Should I Bundle or Unbundle my Products?
In this article, we will try to answer whether you should bundle or unbundle products by 1) providing a brief overview on product bundling, 2) an overview on unbundling products, and 3) a conclusion whether to bundle or unbundleyour products.
PRODUCT BUNDLING: AN OVERVIEW
Product bundling is a procedure or process of clubbing or combining two or more products to form greater value and to create a level of differentiation. In the context of marketing, this process is followed by packaging together several products, services or components to create a bundled solution. The main idea behind product bundling is that consumers or customers always value a group of products more than a single item. This is a strategy or technique that is mostly applied in imperfectly competitive marketplaces or industries. Some of the common industries that may use this method include financial services, information, telecommunications and health care.
Product Bundling is being followed for a long time, but it has increasingly become popular in the last few years because it enables businesses to overcome the acquisition costs. This technique is not only beneficial for businesses but also for customers but only if done correctly. The main reason why product bundling is often considered beneficial by organizations is because it helps them offer a diverse product mix to consumers, while minimizing the costs. Since product bundles are more attractive to consumers, they tend to go for them and this in turn benefits the businesses.
One of the most popular examples of a product bundle is a software pack including a word processor, presentation program, a spreadsheet, etc. In other terms, such bundles are also known as package deals. Even electronics retailers may offer attractive product bundles to attract consumers. A good example of such a bundle is of a computer system with keyboard, mouse, cables, printers and antivirus protection. Banks, restaurants, hospitals, insurance companies and many other entities to offer product bundles for minimizing costs and raising profits. Restaurants like McDonalds are known for their value packs called ‘Happy Meals’ which consist of small portions of different items like burgers, fries, cold drink and a toy. These value packs too are an example of product bundling.
Four variables to take into consideration for product bundling
- Quantity – If you wish to engage in the method of product bundling, then you will need to take into consideration the quantity of items to be combined. You will need to strategically decide how many items or service options must be included in the bundle to attract consumers and minimize the costs.
- Margins – It is a fact that product bundling can greatly reduce the margins. The product combination, the method of combination and other similar things should be taken into consideration so that the margin is not reduced considerably.
- Risk – One must pay attention to the fact that there is huge risk in product bundling technique or strategy. If it is not executed properly, bundling can reduce chances of profitable sales and may lower the contribution margins as well.
- Exposure – Product bundling is a technique that can provide new channel chances, as well as increase exposure to new consumers.
Types of product bundling
There are several types of product bundling techniques and strategies, and the following are the main types:
- Pure bundling – Pure bundling is the kind of bundling in which the consumers have the option of either purchasing the entire pack or bundle of products or services or nothing. They do not have the option to pick and choose the product components as per their wish.
- Mixed bundling – Mixed bundling is a kind of bundling in which the customers or consumers are given a choice between either buying the entire pack of products or selecting and buying individual items from the pack.
- Leader bundling – Leader bundling can be considered a type of pure bundling in which a consumer can avail a discount on a leader product but only if it is bought along with a non-leader item.
- Joint bundling – This too is a kind of pure bundling in which two items or services are offered to the consumers or customers for the price of one bundle. This means that it is up to the consumers whether they want to buy the bundle items separately or for a reduced price of the bundle.
- Mixed leader bundling – This is another kind of leader bundling in which the consumers or customers get the option of buying only the leader product without non-leader products included in the bundle.
Benefits of product bundling
Product bundling can offer several types of advantages and benefits for a business organization, and the following are some of the main benefits:
- Minimization of costs – One of the main benefits of product bundling is that it helps a business or brand minimizes its costs by mixing products together and hence selling certain items that the consumers may not have bought otherwise. This raises profits and improves chances of selling out products that are not popular among consumers.
- The business benefits – The strategy of product bundling can effectively raise the profits on everyday sales and over a period of time, this can result in profit for the business. By selling together several products or services, businesses tend to get or avail a much better initial return on the costs that are needed to acquire customers. When you sell the customers multiple products from your brand, then this can help create opportunities for add-on sales in the longer or extended period of time.
- Consumer related benefits – All consumers aim to get the best combination of products and services and always aim to achieve value for money when they go shopping. What product bundling does is that it lets consumers experience a bunch of satisfactions by purchasing only one big entity. A bundled pack can help consumers meet several requirements at a reduced price and without feeling the shopper’s guilt of buying ‘too much’. This is why product bundling proves useful or beneficial for customers as well.
- Other benefits – Product bundling may offer consumers the experience of using certain products that they may have not bought if it wasn’t offered in the pack. This may make them accidently use or experience a product and realize its benefits. If the consumer happens to like such a product, he/she may be motivated to purchase it again. Another reason why product bundling is preferred by many businesses is because it is profitable and helps to bring down the profits of the competitor companies or businesses. This may drive the competitors from the market, thus creating a better scenario for your business.
How to gain maximum benefits from Product Bundling?
In spite of the many benefits of product bundling, it can also tremendously fail for certain businesses. If you take into consideration the convenience of the customers as well as the value of the bundles, then your business can achieve long term business benefits and profits. Moreover, this can bring about a drastic positive change in the relation that you have with your customers. Thus in order to gain from product bundling; make sure you always put the consumer interest first and the benefits of the pack before your personal agenda.
Also, to make the most of the product bundling technique, every business must first carefully examine and analyze the profit assumptions and revenue projections not just for the option of bundled packs but also for the unbundled options. This is exactly the reason why it is important to monitor the performance of bundling as well as the customer response and satisfaction level closely.
PRODUCT UNBUNDLING: AN OVERVIEW
In the most general sense of the word, unbundling refers to the process of breaking up or disintegrating something into smaller components. The most common reference of unbundling is seen in the marketing area of businesses and industries where the breaking apart of large sized products or services takes place in order to avoid facing a loss or reduction in sales.
Unbundling is basically a phenomenon which takes place when a business that is providing a complete solution with a composition of small services and products but does not benefit from it and realizes that selling services or products individually will be much better. When businesses or entities realize that the solution that they are offering is too big for consumers, then they may choose to fragmentize the solution into individual services or products, and this is referred to as unbundling.
As an effective example, in the airline industry, certain ticket providers or companies offer packaged deals and solutions to passengers that include not just the ticket but also luggage check-in, etc. But in some situations, consumers may not need to check in their luggage, and thus the deal proves ineffective. Such a deal offers more services than the majority of passengers may need and hence goes obsolete. In such a scenario, the airline company may unbundle the package and offer services individually. Unbundling here proves useful not just for the company but also for the consumers who enjoy the benefit of choosing whichever service is convenient and useful to them.
Variables to take into consideration for unbundling
- Additional features – When a business is considering product unbundling, then one of the most important factors that it must take into consideration is that of the add-on features. Customers must always be able to purchase the basic or leader product or service and should get the option of buying the additional features as per their requirement by paying extra for them. This way, the product is optimized for personalization or customization and may appeal to all. Many computer manufacturers like Dell use this technique effectively. Rather than offering computers with specific RAM and graphic cards, the company makes it possible for consumers to get their systems customized.
- Product dimension – It is a great idea to reduce the product dimension when considering unbundling. By doing so, a business makes it possible for customers to buy only the features or components they need without having to pay for what they won’t need. The smaller components can be optimized for the price, and this ensures a great deal of customer satisfaction. Apple’s iTunes store is an amazing example of an entity that used unbundling to its benefit and set an example for everyone else. Unlike earlier, iTunes made it possible for consumers to buy individual songs rather than purchasing the entire music album. Thus, customers were able to save a lot on songs they didn’t like or want to buy.
- Usage of time – If a business company or an organization uses a subscription type business model, then it can come up with a pricing structure on the basis of product and time usage. This means that customers can pay for features based on the time extent of usage as well as the requirement for services or products. This means that those customers who need to use a service the most will be charged the most and others will be charged less, depending upon their usage.
Benefits of Unbundling
Like bundling, unbundling too offers a wide range of benefits for several industries or business owners. Below are some of the main benefits or advantages of product or service unbundling:
- Customer satisfaction – One of the greatest benefits of product unbundling is related to customer satisfaction and convenience. In certain scenarios and some industries, product unbundling proves to be excellent since it ensures that customers can buy what they want and not pay extra for what they don’t need. This gives customers the flexibility to spend on only what is useful to them. For example in the computer manufacturing business, consumers are able to get customized systems based on their requirement by paying for what they need and not wasting on what they do not like but have to buy because of lack of an option.
- Increase in profits – Besides the satisfaction of consumers, another important benefit of product unbundling is an increase in sales and thereby profit for certain businesses. In many scenarios, a consumer may be discouraged to buy a certain product because it offers too many components or parts that are useless for him/her. In such a case, the business may experience a decrease in sales. But when unbundling takes place, consumers may begin to purchase the leader or main items, thereby shooting up the sales and thus the profits.
- Ease and convenience – Another benefit of unbundling products or services is the ease and convenience of delivery, packaging, and sales. Unbundling products and dividing them into single components makes it very easy for businesses to deliver them, charge them and sell them. In fact, it is easier for consumers as well to pick out individual services or products rather than taking the tough decision of buying the entire lot.
CONCLUSION: BUNDLE OR UNBUNDLE?
As explained above, bundling and unbundling are effective, beneficial and useful in their respective ways. Where on one hand, product bundling is a useful marketing and sales technique for mobile connection providers, financial service providers like banks and insurance companies, and health service providers; product unbundling is a beneficial strategy for computer manufacturers, electronic retailers and airline companies etc. If you are wondering whether you should go for product bundling or product unbundling, then the answer lies only in the type of industry you belong to and the kind of products/services you are engaged in selling.
Besides the product/service type and industry, some other factors that you may need to consider while choosing between bundling and unbundling include the following:
- Market projections – It is important to take into consideration the future projections and predictions of the market and the industry.
- Personal sales records – Depending upon your sales records and figures, you may be able to figure out if the method chosen by you is working or not.
- Industry sales records – Besides your sales records, you can also learn from the mistakes of your competitors, the success of other business in the industry and overall industry sales records as far as bundling and unbundling is concerned.
- Current economic climate – The current economic climate and behavior also influence the choice between bundling and unbundling.
- Bundle components – The type of components, products or services included in the bundle also matter to the end result. For example, if you combine one good product with other below average product, then the combination may not turn out to be attractive enough. Hence, it is important to be smart when combining parts.
- The volume of the bundle – The number of components present in the bundle or service may also be important to the result.
- The combination of products and services in the bundle – The kind of mix that you offer to the consumers should also be smartly put together and should complement one another, resulting in a good overall package.
- The price of the bundle – The price of the bundle is also one of the main factors that may influence the decision of the consumers.
Both product bundling and unbundling depend on these factors, but the results could still be unpredictable due to several other variables governing the market and industry.