The Bundle Pricing Formula

In a highly dynamic product market, every business is trying to satisfy customer needs while staying competitive. Revenue generation, well-curated selling strategies, and innovative pricing models are crucial for businesses to thrive. One prominent pricing strategy that has gained the spotlight is bundle pricing. It is a concept that revolves around offering varying products combined together as a bundle and sold at a discounted rate. By doing so, businesses can witness a drastic increase in revenue, increased average order value, increased customer satisfaction and brand loyalty. However, getting a thorough understanding of how this concept works is critical.

In this blog, we will cover the concept of bundle pricing, its key features, advantages, best practices and market application. We will also elucidate the challenges that businesses may incur while implementing this pricing strategy.

What is bundle pricing?

When you buy a smartphone, you are often given a cover case, a screen protector, and headphones at a discounted rate. Similarly, when you order a meal at a fast-food restaurant, you can upgrade to a “combo meal” that includes a burger, fries, and a drink at a lower price than buying each item separately. This discounted pricing on more items bought is actually bundle pricing, where varying products are sold together at a discounted rate.

Bundle pricing is a sales technique that involves offering two or more products/services as a package at a discounted price to attract customers and derive sales. Bundling complementary products helps a business gain a competitive edge, as it can increase sales, improve customer satisfaction, and offer attractive discounted items to potential customers. It also allows increased average deal size and customer spending.

On the customer’s part, it offers better value for money. When multiple products are bundled, companies can give discounts for purchasing the items in combination that are greater than any discounts or advantages of their individual prices. Customers value this for total cost savings.

This approach is often employed in the retail and ecommerce industry as a formula for increasing sales; it allows inventory clearance and keeps a business ahead of the competitors. Moreover, customers believe that they have saved up by paying a discounted price rather than individually buying those bundled products that would have cost more, otherwise.

Significance of Bundling

The main purpose of bundling is to increase overall business revenue. Moreover, it incentivizes customers and businesses at the same time. Business, through bundle pricing, can sell off a large number of services or goods that have less popularity among the masses. It offers an opportunity to clear up inventory and sell a high volume of low-performing products efficiently.

This strategy allows businesses to sell off stock that may be sitting idle, occupying valuable storage space, accumulating holding costs, and freezing resources that could be used elsewhere more effectively.

By packaging these slower-selling items with other more in-demand products or services, companies can make a win-win scenario. Consumers enjoy the convenience, value, and perceived cost savings of buying a bundle, while companies enjoy the benefits of higher volume sales, enhanced cash flow, and lower inventory levels.

Types of Bundles

Bundle pricing has a myriad of business benefits and attracts the attention of customers to a great extent. By accurately utilizing this pricing strategy, businesses can enjoy a thriving market presence. However, comprehending the two types of bundles is critical.

You have done your part.
Let SubscriptionFlow take it from here!

Let us help your business grow with our powerful
subscription management software.

Pure Bundles

This type of bundling involves restrictions on customers to purchase relevant products as a package and no option of individual purchases of each item separately. This is used when your products are deeply integrated and customers wouldn’t enjoy the product unless complementary items are not bought together. This type of model allows getting most of the product’s value by utilizing each product.

Pure bundles further have two categories:

Leader Bundling

It is a bundle with a leader product offered together with lower-value goods that complement the leader. The leader product attracts the customer, and the complementary goods enhance its value. To illustrate, luxury hotels can offer complementary services such as breakfast meals, concierge, and spa treatments as part of the fee for the hotel room to increase the perceived value of staying in their hotel overnight.

Joint bundling

This product bundles two or more related goods of similar or approximately similar value at one price. The products can be purchased only as a bundle or not at all by the customer. Adobe Creative Cloud is a classic example since customers are no longer permitted to buy Adobe Illustrator or Photoshop separately.

Mixed Bundles

This is a flexible type of price bundling where customers can choose whether they want to buy a packaged bundle at a discounted price or separately at the current market price. The purpose of this is to facilitate the customers and allow them to choose as per need.

Individuals interested in acquiring the associated products are able to buy them in bulk at a discount, whereas those interested in one of the products will be required to pay the full amount for that single product or service.

Example

Adobe provides Adobe Creative Cloud as a package of its hit creative applications, like Photoshop, Illustrator, and Premiere Pro, at a discounted monthly or yearly subscription price. Nonetheless, the customer can buy a single application, like Adobe Photoshop, at a premium monthly or yearly price. This bundling behavior enables Adobe to motivate customers to subscribe to the whole Creative Cloud package, yet still offer choice to customers who require merely a certain application.

What Industries Use Bundle Pricing?

Several types of businesses use some type of bundle pricing in their overall pricing strategy. Following are some examples:

Business to Customer:

In retail businesses, bundling is often done on complementary items in order to raise the value of the purchase. For instance, pairing a phone with a screen protector and charger.

Business to Customer:

Service/product-based businesses sell bundled items to other businesses that align with customers overall business needs and processes. It can include a software system, hardware, installation services, etc.

SaaS:

Software houses offering subscription-based services often combine additional features with a leader product. This can be extra storage or access to premium features offered in paid plans only. Some examples are:

Salesforce (extra features and storage in the higher-tiered plans)

Dropbox (additional storage and capabilities in paid accounts)

HubSpot (advanced features and support in premium plans)

Zoom (additional features and support in business and enterprise plans)

Service Providers:

Hosted IT services, cloud services, and other service providers frequently package their services with varying access or features. The same practice is used by internet, cable, and cellular providers to sell varying combinations of services and features.

Do you want to learn about the advantages associated with bundle pricing? Read on to know more.

Top Advantages of Bundle Pricing

Many businesses are utilizing price bundling to maximize revenue and generate sales from potential customers.

Perceived Value for Customers

Implementing a successful bundling strategy makes a customer feel like they are getting a better deal through combined goods at discounted rates. This enhances customer satisfaction and brand loyalty.

Inventory management

By combining high-demand products with slow-moving stock, businesses can improve inventory management. It can help clear up stock, reduce storage costs, and optimize product turnover.

Improved business decisions

Customers who are attracted to bundled offers are more likely to make a purchase, as it simplifies the decision-making of purchases. Providing pre-curated bundles minimizes the number of choices customers need to make individually, facilitating easy completion of transactions. By reducing decision fatigue, bundles can generate a more seamless, satisfying purchasing experience.

New Product Launch

Merging complementary products into the same package is a good way to introduce customers to new products. The bundling method aims to persuade customers to use products they may not normally buy, increasing their exposure to the offerings of your brand. Encounters with new products that are good can drive customers to make subsequent purchases, along with enhancing customer loyalty.

Reduced advertising expenses

When popular items are bundled with less-sold products, it helps businesses to optimize sales. Moreover, it reduces advertising costs as less popular items are advertised with a popular product, thereby reducing the cost that could have been incurred when products were promoted separately.

Cost Optimization

Bundled pricing offers cost optimization as it helps in adjusting prices based on customer behavior, preferences, demographic factors, and more. This way, customers can get the most attractive deals without having the business to compromise on revenue gains.

What are some challenges of bundle pricing?

Devalued Individual Products

Selling your high-profile product with low-selling products can lead to lost sale opportunities. When a profitable item becomes a part of bundled goods, then most of the customers will buy that product at a lower bundle price.

Dissatisfaction among customers

In case your bundle offering is not as lucrative as your competitors, there is a high chance that the customer would not buy from you. Not meeting the customers’ needs can invoke displeasure and gradual loss in consumer base.

Bundling Challenge

Heavy market research is required to find the right balance of bundled items while staying profitable. It can require millions of investments, resource allocation, and time. If by any chance your bundling strategy goes wrong, it can pose detrimental effects on your business.

Bundle Pricing: Some Best Practices to Know

To fully leverage the benefits of bundle pricing, you can do the following:

Analyzing Customer Preferences

A successful bundle pricing strategy aims to tailor your package to align with customer preferences. Good market research can help to navigate customer wants. Data extracted from thorough market research can be helpful. It can include the average amount spent on each purchase, market impact on buying patterns, demand and supply impact on sales, and more.

Testing Pricing Strategies

Customer data can help you to decide upon pricing bundles that meet the buyer’s needs. By performing A/B tests on different bundles, you can experiment and reach a bundle that increases profitability and enhances customer satisfaction.

Pure Bundling Can Help

If market research reveals that customers buy a few products bundled together, it can be helpful to offer them together. Pure bundling can be helpful in this case. But if they buy products individually, it is best to give them bundling choices.

Grow with the market.

Changes in the market dynamics must be valued and considered important to change your pricing plans. Regular review of accurate data and stats on the customer base and their changes in preferences can all be helpful.

Bottom Line

A strategically designed pricing approach in your business can help to reach new heights of success and drive sales. Implementation of accurate strategies can include bundled pricing, as it is a unique and profitable approach to selling products/services at discounted rates while staying profitable. When bundle pricing is accurately employed in your business model, it can ease inventory management, help get rid of unsold stock, increase selling power, and also attract customers to buy combined items that are hard to get individually. However, understanding the limitations of this approach and mindfully deciding upon a fair win-win deal for both your customers and the business can be challenging. At SubscriptionFlow, you can transform the outlook of your ecommerce business, as we leverage the option of strategic pricing implementation. Our system can allow businesses to set up lucrative pricing models and allow automatic discounts for bundle pricing. With a streamlined system that handles the major features of your online store, you can enhance your digital footprint with ease.

Want to learn more about how we can help you? Contact us.