Product bundling

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In marketing, product bundling is offering several products or services for sale as one combined product or service package. It is a common feature in many imperfectly competitive product and service markets. [1] Industries engaged in the practice include telecommunications services, financial services, health care, information, and consumer electronics. A software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles many TV and movie channels into a single tier or package. The fast food industry combines separate food items into a "meal deal" or "value meal".

Contents

A bundle of products may be called a package deal, in recorded music or video games, a compilation or box set, or in publishing, an anthology.

Most firms are multi-product or multi-service companies faced with the decision whether to sell products or services separately at individual prices or whether combinations of products should be marketed in the form of "bundles" for which a "bundle price" is asked. Price bundling plays an increasingly important role in many industries (e.g. banking, insurance, software, automotive) and some companies even build their business strategies on bundling. 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. Pursuing a bundle pricing strategy allows you to increase your profit by using a discount to induce customers to buy more than they otherwise would have.

Rationale

Bundling is most successful when:

While many well-known examples of bundling are all products or services from the same store or provider, such as the sports package for a car or a grocery store's gift basket, in some cases, cross-industry bundles are assembled and sold. For example, some travel agencies have vacation tour bundles that may include air tickets, rail tickets, a rental car, hotels, restaurants, museum and sightseeing attraction tickets and live music event tickets. These bundles include products and services from transportation, accommodation, tourism, food service and entertainment industries.

Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated. For example, assume consumer A values a word processor software at $100 and spreadsheet processor at $60, while consumer B values a word processor at $60 and spreadsheet at $100. Seller can generate maximum revenue of only $240 by setting $60 price for each product—both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, one of the consumers will refuse to buy it. With bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160. Thus, bundling can be considered a form of price discrimination. [2]

Product bundling is most suitable for high volume and high margin (i.e., low marginal cost) products. Research by Yannis Bakos and Erik Brynjolfsson found that bundling was particularly effective for digital "information goods" with close to zero marginal cost, and could enable a bundler with an inferior collection of products to drive even superior quality goods out of the market place. [3] [4]

Venkatesh and Mahajan reviewed the research on bundle design and pricing in 2009. [5] A 1997 study by Mercer Management Consulting, in Massachusetts stated that good bundles have five elements: (1) the package is worth more than the "sum of its parts" for the consumer; (2) the bundle brings order and simplicity to a set of confusing or tedious choices; (3) the bundle solves a problem for the consumer; (4) the bundle is focused and lean in an effort to avoid carrying or including options, goods or services the consumer has no use for; and (5) the bundle generates interest or even controversy. [6] Number 1 can be read as simply that a bundle should cost less than buying each item separately; however, even if the bundle were to cost the same in dollars, a bundle may still be an appealing value proposition for a consumer, as they do not have to hand-pick each accessory and add-on item (this is the 2nd and 3rd point).

Bundling is often thought of mainly as a value pricing strategy, in that product bundles often cost less than if each item were purchased separately. However, bundling can also have other strategic advantages. For example, when a grocery store is making up a gift basket, they can use the design of the basket item list as a way to promote new products or brands that a customer may not know or as a way to liquidate merchandise that is not selling well. As well, even though many bundles are less expensive than all of the items if purchased separately, in some cases the bundle costs more than if each item was purchased separately; this tactic is particularly effective in high-end retailing where conspicuous consumption and prestige pricing elements come into play. A well-off home theatre enthusiast with a very high budget may find a $10,000 home theatre package attractive, even if it costs a bit more than buying each item separately, because this is an impressive total cost.

Varieties

Bundling in political economy is a type of product bundling in which the "product" is a candidate in an election who markets his or her bundle of attributes and political positions to the voters. For example, a political candidate may market herself as a centrist candidate by ensuring she/he has centrist social, economic, and law enforcement positions.

Advantages and disadvantages

Advantages:

Disadvantages:

Software

In the computer industry, bundled software is distributed with another product such as a piece of computer hardware or other electronic device, or is a group of software packages which are sold together. Software which is pre-installed on a new computer is an example of bundled software. For example, as of 2017, most desktop, laptop and mobile computers are bought pre-loaded with various software and software applications ("apps"). A pack-in game is a form of bundled software.

Early microcomputer companies varied in their decision to bundle software. BYTE in 1984 observed that "Kaypro apparently has tremendous buying and bargaining power", noting that the Kaypro 10 came with both WordStar and Perfect Writer, plus "two spelling checkers, two spreadsheets, two communications programs and three versions of BASIC". [13] Stating that year that a computer that weighs 30 pounds "really isn't very portable", Creative Computing concluded that "the main reason that the Osborne was a success was not that it was transportable, but that it came with a pile of bundled software". [14] Compaq, by contrast, did not bundle software, stating that "You remove the freedom from the dealers to really merchandise when you bundle in software ... Why should you be constrained to use the software that comes with a piece of hardware? I think it can tend to inhibit sales over the long run." [15] MacWrite's inclusion with early Macintosh computers discouraged developers from creating other word processing software for the computer. [16] Many companies sold multimedia upgrade kits—a CD-ROM drive, sound card, speakers, and what Computer Gaming World described as "a boatload of bundled software"—during the mid-1990s. [17]

Home Theatre in a Box

In the 1990s and in the 2000s (decade) and 2010s, 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.

The most serious home theatre enthusiasts do not typically buy HTIB bundles, as they are a more sophisticated target market. As such, the most serious home cinema-philes typically purchase each component (power amplifiers, speakers, subwoofer cabinet, speaker cables) separately, so that they can choose which items meet their specific movie-watching goals. For example, a serious home theatre enthusiast may wish to have a large cabinet subwoofer enclosure with heavy bracing, a type and size of subwoofer cabinet that would not be found in any HTIB bundle due to its large size and high cost. As well, a serious home theatre enthusiast may wish to have a powered subwoofer with a user-adjustable crossover, a "subsonic" filter and other higher-cost advanced features.

Market power and competitiveness

In oligopolistic and monopolistic industries, product bundling can be seen as an unfair use of market power because it limits the choices available to the consumer. In these cases it is typically called product tying. Some forms of product bundling have been subject to litigation regarding abuses of market share.

United States v. Microsoft

United States v. Microsoft was a set of civil actions filed against Microsoft Corporation pursuant to the Sherman Antitrust Act of 1890 Sections 1 and 2 on May 18, 1998 by the United States Department of Justice (DOJ) and 20 states. Joel I. Klein was the lead prosecutor. The plaintiffs alleged that Microsoft abused monopoly power on Intel-based personal computers in its handling of operating system sales and web browser sales. The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars as every Windows user had a copy of Internet Explorer.

TV programing bundles by Cable and Satellite providers

Cable and satellite television (Pay TV) have bundled TV channels since the inception of both. In the early years of the cable industry this was necessary due to the technological constraints associated with allowing and blocking channels transmitted via analog methods. The progress towards complete cable, internet, and telephone packages gave subscribers many more options as well as offering hundreds of channels. The "package" price depends on the level of service a customer prefers within each bundle. The services range from low speed internet and minimum channels to high speed internet and the addition of many premium channels. [18] In the US prices for pay TV have doubled in the last twenty years, averaging 6% per year, while wages have remained the same for nearly 20 years [19] causing dissatisfaction and many cancellations. [20] Costs have risen 53% since 2007 and Comcast and AT&T's Direct TV went up in January 2018. [21] With the Digital television transition opportunities for competition to pay TV ushered in online video companies and forcing pay TV companies to examine à la carte cable company packages. [22]


A 2018 consumer report shows many subscribers are dissatisfied with cable TV, mainly over prices, which has led to many complaints. Google Fiber was an exception to widespread consumer dissatisfaction. Verizon and the two satellite-TV companies —AT&T's DirecTV and Dish Network rated better than Cox Communications, Comcast, Spectrum, Optimum, CenturyLink, SuddenLink Communications, Atlantic Broadband, Frontier Communications, and Mediacom was rated at the bottom. Internet providers EPB (Fiber Optics) and Google Fiber received top ratings for value. Of the smaller companies only Armstrong received top ratings and RCN, Hawaiian Telcom (bought by Cincinnati Bell in 2018), and Grande Communications received slightly higher ratings. [23] The high price of current complete bundling, upwards of $180–200, along with poor customer service, surprise bills, and technical difficulties, resulted in Angie's List reporting that these things were the number two most complained about category. [24]

TV bundling by Internet-based (Over-the-top) service providers

Streaming company Netflix offers different bundles, claims to have the largest content along with original programming, and offers downloading for offline viewing.

Amazon provides on-Demand Movie Streaming, as well as Hulu.

Sling TV offers up to 50 channels.

HBO Now, Philo TV, [25] Pluto TV, FuboTV, and Twitch (subsidiary of Amazon) also offer TV programming.

YouTube TV ties with PlayStation Vue as the most expensive streaming video.

Apple TV plans to add movies.

Roku and Sony Crackle offer free TV with advertisements.

Most of these companies offer different prices as bundles or packages. [26]

Further reading

See also

Related Research Articles

Supermarket Large format of grocery store

A supermarket is a self-service shop offering a wide variety of food, beverages and household products, organized into sections. It is larger and has a wider selection than earlier grocery stores, but is smaller and more limited in the range of merchandise than a hypermarket or big-box market.

Price discrimination

Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets. Price discrimination is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy. Price differentiation essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand. For price discrimination to succeed, a firm must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc. All prices under price discrimination are higher than the equilibrium price in a perfectly-competitive market. However, some prices under price discrimination may be lower than the price charged by a single-price monopolist.

Home cinema Home entertainment system that aims to replicate the experience of a movie theater

Home cinema, also called home theaters or theater rooms, are home entertainment audio-visual systems that seek to reproduce a movie theater experience and mood using consumer electronics-grade video and audio equipment that is set up in a room or backyard of a private home. In the 1980s, home cinemas typically consisted of a movie pre-recorded on a LaserDisc or VHS tape; a LaserDisc or VHS player; and a heavy, bulky large-screen cathode ray tube TV set, although sometimes CRT projectors were used instead. In the 2000s, technological innovations in sound systems, video player equipment and TV screens and video projectors have changed the equipment used in home cinema set-ups and enabled home users to experience a higher-resolution screen image, improved sound quality and components that offer users more options. The development of Internet-based subscription services means that 2016-era home theatre users do not have to commute to a video rental store as was common in the 1980s and 1990s

In marketing jargon, product lining is offering several related products for sale individually. Unlike product bundling, where several products are combined into one group, which is then offered for sale as a units, product lining involves offering the products for sale separately. A line can comprise related products of various sizes, types, colors, qualities, or prices. Line depth refers to the number of subcategories a category has. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line.

Sales promotion is a short-term incentive to initiate trial or purchase.

Pricing Process of determining what a company will receive in exchange for its products

Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of product.

The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses and websites.

Online shopping

Online shopping is a form of electronic commerce which allows consumers to directly buy goods or services from a seller over the Internet using a web browser or a mobile app. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine, which displays the same product's availability and pricing at different e-retailers. As of 2020, customers can shop online using a range of different computers and devices, including desktop computers, laptops, tablet computers and smartphones.

Home theater in a box

A home theater in a box (HTIB) is an integrated home theater package which "bundles" together a combination DVD or Blu-ray player, a multi-channel amplifier, speaker wires, connection cables, a remote control, a set of five or more surround sound speakers and a low-frequency subwoofer cabinet. In 2016, they are manufactured by most makers of consumer electronics. Budget HTIB's with generic or lower-price "house" brands may be a "2.1" system. Many, however, are a full "5.1" system and some higher-end packages even have a 7.1 system. Some popular manufacturers of HTIB's are RCA, Philips, Panasonic, Sony, Yamaha, LG and Samsung, all of which make a variety of mid-price range packages. Bose and Onkyo make higher-end, higher-priced HTIB packages.

A rebate is a form of buying discount and is an amount paid by way of reduction, return, or refund that is paid retrospectively. It is a type of sales promotion that marketers use primarily as incentives or supplements to product sales. Rebates are also used as a means of enticing price-sensitive consumers into purchasing a product. The mail-in rebate (MIR) is the most common. A MIR entitles the buyer to mail in a coupon, receipt, and barcode in order to receive a check for a particular amount, depending on the particular product, time, and often place of purchase. Rebates are offered by either the retailer or the product manufacturer. Large stores often work in conjunction with manufacturers, usually requiring two or sometimes three separate rebates for each item, and sometimes are valid only at a single store. Rebate forms and special receipts are sometimes printed by the cash register at time of purchase on a separate receipt or available online for download. In some cases, the rebate may be available immediately, in which case it is referred to as an instant rebate. Some rebate programs offer several payout options to consumers, including a paper check, a prepaid card that can be spent immediately without a trip to the bank, or even as a PayPal payout.

Pricing strategies approach to selling a product or service

A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy.

Bundle or Bundling may refer to:

Retail marketing

Once the strategic plan is in place, retail managers turn to the more managerial aspects of planning. A retail mix is devised for the purpose of coordinating day-to-day tactical decisions. The retail marketing mix typically consists of six broad decision layers including product decisions, place decisions, promotion, price, personnel and presentation. The retail mix is loosely based on the marketing mix, but has been expanded and modified in line with the unique needs of the retail context. A number of scholars have argued for an expanded marketing, mix with the inclusion of two new Ps, namely, Personnel and Presentation since these contribute to the customer's unique retail experience and are the principal basis for retail differentiation. Yet other scholars argue that the Retail Format should be included. The modified retail marketing mix that is most commonly cited in textbooks is often called the 6 Ps of retailing.

In marketing and retail, product sabotage is a practice used to encourage the customer to purchase a more profitable product or service as opposed to cheaper alternatives. It is also the practice where a company attempts to aim different prices at different types of customer. There are several methods used in achieving this:

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Razor and blades model Business model

The razor and blades business model is a business model in which one item is sold at a low price in order to increase sales of a complementary good, such as consumable supplies. For example, inkjet printers require ink cartridges, and game consoles require accessories and software. It is different from loss leader marketing and free sample marketing, which do not depend on complementary products or services.

A la carte pay television, also referred to as pick-and-pay, is a pricing model for pay television services in which customers subscribe to individual television channels. For subscription distribution services, a la carte pricing contrasts with the prevailing model of bundling, in which channels are grouped into packages that are offered on an all-or-nothing basis.

Customer cost refers not only to the price of a product, but it also encompasses the purchase costs, use costs and the post-use costs. Purchase costs consist of the cost of searching for a product, gathering information about the product and the cost of obtaining that information. Usually, the highest use costs arise for durable goods that have a high demand on resources, such as energy or water, or those with high maintenance costs. Post-use costs encompass the costs for collecting, storing and disposing of the product once the item has been discarded.

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