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Selling products and services a-la-carte seems like the best way to maximize company revenue. But the most revenue per user doesn’t always equate to the highest revenue overall.
Many companies offer multiple complementary products and services as a part of a bundle, which can increase the average deal size by leveraging economies of scale.
What is Bundle Pricing?
Bundle pricing is a business sales strategy that involves offering two or more related products and services as a package at a discounted price.
The goal of bundle pricing is to increase customer satisfaction by providing access to multiple products while also improving profitability by increasing the average deal size. An added benefit is that it increases customer spending as well.
Bundle pricing is a great way to give customers better value for their money. By bundling multiple products and services together into one package, companies can offer discounts for buying the items together that outweigh any discounts or benefits associated with their individual prices. Customers appreciate this when it comes to overall cost savings.
Although product bundling means that customers won’t have to pay the maximum price for each product or service, businesses still profit significantly because they end up selling more, boosting overall revenue growth while increasing the company’s profit margin.
- Bundle Pricing Strategy – A competitive pricing strategy that allows buyers to purchase multiple products or services at a lower price than they would pay if they purchased the individual product.
- Product-Bundle Pricing – A strategy in which products are bundled together in order to make the total cost of purchase less than if each item was purchased separately.
- Price Bundling
Who Uses Bundle Pricing?
Several business models use some form of bundle pricing in their overall pricing strategy:
- Business-to-Business (B2B): Businesses that sell products and services to other businesses often bundle items that fit into their customers’ overall business processes. This could be a software system, hardware and installation services, or other related products.
- Business-to-Consumer (B2C): Retailers often bundle items that are complementary to each other in order to increase the overall value of the purchase for customers. For example, pairing a phone with accessories like a case or charger.
- Software-as-a-Service (SaaS): Software companies offering subscription-based services often bundle additional features with their core offering. This could be extra storage or the ability to access certain features that are only included in premium versions of the product.
- Hospitality: Hotels and resorts often bundle services such as spa treatments, meals, or activities into a package deal. Restaurants and fast-food chains may also bundle a meal or snacks into one offer.
- Service Providers: Cloud services, hosted IT services, and other service-based providers often bundle their services into packages with different levels of access or features. Internet, cable, and cell phone providers use the same strategy to offer different combinations of services and features.
Because of its ability to increase average order values, most businesses adopt some form of this business strategy to give customers a package deal that meets their needs while also driving profits for the company.
Examples of Bundle Pricing
While the concept of selling complementary products is fairly straightforward, businesses can use several types of price bundling.
- Discount Bundles: This is the most common type of bundle pricing, where a business offers customers discounts for purchasing additional products or services as part of a package. For example, a clothing retailer may offer customers a discount when they purchase three items or more from their store.
- Accessory Bundles: This type of bundle pricing is often used in retail to encourage customers to purchase accessories that go with their main product. For example, a laptop store may include a computer bag and cleaning supplies as part of the price when customers buy a laptop from them.
- Product Family Bundles: Businesses use this bundle pricing strategy to group together products that fit into the same family. Software companies often use this strategy by offering customers access to its suite of applications as a package deal as an alternative to selling the individual programs separately.
- Custom Bundles: This type of bundle pricing strategy allows businesses to customize offers for specific customers or segments.
Mixed bundles are most common in organizations with complex sales processes (i.e., enterprise-level sales). An enterprise software company could offer custom bundles that include hardware, installation services, and training (or only one or two of these options).
Companies with digital pricing models (e.g., travel, hospitality, and other algorithmic-based models) can also offer custom bundles based on user preferences and past purchases.
The way it works for these companies is a little more complicated: the algorithm takes data from customers’ past purchases, preferences, and other variables to determine the best bundles to offer, then adjusts prices based on those bundles.
Advantages of Bundle Pricing
The bundle pricing technique increases customer loyalty, boosts revenue, and encourages customers to spend more by offering them discounts for buying multiple items. It also helps companies create a sense of urgency around their products or services, which can help drive sales.
Here are four ways bundle pricing is advantageous to businesses:
1. Optimize Pricing
Price optimization is a pricing strategy that maximizes profits while ensuring customers will actually buy a business’s products and services.
Bundle pricing helps businesses achieve this by allowing them to adjust prices based on customer preferences, demographics, and other factors. This way, businesses can offer customers the best deals without sacrificing profits.
2. Increase Sales Volume
When customers know they’re getting a good deal, it’s easy for them to make purchase decisions.
Customers can benefit from considerable savings by purchasing a bundle of items, especially when they require all of its components. It is normally more cost-effective to buy products as a package than individually, which makes bundling an attractive option for buyers.
3. Easier to Market
Rather than sell each product or feature individually, organizations can develop marketing strategies around the bundles they offer. This makes it easier for businesses to target potential customers, simplify their sales process, and ensure that their message resonates with each market segment.
4. Simplify the Buying Experience
To achieve optimal sales, it’s important to ensure that customers have a smooth, hassle-free buying experience. With bundle pricing, customers can view all the products or services in one package and make an informed decision on what they need.
This simplifies the buying process and allows customers to purchase the best bundle for their needs easily, without searching for individual items.
Disadvantages of Bundle Pricing
Of course, bundle pricing isn’t perfect and can have certain drawbacks. To create an operation that effectively leverages bundle pricing, businesses need to take several factors into consideration, such as their customers’ needs and market conditions.
Here are the primary disadvantages of bundle pricing:
1. Unable to Tailor Offers
Bundle pricing has the potential to limit a business’s ability to tailor offers based on customer preferences or market conditions, as the nature of bundles has a fixed range of features.
Companies can navigate this by creating multiple bundles and offering them at different prices. However, this can be a time-consuming process that requires businesses to invest in market research or utilize customer data to determine the best offers for each segment.
2. Revenue Optimization
One of the biggest challenges businesses face with this strategy is finding the right balance between offering attractive packages and making a good profit.
Some customers may be willing to pay more for certain features or components of the bundle, but are restricted by the bundled pricing options.
This can lead to businesses leaving money on the table, as they cannot optimize revenue from those more profitable sales opportunities.
3. The Paradox of Choice
The paradox of choice is a psychological phenomenon that describes how too many options can lead to confusion and indecision. When customers are presented with bundles that offer the same features, they may find it hard to decide which one is best for them.
This leads to fewer sales and unsatisfied customers, as they may be unable to select the product that best meets their needs.
4. Too Few or Too Many Features
Some customers may also be hesitant to purchase a bundle of products they don’t necessarily need or want. They may take their business elsewhere if they feel they will overspend and underuse.
On the other hand, bundling together too few features may lead to unsatisfied customers who feel they are missing out on something that could have been included in the package.
Businesses need to create balanced bundles with enough features for customers to be satisfied and willing to make a purchase decision.
Types of Bundle Pricing Strategies
There are two main types of pricing strategies for bundles:
1. Pure Bundling Strategy
In a pure bundling strategy, customers must purchase all the items in a bundle as one package at an additional cost. This pricing strategy is popular among companies offering highly integrated and compatible services or products.
A subcategory of pure bundling, joint bundling is where customers must either purchase all the items in the bundle or none of them at all. This pricing strategy allows companies to discount their products more than pure bundling, as it’s a way for businesses to save costs and make up revenue.
Leader bundling is a popular strategy in the retail sector, where customers can purchase one valuable item and receive items of lesser value along with it to make it seem more valuable. Another subset of pure bundling, leader bundling allows companies to be creative with their pricing strategy and highlight the most important product in a bundle.
2. Mixed Bundling Strategy
Mixed bundling involves offering products from different categories in one bundle, at a discounted price. Sellers can be flexible as to which products are included in a bundle, allowing them to take into account customer preferences and market conditions.
This pricing strategy also allows businesses to showcase the features of multiple products at once, as customers can view them without making individual purchases.
How CPQ Helps Quote Bundle Pricing
Bundle pricing isn’t always straightforward—it requires businesses to consider what customers are looking for and how they can effectively optimize their revenue streams.
Using CPQ software and enabling custom policies, businesses can set up rules-based pricing models that enable automatic discounts for bundle pricing. This is a simple process that helps approval processes move more quickly.
Product bundling also requires businesses to think strategically about what products they should include in their bundles. CPQ bundles allow sellers to pick and choose which products should be included and reduce quoting errors that result from complex sales.
People Also Ask
How do I decide which products to bundle?
Look at recent sales and marketing data to see which products and services customers often buy together. You can also use customer feedback to help you decide which products should be included in a bundle. Some businesses also have success being flexible with their bundling strategies and allowing customers to customize their bundles.
Why is a bundle pricing strategy good for your revenue?
Bundle pricing is a great way to increase sales and optimize your revenue. Customers are likely to purchase more when they see a good value proposition, and a bundle price is often seen as a better deal. Bundles also make it easier for customers to make their decision quickly and save time.