What is product bundling? Types of product bundling

Product bundling is one of the most popular pricing strategies which a business uses to increase its sales. It is also a good tool for a company to compete with competitors. In this blog post, we will discuss what is product bundling, types of product bundling , and then give you examples of companies that are using this strategy.

What is product bundling?

Product bundling, also known as tiered pricing and package pricing, is a pricing strategy where two or more products are sold together at a single price with the intention of generating more total revenue than the sum of the individual component prices. This is done to entice customers with an opportunity to save money by purchasing several items in one transaction.

Product bundles can be created for any type of product such as software programs, foodstuffs, or even retail goods like clothing. The most common form of product bundling is when multiple products are offered together at a reduced cost per unit rather than each item being sold individually. For example, if you buy 2 shirts that would normally cost $30 apiece then they may be priced at $15 apiece instead for a 5 shirt purchase.

Major types of product bundling

There are major types of product bundling as below

Pure bundling

Pure bundles consist of individual products which can be only purchased as a bundle and not as standalone ones. Companies that utilize pure product bundling are typically selling expensive products in which customers expect to pay less when buying more items.

New product bundling

In new product bundling, two or more new products are made available for purchase as a bundle. This gives the consumer the feeling of getting a great deal on an innovative product and may encourage him or her to buy it even if they weren't initially interested. For example, Office Depot® offers free same day pick-up service when you order both a printer and ink cartridge together in order to increase its sales.

Mixed bundling

Companies that use mixed product bundling sell products of different types individually and in bundles. The consumer can pick and choose what they want to buy. For example, you can purchase a Dell® laptop for $300 or get one with a free printer for $450.

Product family bundling

In product family bundling, a company bundles all the products from a single brand or family of products together at a reduced price per unit and differentiates them by assigning different names and/or colors for each type. For example, Cannon® calls its color printers as Selphy Photo Printers and offers its customers one printer model with different names, colors and functions which they can choose from.

Cross-sell bundling

Cross-sell bundling is when a company offers one product by tying it to the sale of another unrelated product. For example, if you buy a printer from Best Buy®, they offer free 5 in 1 wireless photo printing which can print photos from your mobile device wirelessly.

Gifting bundling

Gifting bundling is when one or more complimentary products are given with purchase of a certain product. For example, an online clothing retailer offers you free shipping when you spend more than $50 on your order.

Buy-one-get-one bundling

Buy-one-get-one bundling is when a company offers an additional product to the customer for free once he or she purchases a certain product. For example, if you buy any dress from Dress Barn® , you get one free handbag and two scarves with it.

Benefits of product bundling

Product bundling can bring many benefits to the business

Increases total revenue

Research has shown that by offering customers a reduced price for buying more than one product, they are likely to purchase the second and sometimes even third product as well. This increases revenue for companies because each additional item sold contributes to the overall shop and its products without decreasing per piece prices. 

Decreases customer costs

By bundling products together, customers can benefit from lower per unit costs for items they would have bought anyway. In addition to the reduced price of each item, companies also increase customer satisfaction because they feel they are saving money and paying less than they normally would on a given product. This increased satisfaction is likely to lead to them buying more products from the same company as well as recommendations to their friends and family.

Increases market share

Offering a bundle allows customers who may be undecided to try a new product without having to pay full price for it. This also benefits companies because they can increase sales of products that have low demand comparatively, but high production costs per unit due to loss leaders. For example, if computer manufacturers are unable to reduce the production costs of laptops that are very popular with the majority of consumers, they can increase their market share by bundling them with high demand but low profit-making items such as printers.

Increases brand awareness

Product bundling allows some companies who may have a great product that is not widely known, to promote it and gain more brand recognition. For example, if a new chocolate company offered you a box of chocolates with one free bracelet of your choice, this would not only increase sales but also raise the profile of the business as well as their product among consumers who may have never heard of them before.

Disadvantages of product bundling

Product bundling may have some possible disadvantages for the business

Reduced customer choice

Some customers may not be interested in purchasing products that are bundled together so this limits their option to choose. However, having the option to buy either one product or the other will benefit companies because it means they can cater for both groups of customers who prefer buying individual items or packages. For example, if you just want a fridge freezer, you won't want to spend on a washing machine as well. So by having both options available, companies can make sure they are receiving revenue from every customer who is interested in purchasing only one of the bundled products.

Decreased per product profitability

Although it is more likely that a single bundled product will generate more revenue than two individual products, each product will have to include some of the fixed costs such as materials and time. This means that after covering these fixed costs, more revenue is required to cover variable or per-item costs such as labour or manufacturing expenses which can decrease profitability for companies.

Conclusion

Product bundling is a strategy that can be used to increase your company’s revenue, market share and brand awareness. However, it does have some disadvantages such as decreased customer choice or increased per unit costs for products when compared with single purchases. Businesses should consider their options carefully when deciding to offer product bundles to ensure they are benefiting from the advantages while reducing any potential disadvantages.

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