From the series on pricing strategy, the following is called price bundling, product bundling, a compilation, or a package deal. This is when a customer buys two or more products or services together for one price instead of buying items separately for individual prices.
This is an interesting strategy. Aside from being a popular tier pricing strategy, bundling pricing strategy is a game of perception.
There are many people who would argue that it’s not a pricing strategy, but a marketing strategy.
At least, they are related. If bundles are put together and tested properly, the result can satisfy your customer and have a positive impact on your profitability. For example, the right bundle can:
- Increase your overall sales
- Increase your average sale
- Increase your gross profit margin
- Decrease your marketing cost
Example of Bundle Pricing Strategy
Essentially, price bundling offers several products or services for sale as a combined product.
Think about your last fast food visit. If you request to buy one or two single items were you asked if you would like to make it a combo?
Or, if you were with your kids did you end up purchasing a kids meal?
This is an example of bundling that everyone can relate to.
Also, the example of the kids meal illustrates that bundles do not have to be made up of the same type of products. A regular combo maybe a burger, fries, and a drink - which are all food items. Unlike the regular combo, the meal for kid's includes food items + a toy.
All inclusive vacations are another example; you get hotel, flight, car and food plan all for one price.
B2B - Business to Business
In the business to business (B2B) world, you’ll find many solution oriented bundles – products or services bundled to solve specific problems.
For example telecommunication companies often bundle phone and internet.
Some bundles are taken a step further and packaged in a way that they speak to a specific audience, like the example of a phone and the internet which is geared to small businesses.
How to Leverage Bundle Pricing?
To successfully use this pricing strategy, you have to create bundles where the perceived value exceeds the asking price.
If you get the right value in front of the right customer at the appropriate price, you’re more likely to make a sale.
Bundling is most successful when:
- The average cost per unit lowers through increased production
- The average total cost of production decreases as a result of increasing the number of different products produced
- Marginal costs of bundling are low
- Production set-up costs are high
- Customer acquisition costs are high
- Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product.
We see this pricing strategy most commonly in a one-time purchase scenario- and revenue recognition is straight forward. However, price bundling can be applied to a product or service that is invoiced on a recurring basis. If this is the case, revenue would have to be recognized over time, which means the process can get complex and labour intensive. Billing automation becomes extremely appealing as the company grows.
Used properly, the bundling pricing strategy can be very beneficial. But it’s not a right fit for every business. We recommend making sure it’s the best solution for your company before selecting a pricing strategy.
To read more on our pricing strategies series, check out:
- Freemium + Upsell
- Multiple Editions
- Pay As You Go
- Base + Overage
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