What is Bundle Pricing?
Bundle pricing is a pricing strategy used by retailers, where they create a bundle of products and offer them at a lower price than if each product was bought separately.
This strategy could be in the form of offering multiple pieces of the same product at a discount, or allowing customers to mix & match products and get one or more products for free if they pass a certain threshold of pieces.
Examples of Bundle Pricing
Bundle pricing takes many different forms and here we will list some examples for each type.
Related Products Bundle
An example of this type of bundle pricing is the value meal offered at most quick service restaurants. The price of the meal will be lower than if the customer has chosen to buy all the components separately.
Here, the retailer has selected specific items to include in the bundle, where those items are typically bought and consumed together.
Same Product Bundle
Another example is the “Pack of X” or “Set of X”.
In this case the retailer sets a lower amount for a set or pack of the same item, which allows the customer to stock up on the same item and save.
Mixed Bundle Pricing
A more popular bundle pricing method is the mixed bundle pricing, where customers are allowed to choose from a variety of products and get the discount when they pass a certain threshold set for the bundle offer.
A good mixed bundle pricing example is the Mix & Match: Buy 2 Get 1 Free offer at Bath & Body Works. This offer allows customers to choose any 3 products from across different product categories in the store and get one of those products for free.
For example, a customer could choose one shower gel, one body cream and one body splash, and get billed only for the splash and the shower gel. She can also choose to buy two shower gels and one splash.
Whatever she chooses, the lowest priced item out of each 3 items she buys will be free.
Benefits of Bundle Pricing
The reason why product bundle pricing is effective to the company is that it creates a win/win situation for both, the buyer and the seller.
On one hand, the buyer gets to buy the product at a discounted price and benefits from the savings. On the other hand, the retailer or the seller gets to drive sales of more items in one transaction, and so increases his average transaction value and units per customer.
Typically, such an increase translates into more sales and more absolute gross profits as a result of the increase in sales.
The effect of the bundle offer on sales is mainly driven by the framing of the offer and how customers perceive it. If the bundle communicates a higher value for the customer, they will opt for it.
For example, customers perceive a Buy One Get One Free bundle offer as a 50% discount, while in real life we have noticed that for the retailer it does not translate to 50% discount, but rather around 43 to 45% discount.
This is because, when you tell customers they can buy one item and get the second for free and allow them to mix and match between different products, very few will buy exactly the same product twice.
The majority will buy two different items and the lower priced one will be given for free. That’s why it will not be a 50% discount, although it was perceived that way by the customer.
So in this case the retailer benefited by increasing his sales, while at the same time getting higher margins vs. offering a flat discount (e.g 50% off). Not to mention that setting the threshold here at 2 pieces to get the offer, will result in customers buying in two’s, and automatically will increase sales to meet the threshold.
Another benefit of bundle pricing for retailers is moving slow selling merchandise, by packing it in a bundle with popular products that sell fast. Since the slow sellers would have gone into a discount sooner or later, the retailer benefits by applying this method and pushing both the fast sellers and the slow sellers at the same time, with the same loss on margins.
Bundle Pricing Vocabulary
Here are some vocabulary and abbreviations used by retailers when referring to bundle pricing.
|BOGOF||Buy One Get One Free|
|B2G1F||Buy Two Get One Free|
|Buy X Get Y Off||Buy X or more and get Y% off|
|Buy X for Y||Buy X pieces for Y$, aka. “Pack of X” or “Set of X”|
Should I Bundle My Products for a Single Price?
It is not recommended to bundle products for a single price and offer it as the single option to buy. This is because some customers might not need all the products in the bundle and they don’t want to pay extra for them.
Instead, create a bundle out of your products and offer it for a single price, and at the same time give customers the option to buy each item separately and show them the savings benefit of choosing the bundle if the they are interested in most of the products.
This will also serve you in another way, by giving customers a point of reference when they asses your price. Instead of comparing your price to the competition, they will compare the bundle with the non-bundled option.
We explain this concept in more details in our price lining article, so please refer to it.
Considerations When Using Bundle Pricing
You can choose to go for a mixed bundle pricing and let customers pick and choose their products and get one or two for free, or instead you can create a set of bundles out of certain products and give them a certain price that will drive the bundle sales. This depends on your end goal from applying the bundle pricing method.
For example, if your aim is to clear unsold merchandise, then it is better to create sets of products and plug the slow sellers with some best sellers.
In both cases, you should carefully calculate the loss on margin you will get by offering the bundle and compare it with the added benefit of increased sales and absolute gross profit achievement.
Read Also: Loss Leader Pricing Strategy
Another consideration is how long you want to run this bundle offer for?
Should you have this bundle price all-year-round, or instead make it a limited time offer to give customers a sense of urgency and also protect your margins? Again, this will depend on the analysis you have run and also on the types of products you sell.
Access our members area and find out what we believe is the real reason why Bath & Body Works uses bundle offers all-year-round, and how you can incorporate the same strategy at your store.
It should also be noted that offering price discounts repeatedly or for an extended period of time will tend to reduce the efficiency of the promotion mechanism.
Read Also: Pricing Considerations
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