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Bundle Pricing Strategy: How It Helps to Optimize Pricing & Increase Sales

By Priceva
on November 3, 2022
While discounts seem to be the most obvious product promotion method, e-commerce businesses often resort to an alternative strategy called “bundle pricing”. This approach allows them to sell multiple items at once and increase their profit margin. This guide explains how the price bundling strategy works and how retailers can benefit from this technique without risking losing customers.

Bundle Pricing Definition

Price bundling is a pricing strategy that implies selling multiple items at a more appealing cost rather than selling them separately at a higher individual price. This approach is widely used in the e-commerce niche, as well as by service providers. Bundling helps companies increase sales volume and promote particular products.

The strategy is based on the so-called “consumer surplus” and the fact that customers often keep in mind a certain price that they are ready to pay for a product. The difference between what a retailer charges and what customers are willing to pay is known as the “consumer surplus”. Since price bundling usually implies setting a lower price for products sold together, consumers pay less and tend to conclude they struck a great deal.

Hence, bundling is an efficient strategy for selling low-demand and less-profitable SKUs, while providing more value to consumers.

Types of Bundle Pricing Strategies

There are two basic approaches to the price bundling strategy – the difference is not too significant, but we should explain it in detail nonetheless.

Pure Bundling

When utilizing pure bundling, a seller offers specific products only as part of a set. Or maybe these products have to be sold as a package because they complement one another. In most cases, pure bundling applies to items that are not used separately from each other, like a camera and lenses.

Another good example is drones that can be sold together with a remote controller and goggles – people who want to use the device professionally will need accessories as well. It would not make sense to buy an expensive quality drone without equipment that allows operating it properly.

Mixed Bundling

Mixed bundling implies selling items both separately and as part of a bundle at a cheaper price. These products can be used on their own just fine, but the items in the set complement or enhance their utility. For example, cosmetics stores offer kits containing cleansers, tonics and creams – these products can be sold separately but bring more visible results when used in combination with each other.

Common Bundle Pricing Examples

Here are common bundle pricing examples practiced among online sellers:
Instant film cameras cannot be used without film, cases and lenses, which is why new customers will be motivated to purchase these items as a bundle. This helps them save both money and time looking for accessories.
Clothing stores use bundling as an alternative to “1+1=3” pricing offers. This sort of mixed bundling allows customers to cut expenses while increasing sales volume for particular items.
Some stores offer adaptive bundle offers – they pop up when buyers put products in their cart. This approach is commonly used by the iHerb online pharmacy that promotes certain supplements through mixed bundling.

When to Use Bundle Pricing Strategy

Bundle pricing is typically used by businesses to accomplish certain goals: increase sales of a certain product, offload old stock, and so on. Here are the most common instances.

Your Product Has Necessary Integrations

Some products or services are offered on top of existing ones to add value or utility – such items qualify best for integrations and bundling. For example, you can offer cases or headphones together with a smartphone to extend its functionality and improve user experience.

You Need to Offer Discounts for Certain Products

If you have a product that doesn’t sell well and simple discounts just aren’t cutting it, bundle pricing could be a way out. While deliberate discounting may reduce the perceived value, bundling eliminates this risk by serving up a good deal. A product set will bring added value to customers and generate more income than you could make by trying to sell items individually.

Advantages of Bundle Pricing

What makes bundle pricing a great strategy for e-commerce companies? There are several ways your business can benefit from it.

It Accelerates Decision Making

By offering ready-made bundles with all the necessary products already included, you simplify the process of shopping for your customers and help them make a decision faster. Instead of searching for complementary products or services, they have it served on a plate with a discount – hardly anyone would refuse such an offer.

Increase Sales

Bundling allows you to increase sales for certain products together with the value you provide. This is particularly true for complementary products that are in moderate demand. You could follow Amazon’s example and introduce dynamic product bundles based on additional items that people usually buy.

Move Lower-Volume Products

If some of your products or services are not popular, you should consider bundling them with bestsellers. That will increase customer engagement and motivate consumers to try the low-demand product. However, make sure that you don’t decrease the value of a more popular item by combining it with something customers do not need.

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Disadvantages of Bundle Pricing

Despite its evident profitability, bundling is not equally appealing for all customers. Here are a couple of reasons why this strategy might be a wrong choice for your business.

Customers May Prefer to Buy Separately

Not all customers need ready-made solutions: some of them prefer making their own decisions. Bundles mean lack of choice, which might have a negative impact on customer experience. This is especially risky in industries where consumers have more purchasing power because you may lose more money. So when you create product kits, make sure they have value for not only your business but your clients as well.

Customers May Decline a Bundle

If pure bundling is the only option you offer, you risk not selling your products at all. Should customers dislike or not need certain items in your set, they may refuse to buy it at all and look for needed goods somewhere else. This is particularly true for complementary products that do not enhance the functionality of the main one.

Hence, if you decide to create product bundles, make sure that all items in a set meet consumers’ needs. Additional goods should not comprise the biggest part of a bundle.

Bundle Pricing vs. Tied Selling

Price bundling is often mistaken for tied selling, but these are different concepts. While price bundling is legal (though strictly regulated), tied selling is an illegal activity. And here’s why.

Product bundle pricing is based on incentivizing customers to make a bulk purchase, i.e. buying items in tandem. If they do not need all the products in the set, they can always just opt for individual products and purchase them separately.
Tied selling implies strict conditions: a seller usually provides a certain product or service on the condition that consumers buy another product. Typically, they are both sold at full price. This approach is rare for the e-commerce industry. Tied selling is traditionally utilized by banks or insurance companies that provide additional services only to customers who subscribe for a basic plan/account.

Final Thoughts

A bundle pricing strategy allows retailers to bring more value to customers and increase sales. You may easily get rid of old stock or unpopular goods by coupling them with high-demand products. However, it is crucial to create bundles with products that consumers genuinely need and set reasonable prices.

Price bundling becomes an easier task when you are armed with real-time pricing knowledge. Priceva offers retail price optimization software that can help you monitor competitor rates and receive pricing suggestions based on demand flows. No need for manual labor – you can set up automatic price updates for ultimate convenience and efficiency.

FAQ

Is bundle pricing a good price?

As a rule, bundle pricing is always more lucrative for consumers because the same products cost more when sold individually. The main point of bundling for buyers is that it allows them to save money. The discount may apply to all products in the set or only the accessories.

Is price bundling effective?

This is an efficient strategy if used appropriately. In other words, price bundling is helpful if customers are actually motivated to make a purchase. They are more willing to buy if 1) the bundle contains genuinely useful items that complement and enhance each other’s utility; 2) items in the set are cheaper than when sold separately; 3) the bundle saves buyers’ time because they don’t need to search for complementary products.

Who uses bundle pricing?

Product bundle pricing is used in many different industries, including e-commerce. Retailers apply this strategy to increase sales volume, sell off old or unpopular stock, as well as enhance customer loyalty. Service providers also leverage this approach when they need to sell something extra.

How do I decide which products to bundle?

You should only bundle products that complement each other and are typically used together. For example, a camera and lenses – one cannot function without the other. Fast food sellers often mix snacks and soda into single packages. If you pack unrelated items into a bundle, you risk making the entire set unwanted.

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