Bundle pricing is the method in which company set a lower price if customers purchase a set of product. The price is lower than the total price of each product sold individual. In other words, the company provides a discount for the customer who buys a prepared set of products. It also calls “Product Binding,” which encourages the customer to purchase products in the package not one by one.
Type of Bundle Pricing
- Pure bundle
These products need to sell together; otherwise, they will not work, or the usefulness reduce significantly. For example, we must buy a mouse and keyboard when we buy a computer. They need to work together, we cannot use computer without mouse and keyboard.
- Mix Bundle
This bundle includes multiple products that can work independently, but they were attached to a lower price. They are fully working on their own. For example, the supermarket sells Chocolate attach to Candy at a lower price.
- Tied Bundle
This package will depend on one main product attach to others that is the complementary product. The main product will work fine without the second one, but the second product will not work on its own. One of the examples is the shoe and polish.
Product Bundle Pricing Example
It is trendy in fast-food and supermarket. In most of the fast food, we will be able to find many combos such as breakfast, lunch, and a long list of food set. We can have a set include Burger, French fries, and Coke for only $5. However, we will pay more if we buy the three items separately. All the sets have a lower price if we compare them to each item. This is a well-known strategy for most of the fast food.
In the supermarket, we will see some products attach with a colorful sticker of discounts such as 20%, 40%, or up to 60%. Two products may pack together, if we check carefully, one of them is almost an unknown, low quality or nearly expired.
When do we use bundle pricing?
The bundle price is the best suitable pricing method in some specific circumstances such as:
- Unsold stock
It is an excellent way to clear out the long outstanding stock, which will make space for better-performing products. It will save the company from the holding cost of products that will never sell. If we do not sell them, they will become obsolete soon, and the cost will be higher.
However, aggressively bundle may hurt our best-selling products, so we have to do it carefully.
- New product
It is one of the best ways to promote the product. We can create a supplementary product which is targeting a specific group of customers. By doing so, we can give a discount product to a niches customer and let them try it. They are highly likely to turn into our real customers.
- Normal product performance
It can be used for our normal product as well if we want to increase our sales volume.
What are the Advantages of Bundle Pricing?
|Advantages of Bundle Pricing
|The customers will buy more when we use this price as they will be able to save some money. In total, our sales will increase as they have to buy all the items in the package to get the discount.
|Best Chance to test new product
|If the company is selling multiple product lines, we will be able to check the new product by attaching it with the bestselling one. I will also help us to reduce marketing and advertising expense. We do not need to spend on promoting and provide free samples to the customer, but we can charge a slightly on it. This pricing will help to increase the number of customers, and it will have us more if the customer acquisition cost is high.
|Improve Consumer experience
|We can use this pricing to bind complementary goods together. Customers will not need to spend time selecting another one. Loyal customers will trust the new product due to the existing branding. They will end up saving both time and money due to our strategy, so sooner or later, it will increase customers’ loyalty.
|Increasing gross profit margin
|Even we provide some discount on total product, and we still manage to get a higher gross profit margin if we can increase sales. It also depends on the amount of discount too.
|Decrease Cost per unit
|This price decrease will skyrocket our sales as well as the production quantity. We will be able to negotiate the price with the supplier due to our purchasing power. We may entitle the bulk discount, which is not available before.
|To Bring the best solution for customers
|This strategy encourages customers to buy. We can mix up the best selling with low branding products. Sometimes the product has high quality but little in branding, so it a chance for the consumer to experience it. They will feel appreciate our brand more when all products are over their expectations.
|Base on the consumer surplus
|This method works very well when there is a high consumer surplus. The customer expects to pay more on our product, so there is a high chance that they will keep buying when we include another product too.
What are the Disadvantages of Bundle Pricing?
|Disadvantages of Bundle Pricing
|Customers do not need all the product
|It will be a problem when we add the products which the customers do not need. They will buy the competitors’ products instead. It is highly likely to happen in a competitive market when our products are quickly replacing with others. They are not willing to pay for something that they do not need.
|Decrease in revenue due to discount
|For sure, our revenue will decrease due to the discount amount on multiple products compare to the total sale of each one. It will impact the bottom line as well, while our product cost stays the same.
|Customers’ negative view of the company as they sold an outdated product
|In some scenarios, customers will feel that the package may include some negative such as low quality, expire date. It will impact the overall company image as it is the general perception of customers toward the cheap product.
|Easy for the competitor to compete
|It is more accessible for the competitor to attack one of our products within the bundle due to unclear price for each one. The customers will not be able to know each product price so that they may go for a competitor product instead.