Bundle Pricing: Definition, Benefits & Examples

What is Bundle Pricing?

Bundle pricing is a pricing strategy used by retailers, where they create a bundle of products and offer them at a lower price than if each product was bought separately.

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This strategy could be in the form of offering multiple pieces of the same product at a discount, or allowing customers to mix & match products and get one or more products for free if they pass a certain threshold of pieces.

Examples of Bundle Pricing

Bundle pricing takes many different forms and here we will list some examples for each type.

Related Products Bundle

An example of this type of bundle pricing is the value meal offered at most quick service restaurants. The price of the meal will be lower than if the customer has chosen to buy all the components separately.

Here, the retailer has selected specific items to include in the bundle, where those items are typically bought and consumed together.

Same Product Bundle

Another example is the &#;Pack of X&#; or &#;Set of X&#;.

In this case the retailer sets a lower amount for a set or pack of the same item, which allows the customer to stock up on the same item and save.

Mixed Bundle Pricing

A more popular bundle pricing method is the mixed bundle pricing, where customers are allowed to choose from a variety of products and get the discount when they pass a certain threshold set for the bundle offer.

A good mixed bundle pricing example is the Mix & Match: Buy 2 Get 1 Free offer at Bath & Body Works. This offer allows customers to choose any 3 products from across different product categories in the store and get one of those products for free.

For example, a customer could choose one shower gel, one body cream and one body splash, and get billed only for the splash and the shower gel. She can also choose to buy two shower gels and one splash.

Whatever she chooses, the lowest priced item out of each 3 items she buys will be free.

Benefits of Bundle Pricing

The reason why product bundle pricing is effective to the company is that it creates a win/win situation for both, the buyer and the seller.

On one hand, the buyer gets to buy the product at a discounted price and benefits from the savings. On the other hand, the retailer or the seller gets to drive sales of more items in one transaction, and so increases his average transaction value and units per customer.

Typically, such an increase translates into more sales and more absolute gross profits as a result of the increase in sales.

The effect of the bundle offer on sales is mainly driven by the framing of the offer and how customers perceive it. If the bundle communicates a higher value for the customer, they will opt for it.

For example, customers perceive a Buy One Get One Free bundle offer as a 50% discount, while in real life we have noticed that for the retailer it does not translate to 50% discount, but rather around 43 to 45% discount.

This is because, when you tell customers they can buy one item and get the second for free and allow them to mix and match between different products, very few will buy exactly the same product twice.

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The majority will buy two different items and the lower priced one will be given for free. That&#;s why it will not be a 50% discount, although it was perceived that way by the customer.

So in this case the retailer benefited by increasing his sales, while at the same time getting higher margins vs. offering a flat discount (e.g 50% off). Not to mention that setting the threshold here at 2 pieces to get the offer, will result in customers buying in two&#;s, and automatically will increase sales to meet the threshold.

Another benefit of bundle pricing for retailers is moving slow selling merchandise, by packing it in a bundle with popular products that sell fast. Since the slow sellers would have gone into a discount sooner or later, the retailer benefits by applying this method and pushing both the fast sellers and the slow sellers at the same time, with the same loss on margins.

Bundle Pricing Vocabulary

Here are some vocabulary and abbreviations used by retailers when referring to bundle pricing.

TermMeaningBOGOFBuy One Get One FreeB2G1FBuy Two Get One FreeBuy X Get Y OffBuy X or more and get Y% offBuy X for YBuy X pieces for Y$, aka. &#;Pack of X&#; or &#;Set of X&#;

Should I Bundle My Products for a Single Price?

It is not recommended to bundle products for a single price and offer it as the single option to buy. This is because some customers might not need all the products in the bundle and they don&#;t want to pay extra for them.

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Instead, create a bundle out of your products and offer it for a single price, and at the same time give customers the option to buy each item separately and show them the savings benefit of choosing the bundle if the they are interested in most of the products.

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This will also serve you in another way, by giving customers a point of reference when they asses your price. Instead of comparing your price to the competition, they will compare the bundle with the non-bundled option.

We explain this concept in more details in our price lining article, so please refer to it.

Considerations When Using Bundle Pricing

You can choose to go for a mixed bundle pricing and let customers pick and choose their products and get one or two for free, or instead you can create a set of bundles out of certain products and give them a certain price that will drive the bundle sales. This depends on your end goal from applying the bundle pricing method.

For example, if your aim is to clear unsold merchandise, then it is better to create sets of products and plug the slow sellers with some best sellers.

In both cases, you should carefully calculate the loss on margin you will get by offering the bundle and compare it with the added benefit of increased sales and absolute gross profit achievement.

Read Also: Loss Leader Pricing Strategy

Another consideration is how long you want to run this bundle offer for?

Should you have this bundle price all-year-round, or instead make it a limited time offer to give customers a sense of urgency and also protect your margins? Again, this will depend on the analysis you have run and also on the types of products you sell.

Tip
Access our members area and find out what we believe is the real reason why Bath & Body Works uses bundle offers all-year-round, and how you can incorporate the same strategy at your store.

It should also be noted that offering price discounts repeatedly or for an extended period of time will tend to reduce the efficiency of the promotion mechanism.

More Resources

Thank you for reading this article on Bundle Pricing. We recommend the below free resources as well:

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What is product bundling?

Product bundling is a technique in which several products are grouped together and sold as a single unit for one price. This strategy is used to encourage customers to buy more products. McDonald&#;s Happy Meals are an example of product bundles. Instead of selling a burger, soda, and french fries separately, they are sold as a combination, which leads to more sales than offering them separately.

Advantages of product bundling

Bundling helps you do much more with your existing stock. Let&#;s take a look at the advantages of product bundling and how it can be beneficial for your business.

Increase your average order value

Product bundling can increase the profits and sales of individual items over time. By grouping your items together you can make your customers buy more than one product during a single purchase, which increases your average order value. For example: Instead of buying just one pencil during a single purchase, your customer can be given an option to buy a pencil, eraser and sharpener as a bundle, making them purchase more than one product thereby increasing your average order value.

Decreases marketing and distribution costs

Bundling enables you to sell more and decrease marketing and distribution costs. Instead of marketing every product you can group complementary products together and market them as a single product. By packaging different items together you only need one warehouse bin to store them instead of different bins. Also, bundling helps you ship fewer boxes of individual items and saves you money on postage. Instead of making print and wed ads for every single item you can show them as a bundle which helps you save more on your marketing costs and at the same time markets all your products. For example: if you have 10 individual products you need to market and sell 10 products, but if you bundle them you market and sell them as a single unit, helping you increase efficiency by reducing marketing and distribution costs.

Reduce inventory waste

Merchandise that doesn&#;t get sold remains in your inventory as dead stock, adding to your holding costs, and is eventually discarded as waste. You can use bundling to clear out this dead stock before it becomes a problem. If you bundle a slow-moving or stagnant item with a faster-selling product, customers will see the bundle as a bargain and be more inclined to buy it. This helps reduce your inventory waste, free up warehouse space, and decrease your inventory holding costs.

Types and Examples of Product Bundles

There are several different bundling techniques which are used to group products:

1. Pure bundles

2. New product bundles

3. Mix-and-match bundles

4. Cross-sell bundles

5. Gifting bundles

6. Inventory clearance bundles

7. Buy-one-get-one bundles

Pure bundles

In pure bundling, the individual products that make up the bundle can be purchased only as a bundle and not as standalone products. This technique limits the choices offered to the consumer. For example, HelloFresh is a company which does pure bundling successfully. It bundles the ingredients that their customers need to cook a healthy meal. They offer meal options based on the number of people and recipes the customer requires each week, but they don&#;t allow you to choose the ingredients as individual items that can be bought separately.

New product bundling

In this technique, newly-launched products are grouped along with existing or popular products as a promotion to help customers discover your latest product. This method is used by ecommerce stores, which mix new products with their well-known merchandise to gain some exposure for the new product. The more well-received the existing product is in the market, the more it brings the buyer closer to the new product. For example: The Nintendo switch + the legend with Zelda product bundle, is one of the fast-selling Nintendo&#;s bundle, in this bundle Nintendo introduced their brand new games which is grouped together along with their existing best selling products. This bundle offers an unique Zelda carrying case which is available with this bundle exclusively and two brand new games (Breath of the wild and Super Mario Kart) along with the accessories for gaming.

Mix-and-match bundles

The mix-and-match bundling technique allows the customer to choose among multiple similar products. This is mostly done by brick-and-mortar stores for fast-moving consumer products such as perishables or bulk items. Here, you specify a few products for your customers to choose from and they can create their own custom bundle from the options available. This method helps the customer feel that they&#;re in direct control of what they want to buy, thereby increasing the perceived value of the item. It&#;s the perfect method for encouraging your customers to buy products in bulk without forcing them to buy items which don&#;t interest them. For example, some retail stores offer a deal where you can match complementary pieces of clothing from an array of choices for a fixed price, such as any shirt along with any pair of trousers for $50.

Cross-sell bundles

In this bundling technique, retailers sell a complementary product as an add-on to a main product. This type of bundling works well with lower-priced items, or accessories or parts that go with a more expensive item. For example, if you buy an iPhone, you would probably like to buy a case along with it. So the iPhone and case can be sold together as a bundle.

Gifting bundles

Gift bundles are aimed at shoppers who want to give a bundle of complementary products together to a loved one. This type of bundle is mostly sold during holiday seasons. For example, beauty brand Estee Lauder offers a popular protect-and-hydrate gift set containing four skincare products that work together.

Inventory clearance bundling

In this bundling technique, you pair a faster-moving item in the inventory with a stagnant or slower-moving item to clear inventory space and decrease your inventory holding costs. This method includes discounts on your bundles so that shoppers who are interested in a top-selling item will see the whole bundle as a bargain and will be more inclined to buy it. For example, the popular specialty tea retailer T-WE found out that their tea accessories were selling faster than their teas (which was unfortunate, because the teas offered a higher profit margin). So they started to bundle their teas along with the accessories so that they look like more of a deal.

Buy-one-get-one bundles

This bundling is used when you buy one main item, you can avail a discount for another complimentary product or get another product free. This is a best used technique for one time purchase products For example, electronics, if a customer buys a hair dryer they wouldn&#;t be coming in to buy the same product again. Hence, offering a complimentary product, discount or gift card will encourage your customers to add more items to their carts at a lesser price.

Bundling adds value to your products by adding extra features or products to your existing purchase. You can tailor your product offerings according to the preference of your customers to align with their wants. Offering unique and carefully curated bundles can help you stand out in comparison with your competitors. It clears out your aging inventory, increases your items&#; perceived value in the eyes of your customers, and boosts sales.

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