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What is Product Bundling?
Product bundling in the simplest sense is a combination of products/services offered at a price lesser than what you’d pay if you bought each of them individually.
Product bundles though consisting of multiple products, act as a single entity for purchase. A product bundle will have its own unique ID and product detail page.
Product bundles can be an add-on, say, a telecom provider offering a free subscription to Netflix and Amazon Prime on buying a certain plan.
They can even be up-sells, say, earphones or a mobile protective cover for a phone you purchased. Another good example is software products.
DCKAP Integrator is an integration software that helps you connect your ERP with third-party platforms like your eCommerce platform. DCKAP Integrator when paired with a Product Information Management (PIM) solution like DCKAP PIM
(helps you create, enrich, manage and distribute product information) can make the whole process of managing your back office and marketing workflows completely systematic and data-driven.
Is Product Bundling Effective?
Yes. If done right. The reason why product bundling is effective is the customer perception of buying products at a lower price without the hassle of searching for multiple essentials. In this very human psychology of purchasing, lies the secret to an effective product bundle.
An effective product bundling strategy is one which,
- The customers are spared the effort of searching for multiple products.
- The customers feel that the bundle is priced lower than what they’d pay if they bought the products separately.
- If the maximum number of products (if not all) in the bundle are suitable to their needs.
- If they find one or more products in the bundle that are new to them but are actually helpful. This makes you stand out as – knowledgeable.
In my opinion, if your product bundles achieve at least two of these, then they’re effective.
Is product bundling right for you?
“Bundling is pervasive in several markets, and it works in many cases,” says Vineet Kumar, Assistant Professor at Harvard Business School, in his research. The research also stated that people were drawn to bundled products if they were given a choice to also buy them individually. For example, Mc Donalds Happy meal.
Product bundling strategy works for most markets like food chains, restaurants, beauty, home decor, video games, construction, industries, and so on.
Microsoft Product Suite
Food Chain Product Bundle
Product bundles work for companies that have a low margin on their products. If customers can sense positivity with your product bundle offering, it’s an idea that’d work for you. Offering packages to your customers works the same for companies doing great sales by encouraging a higher spend than usual.
More or less, product bundling strategy works for most businesses when done right.
Product bundling types (With examples)
Here are the types of product bundling strategies that you should consider.
These are product bundles that are available as bundles only. They cannot be purchased as individual items. This type of bundling has its pros and cons.
For example, If you are selling a set of shampoo, conditioner, and hair serum but do not offer the flexibility to buy them individually, the customers who may not need a hair serum may back off from buying it.
On the other hand, pure bundling may help in some cases where the bundled products complement each other. For example, a men’s haircut kit. The buyers will be sure that they’re getting multiple items that they need without the hassle of searching for them individually and at a lower price.
Mixed product bundling enables customers to buy products either individually or bundled up. Mixed bundling is the most common type of bundling that most businesses use. For example,
– Combining products of similar use
This type of bundling is usually useful when the products sell in multiples. For example, a set of water bottles, a pack of T-shirts, a pack of perishable items like food.
– Bundling a low-cost or excess quantity product with a good seller
A diary bundled with individually less selling items like a pen, bracelet, and a pencil pouch. This type of product bundling strategy not only increases sales but also clears products from the old stocks that didn’t sell.
– Upsell bundling
This type of product bundling is suitable for products that offer a base product and additional features or add ons with it. For example, TV. A basic model has a base price that the buyer can choose. The same model will have additional features like a bigger-sized screen, QLED display, Built-in Alexa and so on that are up-sell product bundling features for a basic model.
Here look at this example from Amazon. Amazon uses a “Save and Upgrade with a similar product” option which gives both a less and a more expensive model. This gives a direct comparison of features to the buyers leading them to make better product decisions, thereby upselling a product.
SAAS products like DCKAP PIM have a basic plan for people who are just exploring the need for PIM with their B2B business and a premium plan and enterprise plan for Small to medium businesses and brands.
– Cross-sell bundling
Cross-sell bundling encourages the buyers to buy products related to the one they’re buying.
For example, when a customer buys a phone online, they have recommendations to buy accessories like a screen protector and a phone case.
They feel that they’re being given good advice to use their main purchase item (phone in this case) in a more efficient way by buying the accessories. This is a type of product bundling strategy that benefits you and your customers alike.
This type of product bundling strategy can be either mixed or pure type. These product bundles are the ones that are available at a festival or a celebration. ArtNaturals offers valentines’ day premium essential oil kits. These occasional bundles have customer emotion attached to their buying decisions. Such Product bundles give a greater return in a limited time. Other examples could be limited period offers Black Friday sale, festive offers, Holiday season sale, and so on.
Pros and Cons of Product Bundling Strategy
One man’s pro is another man’s con. This is true in the case of product bundling as well.
The sellers and the buyers are the 2 personas we are going to talking about.
The buyers’ pros
The ease of buying
Bundling reduces the effort required to search for different products and eases the buyers’ journey overall. When a customer finds all necessary items readily bundled up for purchase he’s less likely to even search other options.
Asking for a cost breakup
I worked for a construction company once. The clients were given a lump-sum bill for the initial designing charges. Once a gentleman asked for a detailed cost breakup and it turned out that he found that the prices were high at a few break-up points. Though he was very happy with the designs, he got a few cuts done here and there and paid a lower bill.
More than often asking for a cost break up is beneficial for the customers. The companies are posed with the challenge of balancing the demand for transparency and company profits. Let us see how sellers can tackle this challenge, in the next section.
The sellers’ pros
As Anthony K.Tjan explains, “You should not confuse transparency with a pricing strategy. If you are the seller, focus on the total value provided which is fair for the customer and you. Show the list of all activities performed for a service without individually valuing them. Providing individual price breakdown can kill any perceived or real synergistic total value. And I have often found that price breakdowns by companies or suppliers are often arbitrary and more of an effort to reconcile with a total price value.”
Frictionless buying process
When customers have an option to choose product bundles, it reduces the burden to search for individual products. If the product bundles are well thought and provide fair value to the customer, then the customers are more likely to come back to your website.
For example, Mc Donalds happy meals reduce the burden of choosing each item and make the buying process faster.
Clear excess inventory
Managing inventory is a huge task and moving idle products out can be challenging. Product bundling strategy if done right can help clear off old and excess inventory. Coupling best-selling products with a lesser sold, largely stocked item is a good idea. Offering out-of-demand products at a lesser price can still return profits.
With product bundles crafted to impact customers’ lives positively, you can increase their confidence in your products. For example, nonstick cookware. A griddle, a frying pan, and a set of silicone spoons complement each other’s purpose. Customers are more likely to come back to you and even recommend you to others when the product bundling is meaningful to their lives.
Research by Hubspot found that consumers trust word of mouth the most. “ We found friends, family, and Google to be the top discovery sources for new products or services overall.”
Increase in sales and revenue
A study called the Dynamic Effects of bundling as a product strategy by Vineet Kumar (Professor at Harvard University) and Timothy Derdenger (Carnegie Mellon University) on the video game market found that the total hardware sales were higher by approximately 100,000 units when bundles were offered. This was as opposed to lesser sales when pure bundles were offered or bundles weren’t offered at all.
Mixed bundling, meaning that bundles along with a choice of buying units individually will lead to greater sales.
Best practices for Product Bundling Strategy
Offer flexibility to the customers
In the same study, Dynamic Effects of bundling as a product strategy, Kumar found that only offering bundled products led the customers to think that the company is taking more revenue because of not offering to but individual products.
Make your bundles meaningful to the customers
If customers do not like the product bundles you are offering, they tend to delay their purchase or put it off.
Not offering bundles at all is not the solution
In Kumar’s study of Nintendo, he found that “If no bundle is offered at all, people might wait until much later, perhaps even a year, to make purchases, Nintendo doesn’t want that. The more consumers purchase its products, the sooner Nintendo can make more video games.”
Study customer behavior
Use heatmaps or analytics tools to see what the customers are clicking at, where they enter, and exit. Studying aspects like most visited product pages give you a sense of their expectations which you should use to your advantage.
For example, DCKAP PIM in its initial days wasn’t seeing the sales it intended to, even though the product was a solid build. Later on, DCKAP PIM studied that it wasn’t getting the visibility and offered a bundled solution with DCKAP Integrator (an ERP integration platform-product of the same parent company) for a trial period. It saw a spike in sales by 100% in one year.
Offer custom bundling
People love customizing. Offer the flexibility to choose and bundle products of their choice. for example, if you are offering a garden toolset with a hand trowel and waterpot, prompt them to choose seeds of their choice or hand gloves and pruning scissors. This will increase the average order value for your product bundles.
- Product bundling is a great way to see an increase in sales.
- A well-thought-out combination of products/offers based on consumer behavior data is a good way of approaching this method.
- Pure bundles do not see sales as good as mixed bundles
- Customizable bundles are a good way to increase sales.
- Product bundling can lift up the sales of lower-priced products and less selling products.
- It can be used as a strategy to offer upgraded features to a base product.
- Provide customers with choice and flexibility to choose what they want to establish credibility and gain their confidence.