What Is Bundling?

Bundling is when companies package several of their products or services together as a single combined unit, often for a lower price than they would charge customers to buy each item separately. This marketing strategy facilitates the convenient purchase of several products and/or services from one company. The products and services are usually related, but they can also consist of dissimilar items which appeal to one group of customers.

Key Takeaways

  • Bundling is a marketing strategy that consists of companies selling several products or services together as a single combined unit, often for a lower price than they would charge customers to buy each item separately.
  • The products and services are usually related, but they can also consist of dissimilar items which appeal to one group of customers.
  • Offering discounts can stimulate demand, lifting revenues often at the expense of profit margins.
  • Companies occasionally use pure bundling strategies, rolling several products or services into one item that can only be purchased as a complete package.

Understanding Bundling

Many companies produce and supply multiple products or services. They must decide whether to sell products or services separately at individual prices or in packages of products, or bundles, at a "bundle price." Price bundling plays an increasingly important role in many verticals, such as banking, insurance, software, and automotive. In fact, some organizations devise entire marketing strategies based on bundling.

In a bundle pricing scheme, companies sell the bundle for a lower price than would be charged for items individually. Offering discounts can stimulate demand, enabling companies to perhaps sell products or services they otherwise had difficulty offloading and generate a greater volume in sales. Over time, this might even help to cancel out sacrifices in per-item profit margins—selling an item for less means squeezing less profit from it.

Important

Not all providers will mention bundling as an option to their customers, so it is important to check whether it is a possibility, particularly as bundled services often save consumers money.

Typical examples of bundling include option packages on new automobiles and value meals at restaurants.

Examples of Bundling

If you have two insurance policies (home and auto) through two separate companies, you might be able to bundle both policies together using only one company and reduce the total monthly payments. Bundling can also be used to switch several payments into one, making bill payments easier, even if it doesn't save money.

Mixed Bundling vs. Pure Bundling

Bundling usually consists of giving consumers an option to buy a set of items together as a package at a lower price than what they would pay to buy them all individually, in a process known mixed bundling. However, there also exists an alternative, rarer form of this strategy called pure bundling.

Pure bundling does not give customers the option to buy items separately. An item that consists of several products or service must be bought as one or not at all. Examples include Microsoft Corp.’s (MSFT) Office 365 software and television channel plans—cable providers often offer packages, meaning customers cannot just pick and choose which channels they want to pay for.

Special Considerations

Unfortunately, many consumers, especially younger people, do not take advantage of bundling, preferring to buy different items a la carte as needs arise.

For example, young people getting their first car insurance policy often go to their parents’ agent and just stick with that coverage for years. Later in life, when they buy their first homes, they will often use a different insurer closer to their new residence. For the majority of consumers, this is a mistake that will cost them.

The truth is, insurance companies have significant motivation to provide more than one insurance policy to each customer. This is because it can be at least six times more expensive to acquire a new customer than it is to keep an existing one. Thus, insurers have a strong incentive to sell a home or life insurance policy to their car insurance customers or vice versa.