How to add value through product bundling

Whether product bundling is a practice that adds value to a company is a question that remains without a blunt answer. And that is because it depends on how the bundling is designed and executed.

Product bundling is a technique in which several products are grouped together and sold as a single unit for a unique price, with a discount as a hook. A very well-known example of product bundling is McDonald’s Happy Meal. Other examples are: premium version of cars that come with air conditioning, sunroof and/or leather seats, all of them features that could be removed and sold as add-ons.

This practice (bundling) pursues an increase in the company profits explained by incremental sales from purchases that would not have been made otherwise. And there is the key… the difference between bundling to add value or bundling decreasing it.

The Don’ts

· We have a beer company and find out that 85% of clients that buy beer, also buy chips. Bundling in that case offering a discount (trying to increase sales over the 15% that is left to achieve 100%) will increase satisfaction for clients, but decrease value for the company because the base of current clients that will receive a lower price is too significant.

· We have a company that sells cooking oil (a daily use product) and has a 70% of the market share in its segment. Offering a product bundling with discount would rise sells at a given moment, but after that they would decrease because those sales would only have been advanced, without changing the demand for the product.

Considerations to maximize the incremental value of a pricing bundle strategy:

· Defend the current base of sales: if a pricing bundle strategy starts with the cost of reducing price for the recurrent sales, you start in disadvantage. The best way to do this is stablishing some conditions that segment most of the clients like offering for new clients or an offering that has characteristics that you know your current client doesn’t need or want.

· Target the opportunities were there is more to win than to lose: pricing bundle makes much sense when you are introducing a new product and need to leverage on a more consolidated one, or when bundling can generate other business (anchor products).

· Search for a permanent increase on sales: if the promotion mostly encourages advanced sales but not incremental sales, it will not add value from some day on.

· Make a bundle that makes sense for the client and increases average ticket: the reason why Mc Donald’s Happy Meal makes a very good example for product bundling is because it makes a lot of sense for clients and has an attractive price, if there was not that option clients would have spent less.

Therefore, the effectiveness of product bundling depends on how this tactic is designed and executed, as there will be companies in which applying it could be detrimental, while in others sales could significantly increase because of it. Based on this premise, product bundling can be a very effective technique but is very important to design it wisely in order to get the most of it. Thus, as in every pricing strategy, it is key to analyze the historical data of sales at a granular level and structure a business case of what its intended to achieve in order to have a clear accountability of these initiatives.

About the author

With over 16 years of leadership experience driving strategic growth, pricing innovation, and transformational change across multiple industries, Daniela León is driven to contribute to the Community by sharing her experience through this blog. 

Her passion for data-driven insights and cross-functional collaboration, positions her to deliver valuable insights for business transformation.