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Apr 18, 2023 | 8 minute read
written by Kirsten Aebersold
As a merchandiser, you aim to sell more products and earn more revenue. You have many tactics at your disposal to accomplish this including the broad buckets of marketing, branding, sales, and product merchandising. One specific product merchandising tactic proven to increase average order volume (AOV) is product bundling
Product bundling comes with substantial benefits for brands and consumers. Learn product bundling basics, the advantages of product bundling, and the basics of price bundling. You’ll be informed about a staple of merchandising and be more prepared to optimize your own product bundling strategy.
Product bundling is when a collection of two or more individual products is instead sold together as a combined offer.
Consider a hypothetical shopping experience. A consumer is searching for one item, such as a desk, and realizes that they need additional items, such as a ring light or computer monitor or lamp. The concept of product bundling is to package these complementary products and sell them together.
You experience a classic product bundle every time you drive through a fast food restaurant. A main product, such as a hamburger, is bundled with related, complementary items, such as fries and a drink. Together, these bundled products cost less than they would if they were purchased in individual transactions. Plus, customers end up assigning greater value to the main product: Doesn’t a hamburger alone for $5.00 sound less tantalizing than a hamburger, fries, and a drink for $7.50?
Product bundles come in traditional and dynamic forms.
Traditional product bundles offer customers a prepacked collection of products. For example, a video game company might offer a traditional bundle with a game console, two controllers, and 2 pre-selected games.
Dynamic product bundles give buyers the ability to choose the options within a bundle. In a dynamic bundle, the video game company would first identify a few major components, such as a game console, controllers, and games.
Then, the company would offer specific options within those components. For example, a buyer would select one of three game consoles, two of five controllers, and two of 10 games. This way, consumers have the ability to choose the options in the bundle. Some dynamic bundles might even allow buyers to select which components to buy – for example, electing for four games and one controller instead of two games and two controllers. In short, dynamic product bundling gives consumers choice and control.
Product bundles can be SKU-based or SKU-less.
SKU-based bundles are when a bundled set of options have a single associated stock keeping unit code (SKU) with an assigned, pre-set price. SKU-based bundles are popular for brands who are setting a sale price for a bundle, such as a promotional package.
SKU-less bundles do not have a single associated price. In a SKU-less bundle, each individual option in the bundle has its own price and is listed separately in a catalog for purchase. Sometimes, the total cost of a SKU-less bundle is set by adding the standalone prices of each product. Other times, the individual options can be discounted if they are purchased in a bundle. In digital commerce, SKU-less bundles are typical for “people also bought” add-ons.
Whatever the format, product bundling is when multiple related products are sold together to the same buyer at the same time in one package.
Product bundling is popular because it improves commerce bottom-lines for companies and brands. Major product bundling advantages include:
The first and foundational product bundling advantage is increasing average order value (AOV).
AOV represents the average total dollars spent each time a customer completes a purchase. Different companies are bound to have different AOVs, but in general, higher AOVs help brands grow profitability. The higher your AOV, the more revenue earned from the same number of customers. This way, marketing, sales, and distribution costs decrease relative to revenue – improving your return on investment and bottom-line. Product bundling plays a large part in increasing AOV: Forrester research has indicated that 10 to 30% of commerce revenue comes from upselling and cross-selling via product bundles.
Product bundling increases AOV for different reasons. For one, product bundles are often discounted, which means that customers have their own financial incentive to buy in a bundle instead of individually.
Product bundles also often encourage buyers to purchase related and complementary items at the same time, instead of separately. In this situation, a buyer might not save money but they will save time by not having to buy items piece-by-piece.
Product bundles are also likely to improve your long-term AOV, as customers who enjoy a bundled set of products you sell will place their trust in your commerce. If your brand earns their trust, customers are likely to buy from you again, and may opt for bigger-ticket items or more expensive bundles.
Commerce is about happy customers, and product bundles improve and enhance customer experience.
When a consumer is making a purchase, they’re rarely buying just one item. The car has to come with insurance. The television needs a stand or mount. The toy needs a battery and the printer needs cartridges.
Product bundling enhances customer experience by offering these complementary items for purchase at the same time as a main item. Products and services are grouped together, with the customer’s ultimate needs in mind. This way, the customer spends less time mixing-and-matching products and associates your brand with anticipating and meeting their needs.
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Making decisions is hard. Product bundling reduces customer decision-making and allows for clear, simple buying.
Deciding to purchase a product or service requires cognitive load, which is the amount of thought required to carry out a task or make a decision. Buying related, complementary products separately forces customers to ask difficult questions: Do these bed sheets match that comforter? Will this amp work with my electric guitar? Is this the right conditioner for my shampoo? Eventually, consumers may become overwhelmed and decide against any purchase.
Product bundles solve this problem by reducing the decision-making required by customers. In a product bundle, consumers are reassured that the sheets match the comforter, the guitar plugs into the amp, and the conditioner complements the shampoo. In addition to immediately increasing sales, reducing customers’ cognitive load through product bundling improves customer experience and makes for satisfied, repeat business.
Merchandisers can face challenges in moving stock, clearing inventory, and avoiding returns. Product bundling addresses this challenge by helping brands clear inventory and move stock fast.
If you have a product that just won’t come off the shelves, bundle it with a popular, fast-moving product. This way, you capture buyers’ attention and use the popularity of the fast-moving item to turbocharge sales of the overstocked product. Added bonus, call this item a “free gift” to show your customers generosity and disincentivize them from returning the product.
When brands use product bundling to clear inventory, they often use discount bundling. It’s a double-win: You clear inventory and increase the AOV associated with the popular product. Consumers get more for less and you reduce or eliminate inventory waste.
As a brand, you’re always trying to expand your market and attract new customers. Discounted product bundling can help.
In a time of inflation and economic uncertainty, buyers may hesitate to purchase expensive, big-ticket items. In February 2023, PwC found that 96% of surveyed consumers intend to adopt cost-saving behaviors over the next six months Discounted product bundling makes consumers’ buying decisions more palatable by offering customers cost-saving opportunities.
In this sense, product bundling can be a strategy to attract and convert downmarket customers without reducing the quality of your products. Plus, a properly-discounted product bundle will attract these customers while still increasing your AOV – expanding your brand’s footprint without sacrificing revenue and profit.
Brands face serious decisions when they decide how to price their bundles.
Setting a price for a product bundle, also known as price bundling, is required when two or more products are sold together for a price that’s lower than the cost of purchasing the two products separately. Price bundling incentivizes customers to buy, as they receive more product for less money.
Brands that offer a price bundles choose between two product bundle pricing strategies, pure bundling and mixed bundling:
In a pure product bundle, the individual products in a bundle have to be purchased in a bundled item. These options are not for sale separately as standalone products – buy them in a bundle, or don’t buy them at all.
A common example of pure price bundling is subscription meal kits. The meals aren’t for sale individually, though the cost of a week’s worth of meals is usually less expensive than comparable standalone meal options.
Mixed product bundling works differently than pure bundling. In a mixed product bundle pricing offer, you buy a package of products for a set, discounted price that can also be purchased as separate, standalone items.
Mixed product bundle pricing works because consumers experience savings and brands get a higher AOV. For example, a shaving kit company could offer a mixed product bundle of five razors for $25. Consumers still have the option to buy any of the razors individually for $7, but see each unit discounted when bundled.
Product bundling is a valuable commerce strategy.
Leading brands use product bundling to sell more items, earn more revenue, and improve their customers’ experience. Whatever the industry, many consumers have come to expect product bundles and price bundles, which means choosing the right type of product bundle is essential to your brand’s commerce success.