Bundle Pricing / Price Bundling

Price Setting (Pricing)
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A Kahnesky
Manager, Denmark

Bundle Pricing / Price Bundling

Bundle Pricing, also called "Price Bundling" or "Product Bundling", is a strategy where two or more products/services are clubbed together and sold at a single price, often at a price lower than the cumulative prices of individual components. Bundle Pricing is one of the strategies for Product Mix Pricing. The main proposition for Bundling is to sell a product which the customer desires along with another product that the customer does not desist. Typically, complementary products are clubbed together in a bundle, for example, selling a t-shirt with a pair of jeans. Firms may also attempt to club together items from different product categories, for example, selling a small packet of biscuits with a bottle of jam/marmalade.

Bundle Pricing finds many applications in Consumer Durables, FMCG, Apparels, TVs, Internet Services, Automobiles, Restaurants, Software, Banking, Insurance, etc.

WHEN TO USE BUNDLE PRICING? APPLICATIONS
  • Selling a standalone product/service that doesn't sell well.
  • If the seller wants to get rid of unsold stock.
  • Promoting a lesser-known or newly launched product.
  • As an alternative to offering a direct discount on products or services.
TYPES OF PRICE BUNDLING. EXAMPLES
Consider a bundle consisting of a pair of Jeans costing 2000, and a T-shirt costing 800
  • Pure Bundling: The components of the bundle cannot be purchased individually. Thus, the customer can either take the bundle or nothing. This method is usually less popular as compared to Mixed Bundling. For example, the pair of Jeans and a T-shirt are bundled together at a price of 2400, instead of 2800.
  • Mixed Bundling: Unlike Pure Bundling, the customer can also purchase the bundle components individually. Usually, a special offer is provided to attract the customers towards purchasing the entire bundle instead of individual items. There are two types of Mixed Bundling:
    • Mixed Joint Bundling: A single price is set for the bundle, without revealing the discount offered on individual components. For example, the pair of Jeans and a T-shirt can be purchased at 2400, instead of 2800. They can also be purchased separately, with the pair of Jeans costing 2000 and the T-shirt at 800.
    • Mixed Leader Bundling: The seller may choose to give emphasis on a core product (based on the experience of consumer behaviour). This product is termed as the 'Leader'. Usually, the Leader is sold at the Maximum Retail Price (MRP), while a discount is offered on the Tie-in product(s). For example, the pair of Jeans (Leader) is priced at MRP (2000) and the T-shirt is offered at a 50% discount (400). Another way of pricing this bundle is by designating the T-shirt as Leader (priced at 800) and offering a 20% discount on the pair of Jeans (1600). Finally, each of these components can also be purchased individually at their respective MRPs.
ADVANTAGES OF BUNDLE PRICING
  • Bundle Pricing doesn't reduce (or lowers by a small margin) the Internal Reference Price of the customer, as compared to offering direct discounts.
  • Customer perceive that they are getting more value from the bundle, as multiple products are offered together at a discount.
  • Boosts revenue and profits when the increased sales volume makes up for the discount offered on the bundled products/services.
  • Increases the average order value.
  • Helps to reduce the inventory for weaker items, by pairing them up with stronger items.
  • Allows retailers to apply competitive pricing to a set of products and outselling competitors.
  • Selling expensive products become easier along with other products bundled together at a discount price.
  • Encourages cross-selling when including items from different categories in the bundle.
DISADVANTAGES OF BUNDLE PRICING
  • Customers might not always require the accompanying product(s) in the bundle; they might want the option of buying individual components separately.
  • If customers perceive that the seller is trying to get rid of inferior goods via the bundle, its overall perceived customer value is reduced.

⇒ Please add any additional aspect or question about bundle pricing below.

Sources:
Kotler, P. & Keller, K. L. (2016) "Marketing Management", 2016, pp. 417-418
Competera (2018) "Bundle Pricing Strategy: Retailer's secret weapon to boost sales", Competera
Gilbert, D. (2019) "Bundle Pricing Strategy: Here's what you need to know", Dot Activ
Katana (2019) "5 Product Bundling Strategies you need to be using in 2019", Katanamrp

  Anonymous
 

Using Bundle Pricing

Price bundling can really add value to customer. F (...)

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