The Hidden Danger in Product Bundles
Does grouping products together into a single-price bundle increase the perception of value? Most of us would answer “yes,” but surprising new research shows there is at least one condition where such grouping can actually reduce the apparent value. In fact, the bundle may be seen as worth not just less than the sum of its parts, but less than the individual product!
The Joy of Bundling
Creating a bundle of several products is a time-honored strategy. As I point out in my book Brainfluence, bundling can serve to reduce the “pain of paying” because it makes it harder for consumers to know what the “right” price is for the products. Auto makers no longer promote individual pricing for various options like leather seats or a better sound system – now, they are often part of a “luxury” package along with other amenities. The package may cost a few thousand dollars, but it’s hard for the buyer to discern if that’s a good deal because the bundle includes multiple unfamiliar items.
Bundling can also serve more pedestrian business goals, like encouraging customers to sample new or less popular products by making them part of a bundle. Creating attractive bundles can also increase the average sale amount.
When Bundling Decreases Value
Pepperdine researchers Alexander Chernev and Aaron Brough found that bundling expensive and inexpensive products caused subjects to avoid the bundles. In the Harvard Business Review, Chernev says,
Even when they found both items in a bundle attractive, they were willing to pay less for the bundle than for the more expensive product alone. We also found that people were less likely to buy bundles that combined expensive and inexpensive products. For example, people were more likely to purchase a $2,299 home gym when it was offered alone than when it was combined with a fitness DVD. This suggests that the popular strategy of adding premiums to products can sometimes hurt, rather than increase, sales. [Emphasis added.]
Chernev attributes this anomaly to “categorical thinking” – a mental shortcut that people use to make decisions. While such shortcuts are usually helpful, in the case of grouping expensive and inexpensive items faulty conclusions can be reached.
Crazy Bundle Math
Perhaps the most startling experiment conducted by Chernev showed that while people were willing to pay $225 on one piece of luggage and $54 for another when they were offered as individual items, they would pay just $165 for the items as a bundle! That’s $60 less than they would have paid for the more expensive item alone!
But Wait, There’s More
I’ve always said marketers should study successful infomercials, since those ads have been tested and re-tested, and are on the air only because they make money just about every time they run. Bundling is a huge part of the strategy in these ads – just when you think you’ve seen the best offer on the countertop appliance, you hear, “but wait, there’s more!” The announcer proceeds to sweeten the deal with extra food storage bags, a set of steak knives, or some other relatively inexpensive item.
While the Pepperdine research would suggest that throwing cheap items into the package might cause consumers to revalue the deal and actually reduce the response rate, it seems unlikely that so many successful ads would employ the strategy if the bundled items really cut sales. My guess as to what’s happening: the infomercials work to establish a high anchor point (“Thousands sold at $199!), and then give the consumer a lower price (“Just four payments of $29.99!”). By the time they start throwing in the deal-sweeteners, the price has been set in the consumer’s mind and the extra items are indeed seen as adding value. The consumer doesn’t need to take a mental shortcut to estimate value, and the categorical thinking effect doesn’t occur.
How to Bundle Without Reducing Value
If you are thinking about bundling multiple products, do it right:
- Avoid mixing a cheap item and an expensive item and simply promoting the package.
- If you are mixing products with different values, establish the value of the individual items first, particularly the most expensive one.
- Take a lesson from infomercial producers and emphasize the additive nature of bonus items.
- Focus on non-price attributes of the product (e.g., durability or comfort) – the researchers say this will reduce the devaluation effect from mixed-value items.
Do you use bundles or bonus items? How do you present them? Leave a comment to share your best bundling strategy!
I agree that product bundles would reduce the value of individual products hence, marketing individual products will enhance there value and marketability.
Thanks for the wonderful post .
Another good read. Bundling without reducing value is what I wish I saw more of. I can see your advice being applied to freelancing services as well.
Lately I have encountered so many bundles for designers for stock and vector tools for a really low price. I get excited by the email, the shiny buttons and the simplified presentation of the unbelievably low price.
When I take a look at what they are really offering(preview), it seems as if 1 out of 5 pieces in the bundle has worth and is cheaper on it’s own.
So for me, I feel the other pieces hold less value…though it might be useful for someone who desperately needs it. I slowly begin to lose faith with the source of the bundles with every occurrence of an offer.
Thanks for this interesting post. I’m applying all the lessons learned on this blog on my own sites (small webshops) and I’m watching my conversionrate grow!
My company, Kachingle, has created a platform for effortless digital bundling. It enables application vendors to bundle their premium services to jointly market, price & promote an irresistible offering. Our underlying technology includes a usage-based payment system. Our initial target market is freemium web and pc Apps, but our plaform can also be applied to the mobile and content markets. Would love your feedback.
Although bundling is a great way to shift more stock, it is also fuelling our need for things that we don’t actually need and putting more stress on the environment. We are always being told to only buy what we need, but bundling seems to go completely against this doesn’t it?
Informercials also present a way to buy before they present the bonus items, so by the time they get to the final bonus items, those they already sold on the product aren’t watching anymore because they are on the phone.
I think lots of people wait to see what else might be included, but because they have anchored the price for the basic item the bundling effect doesn’t hurt the overall value perception, Laura.
Thanks for the post.
I think the best way to bundle products is to bundle two items which have to use together like digital camera and external memory card or ink jet printer with ink jet toner.
I mean it is just the matter of time that the customers who buy digital cameras have to buy external memory card. Otherwise, they cannot store lots of photos which cause them inconveniences to use their digital camera.
This way, bundling will work.