More companies are bundling complementary products and services into a single discounted package to get customers to spend more for a perceived increase in value for money.
In this article, you will discover how bundle pricing works, the different types, and how to successfully implement a bundle pricing strategy in your own business.
Let’s get started.
TL;DR
- Bundle pricing is a sales strategy where a business offers two or more products and services as one package at a lower price than if each product or service was sold as an individual item.
- Instead of a one-and-done sale of a single item, bundle pricing uses discounts to incentivize your customers to purchase more related products or services from your company.
- The McDonald’s Happy Meal and Amazon’s “frequently bought together” upsell feature are excellent examples of highly successful bundle pricing strategies.
What is Bundle Pricing?
Bundle pricing is a sales strategy where a business offers two or more products and services as one package at a lower price than if each product or service was sold as an individual item.
The business strategy is commonly used in retail, fast-food, eCommerce, and SaaS industries, and both the customer and the company benefit from the arrangement.
The customer gets better value for money with the overall cost savings from purchasing multiple products below their individual market price, while your company generates more revenues because you end up selling more products and services to customers.
A good example of bundle pricing is a gadget store that offers an iPad, keyboard, and pencil as part of a single price bundle when customers buy an iPad from the store.
That package of three products has the iPad as the high-ticket centerpiece that draws the attention of customers to the value of the bundle, then the accessories (keyboard, pencil) fill out the package to make purchasing the centerpiece a no-brainer for customers.
Types of bundles
Below are the two main types of bundle pricing strategies used by businesses to meet the specific needs of their customers while also driving revenue growth for their company.
Pure bundles
This type of price bundling restricts customers to purchasing related products as one package and doesn’t offer the option to buy each item individually.
The strategy is most applicable when you are offering complementary or deeply integrated products and services that your customers must use together if they are to enjoy the full value of each product.
There are two types of pure bundles:
- Leader bundling: it’s a package that includes a leader product sold together with lesser-value items that complement it. The primary product is what draws in the customer, and the complementary items boost its value. For example, luxury hotels can bundle complementary services like breakfast meals, concierge services, and spa treatments as part of the hotel room fee to boost the perceived value of spending a night at their establishment.
- Joint bundling: this package offers two or more related products of equal or near-equal value together at a single price. The customer can only purchase the products together as a bundle or not at all. Adobe Creative Cloud is a good example because customers are no longer allowed to purchase Adobe Illustrator or Photoshop as standalone products.
Mixed bundles
This type of flexible price bundling lets your customers pick between purchasing the products or services as a bundle with a discounted single price or individually at their going market rate.
The goal is to give customers choices. People interested in buying the related items can purchase them together at a discount, while those who only need one of the items will pay the full price for that individual product or service.
For example, Microsoft offers Microsoft Office 365 as a bundle of its popular office software productivity apps, while still letting customers buy standalone versions of Microsoft Word, Excel, and others at their individual prices.
Features of Bundle Pricing
Below are the three major attributes encouraging businesses to adopt bundling pricing.
Cost and value perception
The main pitch of bundled pricing is that the benefit of buying a single package of products and services at a discounted price is more cost-effective than buying the product or service individually.
So, when customers see that they will be spending much less on the bundle than their pre-determined budget they will be more likely to perceive your package as a really good deal.
That perception will help generate greater customer satisfaction, which can lead to repeat purchases and greater revenues.
Cross-selling and upselling
The best sales strategy is one that maximizes revenues and profits, by ensuring your customers spend as much as possible on your products and services.
Bundle pricing when done right, convinces your customers that they are getting good value for their money, which is why they readily spend more than they initially budgeted for.
Of course, for an effective bundle pricing strategy, you must offer deals that take complimentary product use cases, customer preferences, demographics, and other factors into consideration.
Differentiation and competitive advantage
There will be instances where discounted pricing is one of the most effective ways to attract customer engagement with your new product or stop a competitor from eating up your customer base for an existing product.
Bundling products and services at a discounted single price will attract customers looking for deals and discounts.
Provided the products complement each other, you will attract price-conscious buyers and boost your profits.
Pros and Cons of Bundle Pricing
Pros
- It reduces advertising expenses: you can focus your marketing strategy on promoting two or more related products as one discounted package, which is cheaper than the money you would have spent promoting each item individually.
- It encourages the sale of complementary products/services: instead of a one-and-done sale of a single item, bundle pricing uses discounts to incentivize your customers to purchase more related products or services from your company.
- It helps reduce the inventory of less popular items when bundled with best-sellers: once you identify a popular product, you can offer a discounted package that combines the fast mover with other less popular products to clear out your stock of underperforming items.
Cons
- It comes with the risk of devaluing individual products: you may lose profitable sales opportunities if you offer a high-ticket product as part of a bundle at a discounted price, and most of your customers opt to purchase that item at the lower bundle price.
- It can lead to customer dissatisfaction or confusion if the bundle doesn’t meet their needs: customers may move on to your competitors if the combination of items in your bundle doesn’t fully meet their specific needs or it’s filled with products they don’t necessarily need.
- It can be challenging to find the right pricing and bundle mix: unless you invest heavily in market research, it can be difficult to find the right balance between offering attractively priced bundles and making a decent profit on your items.
Best Practices for Bundle Pricing
The tips outlined below will help you effectively leverage the many advantages of bundle pricing.
Understand your customer needs
A successful product bundle pricing strategy tailors your package of related items to match the preferences of your customers.
The only way to know what your customers want is via market research.
Data from market research will tell you the products your customers usually buy together, the average amount they spend during each purchase, and how market conditions influence their buying patterns.
You can then use that information to put together a bundle of products that are enticing to buyers, both in terms of affordability and their utility for your customer’s specific needs.
Test and optimize pricing strategies
Customer data will help you create pricing bundles that will reflect the needs of your buyers.
However, it’s still important to A/B test different bundling approaches until you arrive at a bundle that optimally maximizes customer satisfaction and profitability.
You can also survey your target audience, especially if you have a new business, and ask them what they would love to see in a product bundle.
Highlight savings and value
Your marketing campaign must clearly communicate the value and savings customers will get from purchasing your bundle.
Pricing bundles don’t always offer attractive discounts. So the fact that you are promoting a bundled package to customers won’t automatically convince them to make a positive purchase decision.
You must be transparent and outline the benefits your customers will get by choosing a bundled package with additional products over individual purchases.
Balance simplicity and customization
There will be customers who don’t need all the products/services in your bundle, and forcing your offer down their throats will only turn them off.
If market research shows that your customers often buy a group of products together, then it’s perfectly fine to go with a Pure bundling strategy.
However, if research data shows that they prefer to have the option to purchase each item individually, then you are better off with a Mixed bundling strategy that lets them choose.
Monitor and adapt to market trends
To succeed in bundling pricing, you must regularly review accurate data about your customer base and adjust based on evolving customer preferences and changes in market forces.
We have multiple bundling pricing strategies for a reason. It’s up to you to apply the right pricing model to cater to the specific needs of your customers for that particular season.
Examples of Successful Bundle Pricing
Research shows that customers save 8% on average by choosing bundled products over individual purchases.
So, data proves that bundle pricing is advantageous to customers.
Then, what about the businesses offering those packages to customers?
Here are two household brands that have successfully implemented bundle pricing to boost sales and customer satisfaction.
McDonald’s: Happy Meal
Introduced in 1979, McDonald’s Happy Meal combo for kids consists of Hamburger or Chicken McNuggets, fries, apple slices, a 1% low-fat milk, and a fun Happy Meal toy or book.
It is an excellent example of Leader bundling since it combines multiple items into a package that the customer must purchase together as a bundle.
The food is the Leader product and the kid’s toy is the lower-value item that adds excitement and entertainment to the bundle, effectively increasing its value.
It has been a very successful product for McDonald’s, and the company has sold more than 2.5 billion units since its introduction.
Amazon: “Frequently bought together”
Amazon’s “frequently bought together” upsell feature is something that anyone who has bought an item on the popular eCommerce platform should be familiar with.
The company’s platform algorithm analyses data from past purchases by a large pool of customers and then prepares a bundle of related products for the current buyer to consider.
For example, if you are buying a laptop, the platform can include a laptop bag, headphones, and a portable hard drive as complimentary items in the “frequently bought together” section.
It’s important to add that this Amazon upselling strategy is an excellent example of Mixed bundling.
You have the flexibility to either buy the single product you sought to purchase in the first place or buy it together with the complimentary products at a discounted total price.
It’s Time to Implement Bundle Pricing in Your Business
This article has shown you how bundle pricing offers discounts to your customers for buying multiple products in a single package and how your business will benefit from the increased average order value and profit margins it generates.
We also emphasized the importance of market research in coming up with pricing bundles that effectively reflect the preferences of your customers.
Now, it’s time to use the rule-based pricing model feature available on the Stax Bill platform to set up bundling offers with automatic discounts that will keep your customers coming back.
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