Benefits of using Bundle Pricing for Online Retailers
26 September 2019 - 9:50, by , in Best practices in price monitoring, No comments
No matter if you’ve just entered the eCommerce world, or if you already are a true professional, it would be almost impossible that you aren’t aware of the advantages that bundle pricing can offer to your business. It seems like a win-win situation: customers get more for a lower price, and companies get to sell more products. But is it really all beer and skittles, or there are actually some things that you need to keep in mind before opting for this pricing strategy? We’ll discuss everything in the following lines.
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What is bundle pricing?
 

Bundle pricing implies retailers defining a set of products or services and then selling them for a price which is lower than the price if the products were sold separately. It’s a common feature in many businesses because most of them are multi-product or multi-service companies faced with making the decision whether to sell goods separately or combined. This means that you get the opportunity to increase your profit by using discounts in order to cause your customers to buy more than they otherwise would. Also, it is important to note that there are some variations when it comes to the concept of bundle pricing:

  1. Pure Bundling: There are products that are meant to be bought as a package. In other words, this is “take it or leave it” situation. The customer isn’t left with the option to choose if he wants to buy all the products separately or together. Buying them all together is the only option.
  2. Mixed Leader: The customer can decide whether to buy the products/services as an entire package or just some parts of it. But, there is only one product defined as a leading product and that is the one that customers can buy separately, but the other ones (called extras) can’t.
  3. Joint Bundling: Two products are offered jointly for a special reduced price.
  4. Leader Bundling: This strategy is used when the leading product is losing its position. Thus, the leading product is on discount only if the customer buys it with the non-leading one.
How bundle pricing benefits retailers?

As we have said, bundle pricing can benefit both retailers and customers. Customers get a favorable deal, business gets more profit, and in the end, satisfied customers are more likely to return to you and make another purchase. So, let’s discuss in more detail how you can benefit from using bundle pricing if you are a retailer.

First of all, bundle pricing helps you with your inventory reduction. If you have some products that are stagnant for some time already, then you can consider to bundle them up with some other ones in order to provide more sales. Also, if you are trying to sell, for example, five products, that means that you need to market all of them. But, if you bundle them, your marketing activities become much more simple and efficient.

In the case of selling product that has a lower price, bundle pricing also comes convenient. When buying a cheaper product, the customer is usually faced with shipping costs that can be even higher than the product itself. In that case, the customer is more likely to cancel the order. But, if you use a bundle pricing strategy, you can offer that product with some other and make it a better deal for a customer.
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How bundle pricing benefits customers?

Believe it or not, it is scientifically proven that the case of “pain of payment” really does exist. When pricing is more opaque, the customers are less able to identify the “right” and “wrong” price. That means that they are not completely able to differentiate which segment of the products combined in the bundle pricing cost respectively, and therefore, they feel less anxious about making the wrong decision. To make it more clear, when you are buying, for example, a car, you are only aware of the full price, but not of the price of every feature respectively. So, you don’t even think about how much is the sound system, and how much cost the interior design and therefore you don’t make yourself think that you are maybe overpaying for something.

Also, when deciding to buy something, most of the consumers first get informed online about the offer of different retailers. If you use bundle pricing and therefore provide them a better offer, you will be the one who will get the customer.

When bundle pricing doesn’t work?

So far, we have discussed some of the main benefits of using bundle pricing from both points of view – retailers and customers. But there are definitely some important facts to consider when deciding to use bundle pricing. The risk of getting it wrong is pretty high, and because of three main reasons. The first of them is called the presenter’s paradox.

The presenter’s paradox means that you could be wrong when assuming that bundling products will end up in more sales. When explaining the presenter’s paradox in the post above, Steve Martin offered this explanation: “Much like adding warm water to hot leads to a more moderate temperature, attempts to clinch a deal by adding extra features to an already strong proposal, could mean a reduction in the overall attractiveness of that proposal. In effect, each additional feature or piece of information provided serves to cheapen the overall package”.

Why is this happening? The answer is categorical reasoning. People tend to define products or services as expensive or inexpensive and their judgment of the product value is often based on the price. Therefore, if you bundle an expensive product whit an inexpensive one, it decreases value, and people are less likely to buy it.

Last but not least is the cognitive load. This term refers to the fact that bundle pricing is of no use if it is too complicated for the buyer to understand. So, if the customers think that they need to put much effort into understanding what the offer is actually about, they tend to abandon the buying process.

What is important when performing bundle pricing?

One of the most important steps for making a great pricing strategy is to know your audience. You need to have a clear picture of why your customers are and then to collect answers regarding the most common ways in which they are shopping. For example, are they an impulsive buyer, and if they are, then how frequent, how much do they spend, are there any products or services that could encourage them to buy even more, etc. So, besides knowing what types of bundle pricing exist, it is even more important to be aware of what pricing strategy is the most suitable for your business. That decision can not be made properly without knowing who is your targeted audience.

It is important to put yourself in the customer’s shoes in order to understand what exactly are they looking for on your website. With having that insight, you will be able to offer them exactly what they are trying to find, and whit less effort. This is not an easy task, but there are also some tools, such as Price2Spy, that can help you get more useful insights into the prices (and their changes) that your main competitors have. Knowing where you are performing better and where not can help you to get an idea if there are any products for which you could do the bundle pricing. This is what will differentiate you from your competition.

Bundle pricing can be a very effective pricing strategy but at the same time, you have to be very careful when using it. As you could see, there are some aspects of it that you need to pay attention to – main of them knowing and defining the right audience, and then deciding on the type of bundle pricing accordingly. If everything is done properly, your business can feel the benefits very promptly.

How familiar are you with bundle pricing? If you are already using it, share your experience with us in the comments below.

About Price2Spy

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This blog is a place for eCommerce professionals to discuss ideas, methodologies and strategies to compete more effectively in the ever more tightening world of online retail. We explore things like competitive price monitoring, competitor business intelligence, competitive pricing, and counter-intelligence in general.

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