You’ve selected your products and are ready to make a purchase. But just before you enter your credit card details, you notice a little prompt at the website checkout: It’s another item you’ve always wanted to get, and if you buy it with the item you’re ordering, you can have it for 20% off. You can feel your mouse drift toward the offer, almost like an out-of-body experience.
We’ve all seen this tactic from time to time. It’s a business practice known as product bundling. Essentially, businesses try to increase sales revenue by offering multiple products in a bundle for a discount. And it’s a potentially effective strategy for small businesses looking to boost their sales — provided you do it right.
Whether you want to market a product online or increase your sales team’s effectiveness on the showroom floor, product bundling will help you increase the average order value (AOV) of individual purchases and even find new customers who otherwise wouldn’t buy from you. Here’s how product bundling works, and some best practices for implementing it in your business.
Overview: What is product bundling?
Product bundling refers to the business practice of grouping together multiple products and then selling them as a “bundle” for one price. Examples of bundles include cable services that include internet and television, or combo meals purchased from fast-food restaurants that include a burger, fries, and a drink.
A company entices its customers to buy more products than they otherwise would by offering a group of related products together at a discounted price compared to if they were all purchased separately. This is a common strategy for businesses that sell related products and want to boost sales, resulting in a slightly lower per-unit profit but moving more stock and increasing overall revenue in the process.
4 benefits of product bundling
Product bundling is a common strategy for a wide variety of corporations in different industries, chiefly because of four main benefits.
1. Increases overall revenue
By bundling, a company may sell products that otherwise would not have sold. The per-unit profit may decline, but the overall profit may increase even if the company sells fewer bundles than individual units just because of the sheer revenue volume generated by each bundle. The more units combined into a bundle, the more the revenue would increase.
2. Lowers overhead costs
Every unit a company sells has its own overhead costs, such as the cost to market the product or expenses related to packaging and shipping the product. By selling it in a bundle, a company cuts those costs by combining a number of products into one.
That means even if a company loses a significant amount of profit from cutting the price to sell it as a bundle, it may be able to make that profit back through a reduction in costs.
3. Reduces inventory costs
Inventory management costs money. You’ve got to pay for the space that houses it, hire workers to manage the inventory, spend time on order-picking, and deal with all the other overhead that comes with storage. By moving units more quickly through bundling, you lower the amount of dead stock and your overall inventory costs. You also reduce the amount of space you need to keep up with orders.
4. Attracts customers
Customers who otherwise would not be interested in your products may flock to your store to take advantage of deals that include a number of products for a discounted price. Or, they may see your product as incomplete without the bundle.
For example, someone craving a full meal may not be interested in just a burger, but combine it with a side of fries and a beverage and they may be convinced to pay a little extra for the meal.
3 things to consider when bundling your products
Bundling is not automatic. Sometimes it makes sense, and sometimes it doesn’t. Here are three things to consider before offering a bundle to your customers.
1. It must make sense
Just because you can bundle items doesn’t mean you should. If it doesn’t make sense to bundle products together, it’s a waste of time to try — and it may detract from your brand.
For example, if you are an electronics retailer, it wouldn’t attract many customers if you offered, say, a pair of PC headphones and a console video game controller together for a reduced price. But offering those headphones at a reduced price to a customer buying a new PC is a natural fit.
2. It should offer an easily defined benefit for the customer
The point of product bundling is to entice a customer to spend more in order to get a good deal. For most businesses, that means the customer gets two or more products together for a lower price than if they purchased the items separately. If you don’t offer discounted product bundle pricing — or the discount is minimal — customers aren’t going to be persuaded to spend the money.
However, sometimes customers don’t make a bundling purchase decision based on price — sometimes, it’s best to offer convenience as the selling point rather than price. Either way, it should be easy to communicate to your customer what benefit they get from bundling.
3. Customers may need options
Some companies only do price bundling and won’t sell products individually, but this may backfire. It’s best to offer customers a bundle along with the opportunity to purchase the products individually.
If you offer only a bundle and customers only want individual items, they may opt not to buy your products at all and turn to a competitor — or, at the very least, wait until the price drops or you offer the products individually. Experts found that this to be the case in studies about bundling video game consoles with individual games, for example.
6 product bundling tips and best practices for your small business
Bundling takes a little bit of practice to get right, but it can add a lot to your bottom line. Here are six tips and best practices to get you off to the right start.
1. Promote new products with a bundle
One great way to use product bundles is to use them to promote a new product. By offering your new item at a steep discount in combination with the purchase of your popular existing products, you might get your customers “hooked” on the new product and keep them coming back for more. This reduces the amount of money you must spend on marketing and sales of the new product.
2. Let customers do the bundling
Put the power in customers’ hands — what would they like to bundle together? Select a “basket” of products the customer can choose from and allow them to pick any three for one low price, for example. If you put the buyer in control, they are more likely to sell themselves on the idea of a bundle and be more satisfied with it.
3. Offer a range of bundles
Customers like choice, so provide a number of different bundles to choose from. Don’t just throw any of your products together — be smart in deciding which products you pair up. However, be aggressive in terms of the number of bundling options you offer. Experiment with different bundles and change up your choices based on what customers end up buying.
4. Trumpet the savings
The big draw of a bundle is how much money a customer can save. Make your customer feel smart and savvy by putting in a big, bold font how much they’re saving by ordering the bundle versus ordering each item separately. Customers who feel like they got a “steal” are more likely to be satisfied and come back to shop from you in the future.
5. Use it as a closing technique
Sometimes, a buyer is hesitant to pull the trigger on a sale. Bundling may tip the scales and get your customers to make a buying decision.
Whether it’s a salesperson offering some free upgrades at a car dealership or an e-commerce website nudging a customer automatically with a bundling offer when they hesitate to purchase, this technique can increase your new sales, as well as increase the average value of individual purchases.
6. Examine the data
If you’re not tracking detailed analytics on your bundling options, you should start. By understanding what bundles are most popular and collecting detailed customer data, you’ll make more informed decisions on bundling in the future and maximize your efficiency with this technique.
Software will help you with bundling
Inventory management software or a point-of-sale (POS) inventory management system will help keep your business organized and assist you in identifying products that are ideal for bundling.
With this software, you can develop a pricing strategy, be more effective with inventory control, and come up with new strategies for product positioning. Try out a few software options first before settling on one that makes sense for your business.
View more information: https://www.fool.com/the-blueprint/product-bundling/