buy it. For example, the popular specialty tea retailer T-WE found out that their tea accessories were selling faster than their teas (which was unfortunate, because the teas offered a higher profit margin). So they started to bundle their teas along with the accessories so that they look like more of a deal.

Buy-one-get-one bundles

This bundling is used when you buy one main item, you can avail a discount for another complimentary product or get another product free. This is a best used technique for one time purchase products For example, electronics, if a customer buys a hair dryer they wouldn’t be coming in to buy the same product again. Hence, offering a complimentary product, discount or gift card will encourage your customers to add more items to their carts at a lesser price.

Bundling adds value to your products by adding extra features or products to your existing purchase. You can tailor your product offerings according to the preference of your customers to align with their wants. Offering unique and carefully curated bundles can help you stand out in comparison with your competitors. It clears out your aging inventory, increases your items’ perceived value in the eyes of your customers, and boosts sales.