10.31 Bundling and Unbundling Model -

What Is Product Bundling?

Combing many items into a single offering that is then sold for a higher price, or most times, at a discounted price as a ‘bundle’ is referred to as ‘product bundling’. When a business offers a collection of similar items at a reduced price, it encourages consumers to buy more than they otherwise would have. The method results in a rise in sales of products that are related.

Psychology of Product Bundling & Sales

A company is said to engage in mixed product bundling when it mixes popular goods that are typically sold individually into a boxed set and then offers a discount for purchasing the set as a whole. Customers have the option of purchasing one or two goods separately, or they may choose to purchase many products all at once in a bundled sale.

The key to successful product bundling is to either discover the ideal combination of products for your package or engage in mixed bundling.

Which Products can be bundled?

The most effective strategy is to include things that are complementary to one another or that can be used in combination with one another. Another advice is to inquire about the needs of the target market directly from them, it is particularly significant in the realm of online retail, where selling bundled products may help you stand out from your rivals.

Choosing a tool that combines full-suite eCommerce analytics will offer you deeper insights and allow you to monitor the overall effectiveness of your A/B testing.

Examples of Product Bundling

Microsoft Windows on PC, Google Chrom on Android Devices, HelloFresh, Naturebox, Kylie Cosmetics, Harry’s, Bloom & Wild, Anastasia Beverly Hills, ASOS, Sweaty Betty, H&M, Murad, Paperchase

Examples of SaaS Product Bundling

Amazon: Prime+Video, Hotjar: Screen Recording+Heatmaps+More, Adobe: Creative Cloud, Box: Storage+Enterprise App Integrations, HubSpot: Growth Suite

Types of Product Bundles

Pure Bundles

There is no opportunity to buy individual items separately from the bundle when using pure bundling. The customer’s choices are limited by this strategy.

New Product Bundles

E-commerce shops utilize this strategy to create awareness for new items by bundling them with more well-known offerings. When an old product is well-received, customers are more likely to try the new one.

Mix-and-Match Bundles

The customer is given the chance to choose from a selection of things that are comparable via the use of the mix-and-match bundling approach. The approach by brick-and-mortar stores is ideally suited to meet the needs of customers for consumer products.

Cross-Sell Bundles

Retailers use this bundling approach to offer a secondary item in addition to the primary one. This is well suited for the practice of packaging inexpensive items, accessories, or components with a much more expensive main item (iPhone and Protection case).

Gifting Bundles

It provides customers with assistance in picking gifts for their family and friends.

Inventory Clearance Bundles

It involves providing clients with discounts on bundled items in order to make customers who are interested in a bestseller feel as though the whole bundle is a good value and encourage them to make a purchase.

Buy-One-Get-One Bundles

When customers purchase one of your primary products, they become eligible to get a discount on another product that is complementary to it, or they may even receive a free product altogether. This strategy is most effective when used on goods with a single purchase.

Mixed Bundling vs Pure Bundling

Mixed bundling means many products are sold together in a single bundle at a price that is cheaper than the combined price of the individual products. It is often offered to customers as an alternative to purchasing individual products.

When a customer purchases a pure bundle, they do not have the option to buy individual products.

Why is Product Bundling Important?

Bundling is a strategy that e-commerce companies may employ to address a wide variety of business challenges, including maintaining their market share, reputation, and client base, getting rid of obsolete inventory, reducing costs, and capitalizing on seasonality.
Improve Brand Reputation: It helps a business solidify its image by demonstrating to customers that it cares about the customers’ lives, values, and financial constraints. A company will become more engaging to interact with and more approachable to prospective new clients.
Retain Customers: If you provide your clients with the option to save money, there’s a possibility that they will have a more positive impression of your company. In addition, consumers will see the value in making repeat purchases from your company.
Save Costs on Marketing & Shipping: if a company sells less popular items alongside more popular ones, products have a better chance of selling more rapidly. Most of the time, new goods do not even need any form of marketing/advertising, either internally or externally. So you only need to spend less money on marketing.
Repurpose Older or Less Popular Products: bundling products might help you get the most out of slow-moving or out-of-date stock.
Take Advantage of Seasonality: the holidays, summer/winter seasons, and other special occasions could help boost sales of bundles. Consumers are more inclined to make purchases, and as a result, they wind up having a greater quantity of things that they may give as gifts.

Benefits of Bundling Products for Customers

Better Customer Experience: when consumers purchase bundles, they often enjoy greater cost savings. Customers have the opportunity to get familiar with new goods and services when they purchase bundled items.
Simpler Decision-Making: by optimizing the buying experience and reducing the number of things involved, bundles make the purchasing process more efficient. E-commerce businesses can also save money by reducing the number of product options available to customers.
Cost Savings: price reduction is the most significant advantage of buying bundles.
Confidence in Decision-Making: if a customer believes that the product bundle they are acquiring will provide them with value, they are more likely to be pleased with the buying decision.

Disadvantages of Product Bundling

Customers might only go for bundles: there is a possibility that customers will be less interested in purchasing individual items due to the high perceived value of product bundles.
Not all products can be bundled: a strategy is required if one is selecting goods to include in bundles.
Bundling can taint your popular products: if a customer sees that a bundle includes a product that is already well-liked and one not interesting to them, they may NOT buy the bundle.

5 Metrics to help you choose which products to bundle

Top & Worst Sellers: keep track of the sales of your most profitable commodities, then you will have a clear understanding of which products should be the basis for your bundles. In addition, one strategy for boosting sales is to combine new products with those from your current inventory that have been shown to be well received by customers.
Annual Growth: the growth of a product from one year to the next reveals how much its value has risen. After analyzing the sales history over the period, you will be able to determine whether it is a suitable candidate for inclusion in a bundle or not.
SKU Profitability: it helps you subtract overhead expenditures and gain a better sense of the underlying profitability of single products in your inventory. You will be able to spot any weaknesses in your selling approach and make modifications by studying the data from your sales, and prevent profit margins from decreasing significantly.
Listing Profitability: it is an analysis that provides specific info on the profitability of a certain product across all sales channels. The data can be used to decide which distribution channels to use to offer bundled items.
Trending Profitability: while brainstorming different bundles, keep in mind when you’d like to make these bundles available. You will know which things are in greater/lower demand by identifying trends and product synergy over a period of time.

The Bundling Business Model

It is a strategy that can be summed up as follows: businesses put together a particular number of items and then provide those products to their consumers at a reduced price.

It not only helps companies generate more revenue but also encourages customers to make purchases that are more economical by purchasing many things in a single transaction rather than making multiple purchases.

How Does Bundling Business Model Work?

Identify products/services that can be grouped together that are complementary to one another. The goal is to provide the goods/services that people want at rates that are affordable.
Decide the selling model: Pure bundling, Mixed bundling, Cross-selling bundling, or gifting bundling.

Examples of Bundling Business Model

Netflix ‘Bundle as a business model’: it brings in revenue via the sale of bundled subscription packages. N brings down the cost of gaining new subscribers and places a high value on both the quality and quantity of its content since the company is aware that customers will sometimes be satisfied with watching anything at all. In essence [N bundles a variety of shows to make their offering appealing; subscription sales of the bundle are the core of N’s business strategy]
Disney ‘Bundle as CRM’: similar to Netflix, D offers options in exchange for a fee that is paid on a recurring monthly/yearly basis. [N offers materials from both its own and other networks, while D offers exclusive content of its own only; There is NO guarantee that everything will be available under its subscription service; The Monthly cost of D is $6.99, while N is $12.99.]
Amazon ‘Bundle as Churn Management’: Amazon Prime subscription includes access to a wide variety of services, such as video/photo/clothing/video services. The most helpful effect of this is that it provides you with more incentive to avoid churning. In essence [Amazon Prime members are more beneficial to Amazon in terms of revenue. There is never-ending pressure to introduce an increasing number of new features.]
Microsoft ‘Bundle as market expansion’: it adopts a subscription-based model, and provides games and other online services. When one considers the subscription-based business model used by Mircosoft, it is reasonable to consider the console to be the product that is included in the bundle.
Apple ‘Bundle as money maker’: Apple One subscription service includes ‘Music, TV, Arcade, iCloud’ and is divided into three different plans ‘Individual/Family/Premier plan’.

Pros & Cons of Bundling Business Model

Pros

It boosts your average value order: if you sell a range of items individually, offering in a bundle can help increase the number of units sold by your business. As a result, you will see a rise in sales.
Lower the marketing costs: the bundling allows you to focus on increasing awareness of the bundle as a whole rather than advertising each individual product separately. As a result, the amount of money you need to spend on marketing will decrease.
It helps you avoid dead stock: you are able to sell both high-volume & low-volume products at the same time, keep up a consistent rate of sales, and prevent the buildup of unsold inventory.

Cons

Risk of hurting separate items’ reputation: customers may have an inaccurate impression of the products you include in bundles and think they are of lower quality as a result. In addition, customers may want to buy the products separately instead.

How to Build a Bundling Strategy

Managing bundling with the help of appropriate software: in order to finish the tasks efficiently, automation of the relevant process is very important. Appropriate software is the key.
When deciding which products to bundle, monitor the appropriate metrics: [the most popular items and least popular items are listed highest/lowest in the top and bottom metrics. You will know which bundles are popular, which in turn helps you detect patterns] [Average Order Value is used to calculate the average cart value of each customer. This data helps you to identify which bundles are adding value] [The yearly growth of a product is what determines how well a commodity does a single item in the market] [Conducting an evaluation of your sales as well as the feedback from clients is useful for you in locating trends as well as products/interests tend to be drawn toward.

Choose the Right Bundling Strategy

Price Anchoring: provide installments via monthly payment plans, which gives customers the impression that the total price is lower.
Marketing Benefit Over Cost: customers are presented with an enticing argument about why they should purchase the product in this strategy, hence emphasizing benefit over cost.
Time-Limited Bundles: instilling in potential buyers a feeling of scarcity/exclusivity/urgency in the purchasing process to increase the possibilities of making a purchase.
Customer Referral Marketing: consider marketing product bundles to prospective customers who are referred by current customers. It helps new customers feel more secure in buying.
Bundle by Theme: by putting together an assortment of products/accessories, or other sorts of products/services that are similar to one another.
Showcase Cost Savings: you can show the customers how much money they’ll save overall by employing strike-throughs, discount-signifying phrases, and remarks of improved value.
Customizable Bundles: Customizing the bundles customers purchase, will improve the quality of their experience and the bundles’ perceived value.

Bundle Items with Purpose

In order to make a bundle successful, its constituents should be complementary to one another and provide an equivalent level of value. You should give some thought to the groups into which you will place your products, and you should stay consistent with the theme throughout the process. Customers are likely to purchase items that are reasonable/work together when bundled together.

Product Bundling Pricing: Emphasize Savings

Customers always want to save money. The price of a bundle should be less than the total of the prices of its separate constituents, even if the difference is just a minor one. With the primary goal of lowering your overall price, you should look for different ways to incorporate discounts into your bundles.

Bundles should be placed at the beginning

It is essentially to ensure that individual product pages for bundles as well as the bundles themselves are readily accessible on your website. E-commerce websites such as Amazon usually provide a list of recommended bundles and discounts offered on specific bundles.

Bring the Product Bundle Together

With the right plan, it is possible to maximize product mobility, boost customer satisfaction, and increase total revenue. Before setting on a bundling solution, it is important to think about different ways to cut down the length of the process.

Tips and Practices for Small Biz on Bundling

Create Data-Driven Bundles: utilize the data you have on your customers as well as the products they have purchased to ensure the success of this approach. By using that info, you can build bundles that are tailored to the requirements of each individual customer.
Provide Different Packages: if you provide a number of different options to choose from, customers have a greater chance of finding something that appeals to them.
Inform your clients about the Savings: if customers can spend less money, they will report a higher level of satisfaction with the product/services. The saving info can be shown on the checkout page, product page, details page, or even in an email marketing campaign.
Create Time-Limited Bundles: the feeling that time is running out makes people more likely to make impulsive purchases. ‘Flash Sales’ is an excellent illustration of this category, of course, you should provide a large discount for those bundles.
Promote your Bundles across Various Channels: in order to promote the bundles, you need to let your potential customers be AWARE of the product/service. Find the most effective method to engage with your customers and provide them with value-added bundles of your products.

What is a Bundle Pricing Strategy

It is a pricing strategy companies use to offer many product bundles for sale at a single, unified price that is often lower than the individual prices of the individual products.

Why is bundling pricing effective?

Consumer surplus is used to describe the price difference between customers willing to pay for a product or service and the actual price they pay. Bundling pricing has two objectives: one is to gather as much as customers’ consumption surplus, and the other is to provide your customer with discounts on the products/services.

If your prices for bundled items are at a level that is lower than customers are prepared to pay, customers will consider it as a good deal since they are always price-conscious. When consumption levels are low, bundles may increase merchant profits and consumer surplus more than at other times.

How to Calculate Bundle Pricing?

Decide which products should be sold in a bundle: it is crucial that you base your product pairing decisions on data since it will ensure optimal results.
Analyze data to discover the best pricing and sizes for your product bundles: in order to model your strategy after that of your rivals, it is a good idea to keep track of the discounts they provide as well as the items that are included in the various bundles they offer. By doing this, you’ll be able to make your own strategy as attractive as possible.

What is Unbundling?

It is the dismantling of various goods and services that make up a value chain, with the intention of providing a higher level of value to the end users of the product. It can be accomplished by eliminating the parts of the value chain that are of less relevance to customers and maintaining those that, at any given moment in time, are most relevant to customers.

Examples of Unbundling

Apple’s iTunes unbundling albums: A’s introduction of iTunes resulted in the CDs and albums being sold separately. Instead of purchasing the full CD discs, iTunes began to sell individual tracks at 99 cents each.
Amazon’s e-commerce unbundled retail: the unbundling of retail began when Amazon made it possible for customers to make purchases on its website at reasonable prices with a variety of items that were more convenient.
Google unbundled newspaper: Google had completed indexing the whole web, and users could pick articles from a broad variety of websites without having to wade through sections from different websites. It is a driving force that helped in the unbundling of the publishing industry.

When does unbundling make more sense?

If you are a new entrant to an industry in which unbundling is expected to ensure rapid growth, you may be able to acquire a competitive edge by disassembling the components of a product/service that were previously offered for sale as part of a bundled package.

How to use unbundling to carve out your niche?

For products and services: [In-depth analysis and dissection of the constituent parts that constitute the offering made by the dominant player in the market that you are focusing on.] [Consider feedback and suggestions that have been made by their customer base. Pay attention to criticisms of certain aspects or functions of the product/service.] [Adjustments should be made based on the feedback that is gathered and analyzed. Either get rid of features that customers don’t like or come up with new ones that customers want.]
For communities and platforms: [Conduct research on social media and professional platforms with active audience bases] [Determine whether the needs might be met by a platform that is more specifically geared toward addressing their needs] [Develop a platform that can cater to the needs of the community]

What is the Unbundling Business Model?

The model in which a company divides its operations into a number of distinct categories, each of which is governed by its own system of rules and procedures for doing business and is affected by a different group of variables.

Mainly 3 distinct kinds: [Customer Relationship Businesses: to identify prospective customers, pique interests, and engage with them] [Product Innovation Businesses: come up with unique and intriguing new products/services] [Infrastructure Businesses: which responsible for the development and administration of platforms that carry out high-volume, repetitive operations]

How to Leverage 9 Elements from the Three Distinct Kinds?

Customer Relationship Management

Customer Groups: aim for a particular consumer group rather than a general audience
Value Offer: the value of the product/service stems from providing great customer service
Touchpoints: make it easier for customers to communicate with you, set up various touchpoints
Interactions: guarantee customer loyalty, focus on obtaining new consumers, and establish long-term relationships
Profit Sources: to maximize profits in the long run, take into account and concentrate on the lifetime value of each client
Resources: in the long run, the client base that is created through the development of various touchpoints and interactions will become a resource
Critical Actions: Engage new clients & work to earn their trust in order to successfully encourage customer loyalty
Network: the management of infrastructure, in addition to the development of new products and services, should be outsourced to external partners
Expenses: To attract new customers, you must invest heavily in marketing and the creation of new touchpoints and interactions

Product Innovation

Customer Groups: involve external partners in customer group study and development
Value Offer: innovations in high-quality products/services are the key to creating value
Touchpoints: external partners may handle touchpoint management
Interactions: contract customer interactions with a 3rd party provider
Profits Sources: concentrate on increasing profit margin as much as possible, one way to achieve this is to charge greater prices for innovative goods and services
Resources: staff who are skilled and creative, in addition to facilities for research and development
Critical Actions: coordinate the operations of the R&D facilities, and recruit qualified staff
Network: the company should try to outsource as much of its work as it can, so that it may concentrate on developing new products and services
Expenses: make significant investments in personnel who are skilled in order to effectively manage the R&D operations

Infrastructure Management

Customer Groups: outsource your work to external partners
Value Offer: value is directly proportional to the quality of the infrastructure that is delivered
Touch Points: external partners may handle touchpoint management
Interactions: contract customer interactions with a 3rd party provider
Profit Sources: focus on low-profit margins; instead of charging high prices, charge low prices and generate your profit from the huge number of sales
Resources: the infrastructure will develop into a more valuable resource as it undergoes further expansion
Critical Actions: invest in the development and upkeep of the infrastructure
Network: do as much outsourcing as you can, so the business can concentrate only on managing its infrastructure. In order to allow the effective construction and management of infrastructure, partnerships are crucial
Expenses: because of economies of scale, the high fixed costs will decrease in response to the rise in the number of operations

How to Succeed in Business by Bundling & Unbundling

Bundling is a very effective way to attract new customers. Digital businesses should strive to bundle as many products as possible – the more content and services you give for a single price, the more value your customer will get for their money.

In addition, while there are certainly a lot of benefits to unbundling, companies should not make the mistake of grouping all bundles into the same niche (price/quality/quantity). If a company is able to combine products in a way that just leverages a higher price point and still provides value, it should absolutely sell the said bundle.

In the end, customers will only pay what they think is fair. So long as you’ve successfully articulated your case for why this bundle provides more value than the whole of its individual parts. Making a good argument for your unbundling campaign is a good step toward ensuring success.

If you have a number of products that can be used in conjunction with one another or if you are attempting to give a new product a boost when it first comes out on the market, product bundling is a strategy that should be explored.

Bundling provides sellers with a number of benefits that extend well beyond any short-term financial gain, this serves as a powerful reason for them to invest the time and effort required to establish a successful strategy and undertake comprehensive testing.

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