Concession prices at a movie theater, showing examples of product bundling.

The Appeal of Bundled Products

Combining multiple products for sale at a single price is known as bundling, and it is a powerful way to please customers and increase revenue.

 

The goal is to present a bundle of products that seems to offer more than the sum of its parts. The sale of the higher priced bundle, instead of just a few of its parts, increases revenue and, as long as it is priced properly, profit.

You see examples of it everywhere, most commonly on discretionary items where the seller has decent margins to work with and is trying to maximize revenue from every purchase.

example-of-bundled-product-pricing

Why does it work?

The benefit to the seller (larger profit) is obvious. What are the benefits to the customer that would prompt them to spend more than they planned?

 

Savings (or the assumption of savings)

Customers almost always assume that bundles offer savings. A discount may, in fact, be present, but it doesn't have to be. In fact, bundles are so appealing that studies have shown that people will buy bundles even when the bundle price is greater than the combined cost of the individual items.

 

Convenience

The fast food consumer most often wants an entree (burger), side (fries) and drink (soda). Combining these products into a bundle means the customer is spared having to do the math. They no longer have to add up three different prices before making a decision; they can see at a glance what the entire meal will cost.

Same thing at the movie theater. After dinner and maybe a drink or two, standing in the concession area of a busy movie theater, most customers don't want to do the math. A bundle that contains everything they want at a single price is more appealing.

Another example would be a boarding kennel. These typically offer a number of services in additional to boarding, things like walks, social time with other dogs, grooming, extra treats, etc. To make things easier for customers they also offer bundles like the "Puppy Package" that combines all the services that are most relevant to a young dog. Instead of having to decide on what is needed instead gets to relax and rely on the expertise of the kennel.

 

Heterogeneous Demand

One moviegoer craves popcorn and soda more than anything else. They value those parts of the combo disproportionately – they want popcorn and soda so much that the would pay more than what is being charged. The candy (also included in the combo) feels almost like it is being throw in for free.

When more people are sharing the bundle it becomes even more interesting. Imagine a couple ordering in some chinese food. One person wants General Tso's chicken; the other wants fried rice. A combination that includes both dishes plus two egg rolls is very appealing. They value the other two dishes so much that anything else feels like a bonus.

 

Do you have to discount?

The goal is always to discount as little as possible so the answer depends on how people value the products in the bundle, your margins, and whether you need a discount to make the bundle appealing.

In some cases product bundles do include a healthy discount, one that the seller is usually quick to highlight. If the seller does not highlight the savings offered by a bundle, you can probably assume there aren't any.

Discounting makes the most sense when you are certain that consumers place very different values on the different products in the bundle, and your margins allow it.

For example, a company that bundles three services may know that most consumers are interested in only one or two of the services and just marginally interested in the other(s). Discounting may make sense if it prompts those customers to buy the bundle that includes all services, including the ones they don't value enough to buy at full price.

But a great many bundles are discounted very little if at all. Look at the bundles you see at movie theater concession stands which typically include popcorn, a drink, and candy. Substantial discounts are often assumed but actual discounts on this kind of bundle are typically less than 5%. Larger discounts are not needed to make the bundle appealing so they are not offered.

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