Product bundling has become the new standard in ecommerce as buyers demand more value, convenience and personalization.
What is product bundling?
Bundling is the strategy of selling various products together at a combined price. The idea is rooted in an economic theory that consumers are more likely to make a purchase when the perceived value of what they want exceeds the price they are asked to pay. This is also known as ‘consumer surplus’. Improving the perceived value of products through creative bundling will create significant advantages for your business.
What are the benefits of product bundling?
- Increases average order value
- Increases margins
- Exposure to new customers
- Makes comparison shopping more difficult
- Improves the customer experience
- Reduces decision exhaustion
While bundling provides convincing benefits, the challenge for retailers is coming up with a product bundle pricing strategy that is attractive to the buyer and profitable for the seller. The following guidelines will help store owners develop an effective bundling strategy:
Bundle Pricing Strategy Guidelines
1. Bundle Price Must be Lower Than Individual Products Combined
A bundle is only going to work if there is a benefit or perceived discount for the customer. As a general rule, ensure your bundle pricing results in a savings of at least 10% or more. This applies to pre-assembled bundles and add-on products. If the discount is not obvious to the buyer, consider calling out the price difference of your bundle compared to the combined price of buying the products separately.
2. Allow Consumers to ‘Buy More and Save’ for a Discount
While not a traditional bundle, ‘Buy More and Save’ promotions encourage shoppers to add more to their cart and increases average order value. For pricing in this model, consider following the “Rule of 100”: If the total price of products is under $100 dollars, give a percentage discount:
If the combined priced is over $100, give an absolute discount:
3. Discount Bundle Pricing Should Be Easy to Compute
Research published in the American Marketing Association shows buyers are more likely to choose a sale price that is easier to compute, even though it is a lower discount. In the study, people perceived the difference between 4.97 and 3.96 to be smaller than the difference between 5.00 and 4.00.
4. Analyze The Competition
If you’ve done market research, you should have a good idea of who your competitors are. When developing your bundles, find areas where there is not a significant reason why shoppers would buy from you over the competition. This is where you can offer bundles to create a competitive advantage. If your competitor is already offering a product bundle that is successful, create a similar but alternative bundle at a more competitive price point.
Other Pricing Considerations:
When you identify bundling opportunities for your store, each package should be evaluated based on a number of criteria to determine success and revenue potential:
- Costs to market the bundle
- Competitive forces
- Return and product liability risk
- Supply chain management plan
Product bundling can be a huge opportunity for ecommerce companies that have a strong understanding of their customer’s value perception. When priced correctly, bundles can drive revenue growth in the form of cost efficiency, higher average order value and increased customer lifetime value. Start a free trial of Glew to find out what products in your Shopify, Magento, WooCommerce or BigCommerce store are most commonly bought together. Using data to pair product bundles is an effective way to increase average order value without guesswork.