Have you ever walked into a fast food restaurant like a Wendy’s or a McDonald’s and bought yourself a value meal instead of a single burger or a soda? Then you have already experienced the advantages of bundle pricing first-hand.
Product bundle pricing (also called price bundling, product bundling, compilation, or a package deal) refers to a customer buying a bundle of products or services (two or more) together for a single discounted price instead of buying them separately at their individual prices.
Examples of bundle pricing strategies can be seen everywhere—from mobile phones being sold with chargers and earphones, to skincare and make-up kits—the list goes on.
Aside from being a popular tier pricing strategy, bundle pricing is a game of perception. As such, many might argue that it’s not a pricing strategy, but a marketing strategy.
At least, they’re related. If bundles are put together and tested properly, the result can satisfy your customers and have a positive impact on your business’s profitability. For example, the right bundle can:
- increase your overall sales
- increase your average sale
- increase your gross profit margin, and
- decrease your marketing cost.
What’s more, pricing bundles work very well for subscription-based businesses as well. This article will discuss everything you need to know about price bundling strategy so you can create winning pricing bundles that not only improve customer satisfaction but also your overall revenue.
7 Killer B2B Pricing Strategies for Your Business
Learn 7 pricing strategies that can help you grow your customer base, and maintain it!
What Is Bundling Pricing Strategy?
Bundle pricing, price bundling, or product bundling is a marketing strategy used by businesses where two or more products are sold together at a lower combined price than when they are sold individually.
For example, a skincare company may sell a shampoo and conditioner bundle for $45 when the price of the individual items could be $25 each. If a customer had already budgeted $50 to buy both items but can now purchase them for a lower price, it makes them feel like they got a good deal.
What Types of Businesses Should Use It?
Businesses in almost any industry can use bundle pricing to their advantage. From B2B and B2C to hospitality and SaaS, most industries can leverage pricing bundles to increase their average order value (AOV).
Essentially, price bundling offers several products or services for sale as a combined product.
Companies offering subscription-based services and products should note that subscription bundling is seeing a resurgence. A study by PYMNTS and Vindicia—focussed mainly on the content streaming sector—showed that 79% of Americans registered with six or more streaming services favor subscription bundles. Examples of Bundle Pricing Strategy
Think about your last fast food visit. If you requested to buy one or two single items, were you asked if you’d like to make it a combo? Or, if you were with your kids, did you end up purchasing a kids’ meal? This is an example of bundling that everyone can relate to.
Also, the example of the kids’ meal illustrates that bundles don’t have to be made up of the same type of products. A regular combo may be a burger, fries, and a drink—which are all food items. Unlike the regular combo, the meal for kids includes food items and a toy.
All-inclusive vacations are another example; you get a hotel, flight, car, and food plan all for one price.
In the B2B world, you’ll find many solution-oriented bundles—products or services bundled to solve specific problems. For example, telecommunication companies often bundle phones and internet connectivity together.
Some bundles are taken a step further and packaged in a way that they speak to a specific audience, like the example of a phone and the internet which is geared to small businesses.
In the software as a service (SaaS) world, bundles often take the form of subscription plans. For example:
- a basic plan might include a set number of users with limited features.
- a business plan might include more users, a certain amount of customer support, along with additional features and applications bundled in
- the enterprise plan might throw unlimited support into the mix and unlimited access to all the business’s features and applications for as many users as required.
By bundling more desirable features and applications into higher-tier plans, you steer customers accordingly. That being said, the bundle needs to make sense to the customer.
Types of Bundle Pricing Strategies
There are two main categories that bundle pricing can be classified into.
Pure bundling
In this strategy, you have complete control over creating the pricing bundles that your customers can purchase. The individual products in the bundle cannot be bought separately. If a customer is really interested in one of the products in the bundle, they could be persuaded to purchase the entire bundle as the alternative to not buying it is not being able to purchase the individual product at all.
Joint bundling is when more than one product is sold together under a single price. A good example is the Dyson Airwrap where a customer can purchase the detachable dryer heads only if they purchase the whole set that includes the Airwrap.
Leader bundling is another form of pure bundle pricing strategy where one or more regular products are bundled together with a highly-valuable product. The more valuable product is known as the “leader” as it’s usually the one that convinces customers to go for the whole bundle.
Mixed bundling
With mixed bundling, you can offer customers the option to buy individual products in a bundle at a higher cost, if they don’t want to purchase the bundle. Microsoft Office 365 software bundle is an example of a mixed-price bundling strategy—customers can buy Excel, PowerPoint, Word, and OneNote together or as stand-alone versions too.
Benefits of Bundle Pricing
Bundle pricing is a great way to simplify the customer’s shopping experience. Firstly, it eliminates the “paradox of choice” that customers can face when presented with too many choices. Essentially, an abundance of choices requires more effort from a person and makes them feel unsatisfied—contrary to popular belief.
Secondly, you can group commonly used/bought products together making the buying experience more efficient for a customer (as they don’t have to search through many catalog pages to find what they want).
By selling bundles, you are invariably increasing your sales volume and the AOV per customer. With the correct price point, you can ensure that your overall revenue continues to grow even as customers get a good deal. You can set and adjust the prices of different bundles by factoring in the target audience, preferences, seasons, etc.
With the help of leader bundling, you can introduce new products to customers and promote them at the same time, which results in lower marketing costs for these new products. It’s also a great way to push less popular products as you can group them with your best-selling items.
Product bundles also attract people who keep an eye out for great deals, which allows you to reach out to a whole new customer base. Of course, the most important benefit of bundling is increased sales and, possibly, increased profits.
For example, the supplement brand Your Super saw a 900% rise in estimated revenue from 2017 to 2019 by having a bundle pricing strategy as an integral part of its overall marketing strategy. They created supplement bundles for specific health issues that customers were looking to solve such as “immunity,” “skin & hair,” and “digestive health.” How to Leverage Bundle Pricing
To successfully use this pricing strategy, you have to create bundles where the perceived value exceeds the asking price.
If you get the right value in front of the right customer at the appropriate price, you’re more likely to make a sale.
Bundling is most successful when:
- the average cost per unit lowers through increased production
- the average total cost of production decreases as a result of increasing the number of different products produced
- marginal costs of bundling are low
- production set-up costs are high
- customer acquisition costs are high
Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product.
Taking the following steps will help to ensure the maximum effectiveness of your bundle pricing strategy.
Identify products/services suitable for bundling
A random collection of products won’t make a customer want to buy the bundle as they won’t be able to discern the reason and usefulness of the bundle. For example, Dollar Shave Club offers shaving kits for beginners containing blades, razors, shaving foam, etc. together. Their subscription kits have everything a customer would need to shave regularly.
Research by Forrester indicates that cross-selling and upselling account for about 10% to 30% of the revenue of eCommerce brands. As such, offering bundles at checkout is a good way to increase your upselling revenue. Koh, a brand that sells cleaning products, offers a bundle containing complementary cleaning products at checkout. A customer who doesn’t want to scour the website could be tempted to switch to the upsell bundle if they were looking to buy multiple cleaning products.
Conduct market research and segmentation
Leverage customer data such as purchasing behavior. Additionally, you should also identify, follow, and study market trends to understand what kind of products customers usually buy together. Some bundles may be obvious but others can only be thought of by looking at your competitors and your consumers’ behavior.
Create different customer segments based on how often they buy certain products, returns history, average spend, etc., and cross-sell slow-moving or stagnant inventory with the leader product.
Another customer segmentation technique is to categorize customers based on the issues that they are looking to solve and create bundles for each issue. For example, the subscription meal-kit company HelloFresh offers kits based on its customers’ dietary requirements and restrictions such as veggie and pescatarian meals.
Communicate value and benefits
With the help of ads, banners, pop-ups, images, etc. you need to be able to communicate the value of your product bundles. Moreover, you need to consider where such information should be placed—the home page, individual search pages, checkout pages, emails, newsletters, etc. Most product bundles offer a discount so highlight the percentage discount clearly along with images of the bundles.
Determine pricing strategies and models
To calculate the best price for your product bundles, you need to figure out the gross margin of each bundle item. Next, you need to figure out how much of a discount you can offer on the bundles. It is suggested that if average margins are more than 50%, then the bundles can be discounted at 10% to 20%. When a business’ average margin is less than 50%, then it is best to offer a discount of 5% to 10%.
If you are unable to offer attractive discounts, you need to highlight the value or the buyer’s problem that the bundle will solve. Other factors should also be considered while setting prices, such as seasonality, product type, and target customers.
Leverage subscription management software
Subscription management software like Stax Bill can automate subscription and payment management for SaaS vendors, allowing them to be more efficient while ensuring invoice payments are collected/recovered easily. It also helps you add new products to your catalog easily, run pricing experiments, or even change subscription prices for specific accounts.
Product bundles are separate products, and good subscription management software will allow you to not only create bundles easily but also track and customize them differently from individual products. You can set up automated triggers for certain actions so that customers are informed about bundles with minimal intervention.
Price bundling and revenue recognition
We see this pricing strategy most commonly in a one-time purchase scenario, in which case revenue recognition is straight forward. However, price bundling can be applied to a product or service that’s invoiced on a recurring basis, such as in the SaaS subscription plan example above.
If this is the case, revenue would have to be recognized over time. In line with the ASC 606 accounting standard, businesses can only recognize their revenue as its value is received by customers. The process of tracking and accounting for this can get complex and labor intensive.
Thankfully, with Stax Bill, ASC 606 compliance is automated, so you can just set it once and then forget about it.
Billing automation with accurate revenue recognition functionality becomes extremely appealing as businesses grows.
Final WordsUsed properly, bundling pricing strategy can be very beneficial. But it may not be right for every business. We recommend making sure it’s the best solution for your business before selecting a pricing strategy.
SaaS businesses looking to implement this strategy should definitely leverage powerful subscription management software to increase efficiency and success rate. To learn more about Stax Bill and how it can help, contact us today.
To read more on our pricing strategies series, check out:
FAQs about Bundle Pricing Strategy
Q: What is bundle pricing strategy?
Bundle pricing, also known as price bundling or product bundling, is a marketing strategy where two or more related products or services are sold together at a discounted price. Businesses across various industries utilize bundle pricing to enhance customer satisfaction and increase their revenue.
Q: What are the benefits of bundle pricing?
Implementing a bundle pricing strategy can lead to various benefits such as increased sales volume, higher average order value (AOV), enhanced gross profit margin, decreased marketing costs, and a simplified shopping experience for customers. Notably, it also contributes to overall revenue growth and assists in reaching a new customer base drawn towards great deals.
Q: Can bundle pricing be applied to subscription-based businesses as well?
Yes, bundle pricing works very well for subscription-based businesses. Notably, a recent study showed that 79% of Americans with six or more streaming services favor subscription bundles. Bundling is especially popular in the Software as a Service (SaaS) industry where companies often provide subscription plans as bundles.
Q: What are some examples of successful bundle pricing strategies?
Notable examples of bundle pricing strategies include value meals at fast-food chains, skincare products sold together at discounted rates, mobile phones packaged with accessories, and SaaS subscription plans that offer different tiers including basic, business, and enterprise plans.
Q: Can you illustrate the types of bundle pricing strategies?
Bundle pricing strategies generally fall under two categories: pure bundling and mixed bundling. In pure bundling, products in the bundle cannot be bought separately. An example of this is Dyson Airwrap, where detachable dryer heads can only be purchased as part of the whole set. In contrast, mixed bundling offers customers the choice to buy individual products at a higher cost if they don’t want the entire bundle. An example of this is Microsoft Office 365, where customers can buy Excel, PowerPoint, Word, and OneNote together or as standalone versions.
Q: How can businesses use bundle pricing to their advantage?
Businesses can strategically bundle products/services that are frequently bought together to enhance customer shopping experience. They can leverage customer data, identify market trends, and study purchasing behavior to create relevant bundles. Also, promotional strategies like ads, banners, pop-ups can effectively communicate the value of these bundles to customers.
Q: Are there specific tools available to manage bundle pricing for businesses?
Yes, there are tools like Stax Bill that can help with managing bundle pricing for businesses. These tools offer automation for subscription and payment management, allow easy addition of new products to the catalog, and provide the ability to run pricing experiments. Good subscription management software can help create, track and customize bundles easily.
Q: How does a business implement a successful bundle pricing strategy?
A successful bundle pricing strategy involves several steps such as creating relevant product bundles, leveraging customer data, and following market trends. It also involves effective communication of bundle value, setting the right price point, recognizing revenue correctly, and ensuring compliance with accounting standards.
Q: What is ASC 606, and how does it relate to bundle pricing strategy?
ASC 606 is an accounting standard that dictates that businesses can only recognize their revenue as its value is received by customers, crucial when bundle pricing is applied to a product or service that’s invoiced on a recurring basis. Accurate revenue recognition functionality becomes essential as businesses grow, and software like Stax Bill can help with automating ASC 606 compliance.
Q: Is bundle pricing suitable for all businesses?
While bundle pricing offers multiple benefits, it might not be the right fit for every business. It’s essential that businesses evaluate if this pricing strategy aligns well with their product/service offering, target audience, and overall business goals before implementation.
