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Marketing in today’s world is the backbone of any business. With new brands coming up every day, the competition is rapidly increasing. While numerous products offer similar features, unique and innovative marketing strategies can be significant differentiators for brands.
There are various marketing strategies that firms use. One such is the bundling strategy. In today’s article, let’s discuss the concept of bundling strategy and how it works.
What is bundling?
Bundling is a marketing strategy where firms sell their products in a bundle. It is where companies put different products into one bundle and sell them as a single package to customers.
They sell such bundles at a discount to attract more customers to increase the brand’s revenue. While the profit margin gets compromised because of the discount, the increase in sales volume makes up for it.
How does the bundling strategy work?
Companies that follow the bundling strategy pack similar products to sell them as a single unit. Sometimes, the products may not be alike but may be related. However, the objective is to sell it as a bundle and offer discounts.
When customers buy these products separately, the cost will be higher than buying them as a package, which is the unique strategy of bundling. The discount factor of such bundles acts as the point of attraction, convincing consumers to buy the whole bundle instead of a single item.
Are you wondering if this strategy helps increase the revenue as they offer products at a discount? Well, the profit margin on individual items in the package reduces because of the discount. However, the brand can increase its sales volume by convincing the buyer to buy an entire bundle of products instead of a single item.
Example
Let’s take a simple example to understand the concept better.
You go to a supermarket for grocery shopping. You spot your favourite packet of chips on the snack counter. While you are just about to pick up a packet, you see a bundle of ten packets packed together. Besides your favourite flavour, you see other interesting flavours in the package.
You then check the price. The individual packet of chips costs ₹40 per packet of 200 grams. The bundle of chips with ten packets costs ₹320, each containing 200 grams of chips.
You do some quick math to realise that buying the bundle gives you a discount of ₹8 per packet. If you had to buy ten separate packets, you would end up spending ₹400, but now it is only costing you ₹320. Since you do not know if such discounts will continue, you decide not to miss the opportunity and purchase the whole bundle.
From the chips company’s perspective, the bundling strategy has increased the revenue by eight times. A customer who was willing to spend ₹40 has now spent ₹320 on the company’s products. If the customer bought ten packets separately, the company would have earned ₹400, but the customer buying so many at once would have been a rare possibility without the discount. So, despite losing some revenue because of the discount, the company was able to make up for it by selling ten packets in place of one.
Types of bundling
- Mixed bundling – A mixed bundling strategy is where the brand allows its customers to buy products in the bundle as individual items if they wish to. The product bundling example we discussed above falls under this category.
- Pure bundling – A pure bundling strategy is where customers must buy products in a bundle as a bundle only and cannot buy them as individual items. An example of a bundle here is where a cable operator provides a set of TV channels as a package, and customers cannot subscribe to an individual channel.
Benefits and risks
The benefits of bundling include:
- It gives customers a higher value of products at a lower price.
- Bundling promotes sales as customers get attracted by discounts.
- Bundling helps brands clear the inventory of slow-moving goods by adding them to a bundle of the most-demanded products.
- Bundling helps customers save time while they are shopping.
- Brands can create different kinds of bundles to cater to the different needs of segments, hence expanding their customer base.
Disadvantages of bundling are:
- The brand’s revenue may take a hit while the focus is on increasing the volume.
- Some customers may prefer buying products individually instead of bundles. In such cases, the strategy might fail.
- Customising a bundle with the right kind of product mix is crucial. Otherwise, it may not be appealing to customers.
Bottomline
Bundling is a marketing technique where companies create packages of their products and offer them as a single bundle to customers at a discount.
However, customers are becoming increasingly aware today, and they have a wide variety of choices. So, bundling might sometimes be viewed as a marketing gimmick and not a real value add. Hence, brands must ensure the right mix of products in the bundle and use additional strategies to attract customers.
FAQs
Bundling is undoubtedly a brilliant marketing technique. Whether it is good or bad depends on how customers perceive these bundles. While some customers see it as an attractive discount, some only feel it is a marketing trick and does not add real value.
Hence, brands have to pay thorough attention to the product mix and pricing of such bundles to ensure a majority of customers are attracted to them.
Bundling does not increase profits on individual items. The profit margin on each item in the bundle is compromised because of the discount. However, through bundling, brands increase their average sales order, which in turn improves their revenue and profit. It is a game of volumes.
Bundling is where brands pack multiple products into a bundle and attract consumers to buy the entire pack instead of an individual item separately.
Upselling, on the other hand, is a marketing strategy where brands use tricks to convince the customer to buy a higher-end version of the product than the one they intend to buy. Upselling is common in places like car showrooms where the sales team shows high-end cars despite knowing your preferences.
The bundling strategy uses a discount to save money for customers. Customers would have to pay more if they bought products in the bundle as separate units. But, when they buy them in a bundle, they get a discount.
While it seems like they save money, they end up spending more. They buy ten products in place of one, even if it is unnecessary because they presume the discount to bring in more value.
The bundle pricing strategy is a marketing technique used by retailers while selling products to end consumers.
However, bundling does not work well while buying expensive products like properties or cars. It is more useful for smaller products and services, like FMCG products, insurance services, etc.