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Bundling Up

by Mark Levit

Not long ago an associate purchased a European vacation that included her flight, meals, hotel, and certain tourist attractions in one "all-inclusive" bundle. She had a great time and saved money. Using creative bundling strategies like this can increase your sales and create customer loyalty.

Benefits of Bundling
Assembling multiple products or services in a bundle not only increases overall sales but also:

  • Provides an opportunity to move inventory that isn�t selling.
  • Upsells the customer.
  • Reduces your marketing expense. It allows you to move multiple types of products or services at once.
  • When partnering with another marketer, bundling exposes your product or service to new customers.
  • Increases perceived value.
  • Bundling leverages your customer base and your marketing effectiveness substantially.

Bundling Psychology
The thought behind bundling is to combine products or services and offer them at a lower price than the customer would pay if purchased separately. Bundling at a reduced price alters customer buying behavior.

Bundling presents a psychological quandary for customers conscious of a balance between price and value. The winning option will be the one that provides the best balance between price and value in your customers� minds.

The Elements of "Value"
It’s important to understand the meaning of �value� when developing bundled products or services. It�s:

  • Variable depending on the customer
  • Based on perception, not reality
  • A tradeoff between price (the customer�s investment) and benefits (what the customer receives)
  • Value is an equation. Value = Perceived Benefits. Here�s how the value equation works in the minds of customers:
    • Scenario 1 – If Price goes up and Perceived Benefits remain constant, Value falls.
    • Scenario 2 – If Perceived Benefits increase and Price remains constant, Value increases.
    • Scenario 3 – If Perceived Benefits increase and Price is reduced, Value skyrockets!
  • As a marketer, you almost always seek to position your offer as a better value. To accomplish that you must either reduce your price, increase benefits or increase benefits in excess of the price. Whichever you select, value must go up because that’s how customers make buying decisions.
  • These are important concepts to understand when bundling an offer. If you bundle your products or services properly, you�ll be able to add more benefits at a lower unit price, dramatically increasing the perceived value of your bundle.

    Examples of Bundling
    Bundling revolutionized the software industry in the early 90’s. Once Microsoft started the era of bundling desktop software, providers of single software applications had little chance of survival. Look at Wordperfect, Novell, Borland, Lotus and a list of other companies that were brought to their knees because they didn’t bundle.

    Bundling with Partners
    If you�re unable to offer multiple products or services you may consider partnering with another marketer to provide additional value to your bundle.

    For example, if you operate an engagement ring manufacturing company, you could bundle the services of a national flower store chain and a travel consolidator to provide a "Total Wedding" program. The ring manufacturer sells the ring, flower chain designs the arrangements, and the travel consolidator arranges the honeymoon. Everyone benefits, resulting in additional sales and new customers.

    Suppose you operate an accounting firm and you find many of your clients not only have accounting issues, but also bookkeeping and legal problems. Instead of making a simple referral to other professionals you could consider forming a joint venture and offering a "Business Diagnostic" service all three parties (accounting firm, bookkeeping service and law firm) sell to their clients.

    Developing a Bundled Offer
    To develop bundled offers, research the challenges customers encounter and develop solutions to address those challenges. Think of other items you may be able to include with your bundle that cost you little�but add value.

    Following are four common problems that customers of various businesses categories face and examples of possible "bundles" that might offered to solve the problem.

    Example 1 � Financial Services
    Customer Problem � Accounts and contracts at multiple companies/institutions

    Bundle Offer – "Convenience Consolidation" Bundle

    Convenience Consolidation Silver Bundle

    • $50 cash incentive
    • Checking account
    • Money market account
    • Brokerage account
    • Life and health insurance
    • Convenience Consolidation Gold Bundle

    Convenience Consolidation Silver Bundle

    • $75 cash incentive
    • Property and casualty insurance

    Convenience Consolidation Platinum Bundle

    • Convenience Consolidation Gold Bundle
    • $100 cash incentive
    • Invitations to quarterly financial education seminars

    Example 2 – Publishing
    Customer Problem � Special interest subscribers seek endorsement of their favorite magazine

    Bundle Offer � �Motor Trend Car Club�

    Motor Trend Car Club Basic Bundle

    • Magazine subscription
    • Coffee table automobile book
    • Roadside assistance

    Motor Trend Car Club Enthusiast Bundle

    • Motor Trend Car Club Basic Bundle
    • Auto insurance
    • Annual car inspection

    Motor Trend Car Club Pro Bundle

    • Motor Trend Car Club Enthusiast Bundle
    • Lessons at Skip Barber driving school

    Example 3 � Managed Health Care

    Customer Problem � Employees limited to network physicians

    Bundle Offer – "For Your Health"

    For Your Health Starter Bundle

    • Access to network providers
    • Access to specialists without primary care provider approval
    • Discount access to massage therapists, acupuncturists, chiropractors, etc.

    For Your Health Super Bundle

    • For Your Health Starter Bundle
    • Discount access to ophthalmologists
    • Discount vitamins and supplements

    For Your Health Ultimate Bundle

    • For Your Health Super Bundle
    • Discount access to gym and personal trainer

    Example 4 � Telephone Services

    Customer Problem � Telephone bills are unpredictable

    Bundle Offer – "Line One"

    Line One Value Special

    • Local and 60-minutes of long distance service

    Line One Mega Value Special

    • Local and 120-minutes of long distance service
    • Broadband access

    Bundling Principles
    These examples provide an idea of how to bundle products and services for maximum value and price. Here are the principals upon which each of these bundles was developed:

    Principle # 1 � Only offer bundled products or services that provide solutions to customers� problems.

    Principle # 2 – Each offer has unique offers that grow out of the lower priced bundle. Presenting customers with choices is the goal of bundling. Providing options with increasing value motivates customers to "up sell" themselves by selecting a more expensive option.

    Principle # 3 – The names of the different bundles denote increasing value like, silver, gold, platinum or starter, super, ultimate. Each subsequent name should communicate increased perceived value.

    Principle # 4 � You are able to aquire additional products or services added to the basic bundle at a low cost.

    Principle # 5 – You don’t have to have multiple products to create a bundle. Just add more of the same product.

    Opening Up to Bundling Options
    You do have bundling options in your business. You simply need to expand your thinking to find them. Consider bundling to increase sales and add new customers!

    Find out more about how your company can benefit from bundling. Contact our managing partner, Mark Levit, at 212.696.1200 for more information.


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