Which pricing strategy packages two or more products together and sells them at a single price?

What Is Bundling?

Bundling is when companies package several of their products or services together as a single combined unit, often for a lower price than they would charge customers to buy each item separately.

Key Takeaways

• Bundling is a marketing strategy where companies sell several products or services together as a single combined unit.
• The bundled products and services are usually related, but they can also consist of dissimilar items which appeal to one group of customers.
• Bundled products are typically offered at discounts to stimulate demand, lifting revenues often at the expense of profit margins.
• Companies occasionally use pure bundling strategies, rolling several products or services into one item that can only be purchased as a complete package.

Understanding Bundling

Bundling is a marketing strategy that facilitates the convenient purchase of several products and/or services from one company. These bundled products and services are usually related, but they can also consist of dissimilar items which appeal to one group of customers.

Many companies produce and supply multiple products or services. They must decide whether to sell these products or services separately at individual prices or in packages of products, or bundles, at a "bundle price." 

Price bundling plays an increasingly important role in many verticals, such as banking, insurance, software, and automotive. In fact, some organizations devise entire marketing strategies based on bundling. Typical examples of bundling include option packages on new automobiles and value meals at restaurants.

In a bundle pricing scheme, companies sell the bundle for a lower price than would be charged for items individually. Offering discounts can stimulate demand, enabling companies to perhaps sell products or services they otherwise had difficulty offloading and generate a greater volume in sales. Over time, this approach might even help to cancel out sacrifices in per-item profit margins—selling an item for less means squeezing less profit from it.

Important

Not all providers will mention bundling as an option to their customers, so it is important to check whether it is a possibility, particularly as bundled services often save consumers money.

Bundling Example

If you have two insurance policies (home and auto) through two separate companies, you might be able to bundle both policies together using only one company and reduce the total monthly payments. Bundling can also be used to switch several payments into one, making bill payments easier, even if it doesn't save money.

Mixed Bundling vs. Pure Bundling

Bundling usually consists of giving consumers an option to buy a set of items together as a package at a lower price than what they would pay to buy them all individually, in a process known as mixed bundling. However, there also exists an alternative, rarer form of this strategy called pure bundling.

Pure bundling does not give customers the option to buy items separately. An item that consists of several products or services must be bought as one or not at all. Examples include Microsoft Corp.’s Office 365 software and television channel plans—cable providers often offer packages, meaning customers cannot just pick and choose which channels they want to pay for.

Special Considerations

Unfortunately, many consumers, especially younger people, do not take advantage of bundling, preferring to buy different items à la carte as needs arise.

For example, young people getting their first car insurance policy typically go to their parents’ agent and just stick with that coverage for years. Later in life, when they buy their first homes, they will often use a different insurer closer to their new residence. In the majority of cases, taking this approach makes little sense financially.

Insurance companies have significant motivation to provide more than one insurance policy to each customer. This is because it can be much more expensive to acquire a new customer than it is to keep an existing one. Thus, insurers have a strong incentive to sell a home or life insurance policy to their car insurance customers or vice versa.

In every store, you see signs that say “Buy one get one free”, “Buy this product and get a discount for that product”. The situation is the same at the fast food restaurant “Buy meal deal, save $3”. Everywhere you look there are special offers, discounts for buying more products, etc. This is called bundle pricing. It’s a very common pricing strategy, especially in the retail industry. But what is it really and how does it work? We are going to answer those questions in this post.

Starting with an explanation of this strategy. Bundle pricing is a pricing strategy in which a company or seller combines several products and then sells them at a single price instead of charging separate prices for each of them. This means that a bundle is a product on its own since it has an ID, price, attributes, etc. It’s important to say that this strategy works well for services too, not just products.

The best example for illustrating bundle pricing strategy are restaurants. If you go to eat at one, you can get dinner for $40. It will include starts, the main course, and dessert. But you can get all of those separately and pay more, for example, $10 for starts, $25 for the main and $10 for dessert. So, if you take the deal they offer you’ll pay $5 less. If we are talking about fast food restaurants, the situation is the same, only the prices are a lot lower.

There are two basic bundle pricing strategies, which are pure bundling and mixed. Let’s see what each of them means and how you can apply them.

1. Pure bundling is when products are only sold together. In some cases, products don’t exist outside the bundle. The best example for that are TV channels offered by cable providers. They offer a number of packages and each one has a different combination of channels. If you want a specific one, that is offered in only one package, you have to get all of the others from that one. For example, if you want HBO, you will have to pay for HBO2 and HBO3 too, and other channels that go with it (depending on the provider). When you think about it, it makes sense for such products.

Pure bundling has three subcategories: joint bundling, leader bundling, and mixed-leader bundling.

• Joint bundling is when the two products are offered together for one bundled price.
• Leader bundling is when a leader product is offered for a discount if purchased with a non-leader product, accessory, etc.
• Mixed-leader bundling is a type of leader bundling with the added possibility of buying the leader product on its own.

2. Mixed bundling, also called custom bundling, is when customers are offered to purchase a bundle or separate products on their own. Consumers are offered complete cable, internet, and telephone packages. The price will depend on the level of service that the package provides. If you choose high-speed internet and maximum channels, it’s going to be much more expensive than getting a package with low-speed internet and minimum channels. Each of these services can be bought separately, but it’s just like the restaurant example — it will be more expensive.

What are the advantages and disadvantages of bundle pricing?

Bundle pricing has many advantages. The most important one is it that it allows companies to sell their lesser known or unpopular products with the popular ones. It will also help attract different kinds of buyers: buyers looking for deals, buyers looking for convenience or buyers looking for advice on items that complement each other. Some consumers will be spending more than they initially wanted when they see an offer they like (if you offer the product that they already wanted to buy with something they wanted to try but never got to it). Product bundles have lower marketing cost because you are promoting two or more products with an effort and resources for one.

No matter how great a strategy is there is always a downside to it. The biggest disadvantage of this one is that it can lead to cannibalization of your products that can be bought outside of the bundle. For example, you are selling a laptop and a printer together, but also separately. Because of this more printers could be sold through the bundle than on its own. This does cause lower profit for that particular product. There is also a chance that some consumers won’t buy something if it can’t be bought separately because they feel forced to buy more. So it’s crucial to choose the right products for the bundle.

Product bundles are very popular among customers. They make their lives easier because they save them time looking all around the store for each product, they help them decided on products they weren’t sure about trying them, etc. When done right, bundle pricing strategy drives more sales and profit for the companies, which is why it’s one of the most used ones.

What do you think about bundle pricing? Let us know, we would be happy to hear your thoughts!

What is a bundle pricing strategy?

When two or more different products services bundled and sold at the price of one it is called?

What is a bundling strategy?

What type of pricing is bundle pricing combos?