How to Increase Sales Through Product Bundling

I wanted to share with you another hack that any small business can use to quickly increase sales and create a competitive advantage.  Sure, this strategy may result in a slightly decreased profit from each item sold, but the goal of this strategy is to increase your cash flow - something you probably know far too well. 

The strategy I am referring to is product bundling.

Bundling Defined

Product bundling is simple - it is the process of grouping together multiple products and selling them at a packaged rate.  This strategy is similar to the cross-sell, as it packages similar products together for an increased value to the customer.

Whether it is McDonalds, your cable provider, or your insurance agent, product bundling is a common marketing strategy that is used to increase sales for the business while also providing a value to the customer.  As customers, we are used to purchasing bundles and bundling is a strategy that has proven to work so much, that many industries would never consider selling without bundles.

How Bundling Works

While the concept of bundling really isn’t a new idea, let’s break this down so that we can understand how it works and why we should implement this strategy in our businesses.

Customer Benefits of Bundling

First of all, there has to be a benefit for the customer.  The idea is that the customer is going to get a perceived “discount” (or greater value) by purchasing a bundle.  Think of it this way: If you have the option of purchasing a sandwich for $4 or a sandwich, side, and drink for $5, which option are you going to choose?

The psychology behind the bundle is that a customer feels like they are missing out on a value if they just purchase the sandwich and don’t get the side and drink for only $1 more.  Especially if the side and drink typically cost $2 each.  Basically, the customer finds themselves feeling like they are loosing $3 by not purchasing the bundle.

Business Benefits of Bundling

The second part of this is that there must be a benefit for the business.  I have heard some business owners say that they don’t want to offer a bundle because they would have to offer the bundle at a price that is less than selling each item individually - basically they feel that they would loose money by offering a bundle at a “discounted” price.

Now, remember that I said earlier that this strategy is about cash flow?

The strategy for the business is that by offering multiple products together in one group, the overall per transaction sale is increased even if the revenue per item seems to be lower.  And this is okay - you are going to set your prices so that you don’t actually take a loss on any single product.  Your goal here is to increase your per-customer charge.  Basically, bundling should help your customers to spend a little more per transaction, resulting in an increased cash flow.

Examples of Bundling

So, how could you apply bundling to your business?  Well, let’s start by looking at some of the best practice examples in a few industries.

First, let’s make this easy.  A classic example of product bundling is the value meal at fast food restaurants. When customers go to a restaurant they are looking for a meal to satisfy their hunger. Value meals offer an entrée, a side dish and a drink at a price that costs the customer less then it would to purchase each item individually. Basically, the value meal offers a three-course meal rather then allowing the customer to just purchase a single item.

Another example that is easy to relate to is a cable provider.  Something you may not know about me is that I have never purchased cable TV.  I just don’t watch it and don’t value it.  (Sure, I watch Netflix and Movies, but not network programming).  That said, if I wanted to purchase cable from my local provider, what are they going to try to do?  Sell me a bundle that includes both cable and high-speed internet.  And this works because consumers are able to purchase a bundle for a price that is lower than what they would have to pay for each individual item in the bundle.

Now, bundling really can occur in any industry - regardless of whether you sell a physical product or a non-tangable service. Even my gym offers bundling as one of the membership options they sell includes use of tanning beds and free massages.  The key for any business wanting to offer product packaging is to determine what products or services naturally go together but may not be all purchased individually by the same customer, and then offer them at a price point that is desirable for the customer to pay a little more to get the full package.

Ways to Increase Sales Through Bundling

Now that we understand how bundling works, let’s take a look at how we can implement product bundles in order to increase our per-transaction sales.

Step 1- Look for Cross-Sell Opportunities

The first step in creating a product bundle is to look for products that could be bundled together.  The best way to do this is to identify which products naturally go together, which are products that you should cross-sell anyway.  Ask yourself questions like:

  • Which products do customers usually purchase together?
  • Which products could add an increased value to the product being purchased?
  • What low-cost products could I include in a package to increase the overall package value?

Step 2 - Survey Your Customers

In determining what products could be bundled together, make sure you ask your customers what they would want.  Sure, you can observe what products are naturally purchased together, but no observation ever worked as good as getting inside your customer’s head by asking them.  In conducting inquiries with your customers, seek to understand why they are buying a specific product so that you can use this motivation to strategically bundle products together.

Step 3 - Keep It Simple

Once you have decided which products to bundle together, the next step is to make sure that you keep it simple.  As a person who thrives on details, I have held several sales jobs over the years and learned that the best way to sell is to keep things simple.  Too many options and too many details actually discourage customers to purchase and drive them away.  Make sure you keep your bundles simple.

Step 4 - Offer Products Individually

One of the most important elements of a bundle is that the customer finds motivation to purchase because of a perceived discount.  If you don’t price each product in the bundle individually, the customer is not going to find a benefit in the bundle.  According to Forbes, Harvard Business School professor Vineet Kumar conducted research where he found a clear correlation between the success of bundles and offering products individually.  Basically, he found that consumers valued a bundle much less when the individual products were not sold separately.

Step 5 - Price Bundles at a “Discount"

Keeping in line with offering products individually, a bundle is only going to work if it is sold at the right price-point.  This means that there should be a clear “discount” in purchasing a bundle as compared to purchasing all items in the bundle individually.  For example, if a value meal cost $6 but you could get each item individually for $2, would you always purchase all 3 items, or would your probably only get 2?  Make sure that you price your bundle at a price point that helps the customer to realize the value of paying just a little bit more to purchase the bundle.

A Question For You

What bundle strategies have you seen work really well?