Product bundling is combining two or more products or services together, creating differentiation, greater value and therefore enhancing the offering to the customer. Bundling is based on the idea that consumers value the grouped package more than the individual items.
Bundling can enhance an organization’s offering mix while minimizing costs. This is attractive to consumers who will benefit from a single, value-oriented purchase of complementary offerings. Bundling is attractive to producers by increasing efficiencies, such as reducing marketing and distribution costs. It can also encourage customers to look to one single source to offer several solutions.
Product bundling may also incorporate products from multiple producers. For example, Palo Alto Software may include one of their business planning products with an accounting software package, or participate in a “small business bundle” through a major computer manufacturer whose customers would have the opportunity to purchase with their new PC. In these situations, bundles may cost effectively open doors to new marketing channels.
If the product combination is right, the decision to bundle often involves taking these four variables into consideration:
Volume: Bundling typically increases unit sales volume.
Margins: Bundling can reduce margins.
Exposure: Bundling may offer new channel opportunities or exposure to new potential customers.
Risk: If executed incorrectly, bundling may cannibalize more profitable sales, resulting in lower contribution margins and potential channel conflict.
These factors must be considered in terms of the revenue opportunity and exposure potential bundles offer. Determine if bundling has a place in your marketing plan and how it will provide value for your customer and your organization.
It is important to be selective, but with the right bundle, everyone can win.
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