Product bundling is a popular way for ecommerce merchants to sell more of their products and steadily increase their profits. This article does a deep dive of product bundling, highlighting brands who do it well and some of the biggest benefits of this pricing strategy.
Read on to learn more about the best product bundling strategies, why it works, and a few tips we've learned from industry experience.
But first, let's start with a quick definition...
When we think of product bundling, we usually think about direct-to-consumer sales from a single label or brand. However, product bundling also comes into play when resellers are shopping for goods to display on online marketplaces like Amazon or eBay. These marketplaces can suggest bundles for you to create on your site, and then resellers can place bundle packages in separate posts from the original product listing.
There are many different types of product bundling strategies, each of which come with their own benefits:
Let’s explore why product bundling works for your bottom line and how to incorporate it with your existing marketing strategies...
A study by Vineet Kumar of Harvard Business School found that when Nintendo used mixed bundling—which allows customers to purchase products as a bundle (at a discounted price) or individually—to market video game units, sales of these units went up by 100,000 and video game sales increased by more than a million.
Conversely, when Nintendo tried pure bundling—where customers were forced to buy the bundled package only—their sales declined by 20%, and they saw decreased sales for both video game consoles and the games themselves.
With these numbers in mind, it’s clear the secret ingredient to product bundling is finding the right mix for your bundled package or using mixed bundling to increase customers’ freedom of choice.
This phrase refers to the value a customer puts into the goods you’re selling. In general, customers favor products they value and consistently go for products that seem “worth it.” Because of this perceived value, the products in your bundle offers should all hold weight for the buyer and be at a reduced price when purchased together rather than individually.
When considering which of your products to bundle, the best approach is to add goods that complement one another or can be used together, as was true for Nintendo's consoles and games package. Your product bundles have to make sense, so if you’re selling a computer, you’d be wise to include something like a free USB cable or screen cleaner.
Another practical tip is to find out what customers want directly from the customers themselves. This is especially important within ecommerce since bundles can help you outshine your competitors.
With the help of customer data and product performance analytics, you can see what products a person is buying. Moreover, you can even track the different products they frequently purchase to learn which products might make sense together in terms of cross-selling.
If you notice Shopper A bought a bottle of shampoo from your store, and they ordered a hair spa treatment you sell, this data shows you can successfully bundle these products together. To leverage this data further, find something that allows you to incorporate full-suite ecommerce reporting & analytics to provide better insights.
Product bundling is an effective pricing strategy as well as a compelling way to upsell and cross-sell a range of products.
Every customer has an amount they're willing to pay for a product; the difference between that price and what they actually pay is known as the consumer surplus. Product bundling is an effort to capture the maximum amount of this surplus, making customers feel like they’re getting products at a steal, all while making their buying journey much easier.
But it’s not just consumers who benefit from bundling, as retailers also reap the rewards of individual products being packaged together. That’s because with bundles, customers are more likely to spend a lump sum upfront rather than purchasing items over an extended period of time and perhaps from multiple marketplaces or locations. While the push for omnichannel retail feeds this purchasing behavior, it comes at a cost for brands who have to pay for retargeting ads and emails to try and bring them back to their online store.
What’s more, bundling helps you increase sales revenue by increasing the average order value (AOV), a significant metric for the success and growth of your company. Bundling strategies boost total revenue by increasing the AOV and amount spent on each transaction since multiple items will still cost more than a single product (even when promotional price points are in effect).
Product bundling can save you a great deal of money on marketing and distribution since a key component of any bundling strategy is receiving a higher initial return on the cost of acquiring a customer. Similarly, companies who implement bundling worry less about customer retention or product returns. When a larger purchase is made on one visit to your site, it alleviates the pressure to draw customers back to whatever individual items remain in their cart.
When done correctly, product bundling also keeps inventory moving at a steady rate instead of sitting stagnant (or becoming obsolete) and unsold in your warehouse. Products whose sales have slowed can get a much-needed boost when paired with relevant, sales-driving items. Then, you can develop bundle pricing to increase the appeal of the newly paired goods while improving your inventory turnover ratio.
Another approach is to package certain quantities of dead stock at a lower price (that still turns a profit). And if this bundle is exclusively available to customers who’ve purchased the product in the past, it increases the desirability of those goods and helps speed up inventory clearance to create valuable storage space. Plus, retailers who offer package deals often run out of the bundled products at the same time, making reorder point calculations, restocking, and general inventory management more straightforward.
In addition to generating more sales and saving you money, product bundling is a practical way to simplify the customer experience. Customers have the opportunity to choose products or services that have been grouped with their needs in mind, and when they’re able to remove, add-on, or edit products from the base bundle, it can spike satisfaction even more.
Product bundling can alleviate the headache that comes from decision-making, as well. While shoppers appreciate having choices, too many options can cause them to feel overwhelmed. Online retailers who set up customized recommendations (using product-consumer matching algorithms) can direct customers toward the types of products they’re likely to be interested in. This tactic not only relieves buyer fatigue, but it helps you close the sale at the same time.
Lastly, bundled offers help customers to better understand your products, since they’re likely to review or read up on each item within the collective package. With this knowledge, customers have increased confidence in their purchase, since they feel invested in the decision and more in control of their purchasing power.
Now that you have the lowdown on how to bundle, let’s look at a few tips to help you execute this strategy and get it right the first time.
When you provide a diverse range of bundles for your customers to select from, they'll gather ideas for how to use the products, which products to pair with their purchases, and how to resell these items if they choose to do so.
One of the most attractive things about bundles is the products end up being less expensive as a bundle than when you purchase the products individually. This is good for consumers who are always looking for a buy that’s worth the money. So when you sell, use figures or percentages to emphasize exactly how much they can save with the bundle.
Have you ever been offered a bundle by a cashier at a store? It might sound something like: "If you get a second item, your third is free." These offers happen to drive purchase intent and encourage you to make a quick decision on whether you want something that’ll make your purchase more worth your money.
This can also work wonders with regards to ecommerce selling. When a customer goes to checkout, the next page might display another product to add to their bundle for more bang for their buck. Once again, the key here is to add a product that is valuable to your target customer. Amazon has worked to perfect their product mix formula and is an example of an online marketplace that does this really well.
Make sure to display your bundle sets where your target customers can see them. Whether you’re selling through an online marketplace, an ecommerce platform or an independent site, it’s important to showcase your bundles the moment your customer lands on the page. The more you promote your bundles, the more your potential customers will be exposed to them. This way, they can decide whether they want to take advantage of them or not.
When selling on your own website, try creating a separate page for your value packages. Any shoppers hunting for deals or looking to save a little money will flock to this section to view your product bundles. Consider developing unique bundles that change over time, such as a “bundle of the week” promo or even a “holiday bundle” offering.
The biggest online brands are already benefiting from product bundling. Here are just a few examples for you to learn from:
Kylie Cosmetics built an empire with a simple product concept: lip kits, a clever name for a product bundle consisting of lipstick and lipliner in a single box. The brand grew from social media sweetheart to Shopify mega-success story ultimately resulting in a $600 million acquisition. Kylie Cosmetics continues to rely on a bundled product pricing strategy and has a dedicated section on their website highlighting the season's most popular bundles.
HelloFresh sells ingredients that go into a healthy, home cooked meal. Theirs is actually an example of a successful pure bundle method that doesn’t seem like it’s a pure bundle. HelloFresh is known for packaging ingredients together that’ll make well-rounded meals, and it’s a very attractive option for anyone who has a health conscious lifestyle.
Amazon, as mentioned above, continues to perfect its algorithms for online sales. They've mastered the art of bundling and devised a way to suggest bundled products on their site (called Virtual Bundles). They’re able to make money this way since Amazon’s profits come from their sellers' revenue.
Product bundling is a trusted method for selling goods both in-store and online. As the art of selling has evolved over time, bundling products has steadily gained in popularity.
Now, it’s more relevant than ever due to the steep competition among ecommerce merchants in an increasingly crowded online space and growing customer acquisition prices. Product bundling emerges as a true win-win as it gives you the ability to sell items for less while also making them more valuable than your competitors’ listings.
When done properly, product bundling is an efficient way to boost sales and increase customer satisfaction at the same time. But, implementing a product bundling strategy without the right technology to support your operations can be a struggle.
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