10.4 Bundling

A marketer using a bundling strategy offers several items together, typically for less than the sum of each individual item’s freestanding price.   Cable TV packages are another bundling example with which many consumers are personally familiar.  The Microsoft Office suite of applications is another well-known example.  The online retailer Amazon often presents product bundles to users as they go through the check-out process, often with discount offers and reminders that other customers bought the bundled items together.

For many years, sellers of tickets to Broadway plays struggled with an imbalance in demand for their shows.  Consumer demand for evening performances was consistently high, but afternoon shows often played in front of many empty seats.  Innovative ticket sellers found a solution to this in the form of the bundle. By offering both an afternoon matinee and an evening ticket to a buyer for only slightly more than the cost of the evening ticket alone, the theaters improved their revenue.  Meanwhile, even though the ticket purchasers spent more total money, they came away from the transaction feeling good about the bargain that they received.  

Experimenting with various bundled offerings tends to work particularly well with items that have low marginal costs.  An item’s marginal cost is the per-unit cost to the seller for the last item sold – it does not necessarily bear any relationship with the buyer’s perceived value, or the seller’s overall average cost.  The low marginal costs in the Broadway theater example made it easy for the sellers to experiment with pricing bundles; since it costs virtually nothing to allow someone to sit in a seat for several hours, the theaters did not need to worry about these extra transactions having a potentially net-negative impact.  

Another bundling advantage, from the seller’s perspective, is that it may dissuade consumers from purchasing a competitor’s product.  Consider the Microsoft Office bundle, shown above.  A buyer might make the bundle purchase to obtain Word, Excel, Outlook, and PowerPoint.  However, if she finds out down the road that she needs to use a particular type of database software – and if Access meets those needs – she will not need to look elsewhere for it.