Product bundling for high volume and high margin products
Product or service bundling is offering several products or services for sale as one combined product. Many industries such as telecommunications, financial services, health care, information, and accounting offer bundling. For example, in Australia Telstra’s bundling options include business phone lines, home phone lines, Foxtel, home internet, business internet, and mobile phones.
In a bundle pricing, companies sell a package or set of goods or services for a lower price than they would charge if the customer bought all of them separately. Pursuing a bundle pricing strategy allows you to increase your profit while giving customers a discount.
Bundling is most successful when:
- There are economies of scale in production.
- There are economies of scope in distribution.
- Marginal costs of bundling are low.
- Production set-up costs are high.
- Customer acquisition costs are high.
- Consumers appreciate the simplification of the purchase decision and benefit from the joint performance of the combined product.
Product bundling is most suitable for high volume and high margin (i.e., low marginal cost) products. Research by Yannis Bakos and Erik Brynjolfsson found that bundling was particularly effective for digital ‘information goods’ with close to zero marginal cost, and could enable a bundler with an inferior collection of products to drive even superior quality goods out of the market place.
Pure bundling occurs when a consumer can only purchase the entire bundle or nothing, mixed bundling occurs when consumers are offered a choice between purchasing the entire bundle or one of the separate parts of the bundle.