example of product bundling

Bundled Pricing at the Movies

Movie theater snack combos provide interesting real-world examples of both pure and mixed bundling.

Most movie theater concession stands offer bundles of snacks they call combos. These are usually aggressively promoted by the theater (they get the bulk of the space on the sign, as shown in the photograph above) and are always mentioned first by the employee (who usually lead with "can I interest you in one of our combos today?"). There are a couple of things about these bundles that are worth mentioning right away...

 

There Are Little (If Any) Real Savings

Customers often assume a meaningful discount but in reality any discount is typically less than five percent. This is almost meaningless when it comes changing behavior – nobody gets excited about a 5% discount.

 

Options Include Both Pure & Mixed Bundles

Combos that include only items that are also available separately are examples of mixed bundles. Combos that include items not available separately (special packaging or containers, toys, etc.) are examples of pure bundles.

 

They Change Purchasing Behavior

The people who buy combos tend to end up with larger sizes and/or more items than they would have if it were not for the lure of the combo. For example the guy that loves popcorn and soda ends chooses a combo containing candy they would not have bought separately.

 

They Are Incredibly Popular

A huge percentage of the people that walk up to the counter buy a combination.

 

So why are combos so popular? It's a good question, especially when you considering that people are changing their behavior and buying more than they intended, even though no special value is being offered.

The combos appeal in a variety of ways...

 

There is An Assumption of Value

Even though the real discount is very small, almost always less than 5%, customers assume it is substantial.

 

We conjecture that consumers will view a bundled offering in our context as a price promotion (regardless of whether there is a discount).

Kathryn M. Sharpe and Richard Staelin: Consumption Effects of Bundling: Consumer Perceptions, Firm Actions, and Public Policy Implications

Just as we associate high price with quality we also assume bundles and larger purchases with discounts, even when none really exists. This is a very powerful motivator.

 

They Involve Less Thinking

We're all dealing with too many decisions every day and anything that makes those decisions easier is very appealing. In this case the customer, who is trying to relax by going to the movies, can look at the combination and be certain of what a collection of items will cost. This is much less work than trying to add up the prices of the individual components.

 

The Customer Can Assign Their Own Values

One customer might consider popcorn and soda a crucial part of their movie-going enjoyment and would assign a very high value to that part of the combo. To them the candy feels almost free. Likewise a couple where one partner really wants popcorn and the other really wants candy – the soda feels almost free.

 

Customers love combos, and retailers should too. The movie theater has it figured out – they are focussed on increasing revenue by using the appeal of combos to sell more items at larger sizes. Unbundling may have become the standard elsewhere but bundling is too powerful to ignore.

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