What is Product Bundling?
Product bundling occurs when a business combines several different products or services together into a single comprehensive package. Then the package is sold all together for a decreased price. Even though on an individualised basis, items in the package are sold at discounted price, profits can grow since this package encourages a collective purchase of more than one item. With more product purchased overall through a bundling strategy, consumers can enjoy a reduced price, while a business can enjoy inventory stock moving off their shelves and product into consumers hands.
A common example of product bundling is a value or combo meal at a restaurant or takeaway shop. You can’t look at a McDonald’s menu without seeing product bundling; it has an entire section dedicated to value meals. Other product bundles can be found with health and beauty products. They will often package shampoo and conditioner together, with a bonus body wash or hand lotion. This allows companies to introduce new items or get rid of some of their inventory stock if necessary.
The Economics of Product Bundling
Product bundling is built on the idea of consumer surplus. Every consumer has a price that they are willing to pay for a specific good or service. If the price you set is equal to or lower than what the consumer is willing to pay, the consumer will buy, as they consider the price a bargain. The difference between what the consumer pays and what the consumer was willing to pay is known as consumer surplus, a common economic term. Bundle pricing is an attempt to capture more consumer surplus.
Bundling for Success
An increase in profit can be a direct indicator of success in a business. However, there are several indirect ways that product bundling can create a more successful business. For example, bundling can increase speed. When a bundled package is prepared for delivery, you can send out multiple products quicker in comparison to preparing several individualised items. In addition, bundling increases efficiency. When gathering inventory stock in a warehouse, it is much quicker to grab bundled merchandise than to have employees spread their time traveling across the warehouse, collecting multiple items.
With a lower price point, there is more reason to advertise. Since you have a bundled package for a competitive price, it is an excellent opportunity to attract new customers who are purely focused on price or getting the best deal. This can lead to new customers and sales as well. In turn, you will also gain a competitive edge against other companies; the competitiveness will spur from your pricing strategy. A bundle can make it hard to differentiate how you are pricing or valuing your products individually. It can make it harder for the competition to gather information on your pricing patterns. Therefore, bundling can be a very competitive tactic.
When analysing the benefits of product bundling, you will see an increase in unit sales volume, as well as an increase in margins. Moreover, you have the opportunity to offer product exposure to new consumers. However, it is important to be selective with the products you bundle, making sure you have done both product and market research. Effectively with the right bundle, both the consumer and the company can win.