PRICE BUNDLING : PURE

BUNDLING AND MIXED

BUNDLING
• Bundling is a marketing practice that involves offering several different products
for sale as one combined product.
• Examples would include things like "combos" or value meals at fast food
restaurants (where a combination might include a burger, a drink and a beverage)
or the concession stand at a movie theater (where it might include popcorn, soda
and candy).
• Bundles are also common from cable companies (their bundles include the basic
service, hardware like the cable box, access to specific features like packages of
movies, sports and other specialty programming, etc).
• It is a popular practice that can increase revenue for the seller (by increasing sales)
and provide increased satisfaction for the customer (who enjoy any savings and
the convenience that comes with having to evaluate a single price).
PRICE BUNDLING AND NONLINEAR PRICING:
PURE BUNDLING AND MIXED BUNDLING
• Price bundling is combining several products or services into a
single comprehensive package for an all-inclusive reduced price.
• Despite the fact that the items are sold for discounted prices, it
can increase profits because it promotes the purchase of more
than one item.
• Pricing Bundling Examples
• Detergent and dryer sheets
• New phone with a data plan
• Bake at home pizza and cold drink
 DEEPER INSIGHTS
• mobile phone retailers frequently bundle the prices of several products and
services together for their new customers.
• They offer the phone itself with a package that also includes the 2-year phone
plan, internet access, and phone charger.
• This bundle benefits the customer because it provides them with all the tools
they need for their phone all at once and it benefits the mobile phone retailer
because they are selling the customer supplementary products and services
other than just a phone
• The main appeal to sell things in a bundle is that you can introduce new or
complementary products packaged with a consistent high seller.
• Many businesses do this to try to promote new products and get customers
interested enough to buy more
Product Bundling Advantages:
• 1. Increase in Efficiency: Your warehouse workers only have to search for the bundled item rather
than having to gather the individual products. You lower your distribution costs because you
don’t have to send out as many individual products. Amazon product bundling strategy can
increase sales and is an attractive marketing move.
• 2. Increases Speed: You can send out your bundled items rather than preparing a separate bunch
of single items. Bundling products on eBay can save you time in the packing and shipping process
as well.
• 3. Increase in Sales: Customers order and purchase items they may not have bought otherwise,
thereby increasing your profits.
• 4. New or Lesser Product Bundle: When you pair a popular product with a less popular product,
you can find the customer base of the less liked product with the help of the stronger product.
• 5. Competitive: When you product bundle, it makes it more difficult for your competitors to track
what you are selling and compare prices.

•
 ADVANTAGES OF BUNDLE PRICING
• Bundle pricing has many advantages.
• The most important one is it that it allows companies to sell their lesser
known or unpopular products with the popular ones.
• It will also help attract different kinds of buyers: buyers looking for deals,
buyers looking for convenience or buyers looking for advice on items that
complement each other.
• Some consumers will be spending more than they initially wanted when they
see an offer they like (if you offer the product that they already wanted to
buy with something they wanted to try but never got to it).
• Product bundles have lower marketing cost because you are promoting two
or more products with an effort and resources for one
 DISADVANTAGESOF BUNDLE PRICING

• No matter how great a strategy is there is always a downside to it.

• The biggest disadvantage for this one is that it can lead to cannibalization of your products
that can be bought outside of the bundle.
• For example, you are selling a laptop and a printer together, but also separately.
• Because of this more printers could be sold through the bundle than on its own.
• This does cause lower profit for that particular product.
• There is also a chance that some consumers won’t buy something if it can’t be bought
separately because they feel forced to buy more. So it’s crucial to choose the right products
for the bundle
• Product bundles are very popular among customers.
• They make their lives easier because they save them time looking all around the store for
each product, they help them decided on products they weren’t sure about trying them, etc.
• When done right, bundle pricing strategy drives more sales and profit for the companies,
which is why it’s one of the most used ones.
 PURE BUNDLING
• a type of bundling where the individual components that make up the bundle are only available when
purchased as a bundle – they are not available for purchase separately.
• One example would be the cable company – you can choose different bundles of services and channels,
but you can't select the individual channels that make up those bundles.
• The best example for that are TV channels offered by cable providers. They offer a number of packages
and each one has a different combination of channels.
• If you want a specific one, that is offered in only one package, you have to get all of the others from
that one.
• For example, if you want HBO, you will have to pay for HBO2 and HBO3 too, and other channels that go
with it (depending on the provider). When you think about it, it makes sense for such products
• Pure bundling is sometimes favored because it is seen as a way to increase sales – to get the channel
you really want you also have to pay for a lot of channels you really don't care about.
• Because pure bundling also limits the choices available to the consumer it can come under scrutiny and
even be subject to litigation.
 TYPES OF PURE BUNDLING

• Pure bundling is when products are only sold together. In some cases, products don’t exist
outside the bundle.
• Pure bundling has three subcategories: joint bundling, leader bundling, and mixed-leader
bundling.
• 1. Pure Bundling: Customers have the choice to purchase the entire bundle of products or
nothing at all.
• 2. Mixed Bundling: Customers are given the choice to either buy the entire pack of products or
individual products from the pack.
• 3. Leader Bundling: Customers can get a discount if they buy a leader item with a non-leader
item.
• 4. Joint Bundling: Two bundled products are offered to customers for the price of one.
• 5. Mixed Leader Bundling: This is when customers get the option to buy the leader product
without having to buy the non-leader products in the bundle.
 MIXED BUNDLING
• an approach to bundling where the individual components that make up the bundle
are also available for purchase individually.
• Movie theater snacks and fast food combos are examples of mixed bundling – you can
purchase each item individually, or together as part of the combo for a single price
• Mixed bundling, also called custom bundling, is when customers are offered to
purchase a bundle or separate products on their own.
• Consumers are offered complete cable, internet, and telephone packages. The price
will depend on the level of service that the package provides.
• If you choose high-speed internet and maximum channels, it’s going to be much more
expensive than getting a package with low-speed internet and minimum channels.
• Each of these services can be bought separately, but it’s just like the restaurant
example – it will be more expensive
•.
• many consumer electronics companies designed home theatre equipment bundles,
known as Home Theatre in a Box (HTIB). For a customer who already owned a TV,
and in some cases a DVD player or other source for playing back movies, a HTIB
package provides all of the electronics hardware, speakers and cables needed to set
up a home cinema.
• There are three grades of HTIB bundles: economy bundles, aimed at the lowest
price point; mid-tier bundles, the most common type; and higher-cost HTIB bundles
made by BOSE and other higher-end manufacturers.
• At the economy grade HTIB package, the customer is provided with a basic home
theatre set-up, with modest sound quality and relatively few options for adjusting
the sound.
• The mid-tier and upper-tier packages offer better performance and more set-up
options. All three HTIB tiers, though, have a similar value proposition for the buyer:
the HTIB package ensures that all of the speakers are of the correct impedance and
power handling capabilities, the cables are of the correct type, and the crossover
points and other technical details have been set up by the manufacturer.
• Pure bundling and mixed bundling are both examples of product bundling. The big difference
between pure and mixed bundling is that mixed bundling allows the consumer to purchase the items
separately while pure bundling does not.
• Bundling offers a very powerful way to increase sales and also customer satisfaction. Although
unbundling has become very popular, especially in things like flower delivery where perceived cost
can be reduced with separate service fees and delivery charges, there are many customers that
prefer the convenience that comes with bundled pricing.
• Watch the customers at a movie theater, where the bundled packages offer little if any savings
(almost always less than 5%). Customers love the bundles because there is less thinking (they don't
need to add up the prices in their heads) and greater perceived value (they assume savings even
when they aren't there).
• More specifically mixed bundling is good, pure bundling more problematic. Mixed bundling allows
your customers more options, when they want them, something they appreciate.
• Pure bundling can effectively force them to spend more money, but does anyone really like dealing
with the cable company? Unless there are very few alternatives for your customers pure bundling is
generally a dangerous game.
• But mixed bundling offers the best of both worlds. Customers are not trapped, they have the ability
to choose each individual item and you are not limiting their options. At the same time you are
offering them the convenience of a bundle of products at a single price.
 DETERMINE OPTIMAL BUNDLING PRICING

• In a bundle pricing, companies sell a package or set of goods or services for a lower price than they would charge if the
customer bought all of them separately.
• Common examples include option packages on new cars, value meals at restaurants and cable TV channel plans. Pursuing a
bundle pricing strategy allows you to increase your profit by giving customers a discount
• BASED ON CONSUMER SURPLUS
• Bundle pricing is built on the idea of consumer surplus. Every customer has a price that he is willing to pay for a particular good
or service.
• If the price you set is equal to or lower than what the customer is willing to pay, the customer will buy, as he considers the price
a bargain.
• The difference between what the customer pays and what the customer was willing to pay is known in economics as the
consumer surplus. Bundle pricing is an attempt to capture more of your customers’ consumer surplus
• PERSONALIZED PRICING
• An example: Your car wash offers two services, exterior cleaning and interior cleaning. Using market research and your own
experience, you’ve concluded that there are two primary groups of customers.
• Those in group A are concerned about appearances and are willing to pay up to $15 for the exterior package but only $8 for the
interior. Members of group B are less appearance-oriented, but they value comfort; they’re willing to pay $10 for the exterior
package and $9 for the interior
• If you were able to charge everyone exactly what they’re willing to pay, you could get $23 from each customer in group A and
$19 from each in group B, for a total of $42 from a pair of A and B customers. With personalized pricing, there would be no
consumer surplus
• Bundling Benefit
• if you have no reliable way of telling whether customers are in group A or group B when they come in,
personalized pricing is impossible.
• In a bid to get each customer to buy both services, you’d charge $10 for exterior and $8 for exterior, as each
group is willing to pay that amount for each service.
• Each customer would produce $18 worth of revenue, for a total of $36 from a pair of A and B customers.
• The consumer surplus in this case is $6. Look again at what each customer is willing to pay for the two services:
$23 in group A and $19 in group B.
• If you set an interior-exterior bundle price of $19, you’d make $38 per A-B pair, capturing $2 of consumer surplus
• Other Advantages of Bundles
• Offering products in bundles provides benefits beyond simply getting more revenue from each customer.
• It simplifies production and reduces errors.
• Think about a fast-food restaurant where customers can quickly order the No. 3 or No. 7 rather than separately
order a sandwich, fries and maybe a drink.
• It also heads off pricing disputes with customers.
• A customer might be perfectly happy to pay an all-in bundled price, yet be turned off by a laundry list of charges
that add up to the exact same dollar amount