Specific niche retailers have been using the strategy of bundling several products for sale into one combined product for years. For example, fast food companies reap the benefits of product bundling with their “combo meals.” For customers, purchasing each item—sandwich, drink, and fries—separately is more expensive than purchasing them as a bundle (the lower price is the incentive). For these restaurants, selling several items at a discounted price results in higher profits.
Some software companies apply this strategy as well. For example, Microsoft bundles Word, Excel, PowerPoint, and more into its Office suite. Also, companies in the cable and dish network industries tend to bundle many channels into a single price or package. This product bundling is often referred to as a package deal or an anthology.
Bundling is most successful when:
-
The cost per unit decreases as the production scale increases. So, for instance, as a fast food restaurant produces more hamburgers, the cost per burger decreases because the cost of purchasing the beef in bulk is lower.
-
The cost of promoting the product is reduced, although the number of products being promoted is increased. Promoting the entire Microsoft Office suite, shown in Figure 7-7, is less expensive than promoting each product separately.
-
Customer acquisition costs are high. The more expensive it is to acquire customers for a specific product, the more beneficial it is for you to increase your average order value by bundling products for them.
-
Customer satisfaction is high. As customers become more satisfied with the overall simplification of the purchase decision through bundling, they benefit from the joint performance of the combined product.
Companies such as OrientalTrading.com (see Figure 7-8) thrive on product bundling because their products are high-volume and require a low marginal cost. However, bundling is most effective with “digital” or software products where the marginal costs are close to zero. HubSpot.com, an online marketing software as a service company (see Figure 7-9), has found great success in bundling its online marketing services targeted for small websites. Many companies offer customers the option of purchasing products separately or as a bundle, but HubSpot.com restricts its offering to “pure bundling”—no single product purchases are allowed.
Companies use a variety of tactics when bundling products:
- They offer complementary items as a bundle
-
With this tactic, as a visitor navigates to a product page, items that are complementary to the original item appear on the page. To persuade the customer to increase his order value, these companies will offer a discount when the customer purchases the complementary items bundled with the original product.
- They offer higher discounts for purchasing higher quantities of the same item
-
With this tactic, companies offer customers discounts that increase as the quantity of a particular product being purchased increases. For example, RHDJapan (see Figure 7-10) offers customers the option of purchasing one Tein ID60 200 mm straight type spring for a sale price of $105.94; three at 5% off ($101.20 each), five at 9% off ($96.46 each), and so on.
- They offer complementary services as a bundle
-
With this tactic, companies bundle a variety of complementary services into one main service. For instance, when you bring your car in for an oil change, some companies not only will change the oil and oil filter, but also will inspect your brake fluid level and engine air filtration system, fill your tires, vacuum the interior, and check a number of other components pertaining to your car. Many times customers are unaware of all the other services the company is providing, but they are all bundled into the final price.
