Bundled Goods and Services

• Author: James Koch, Judith Nixon
• Pages: 50-52

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Bundling is a marketing tactic that involves offering two or more goods or services as a package deal for a discounted price. Examples of bundling are as widespread as McDonald's value meals and automobiles with features such as air conditioning, sunroofs, and geographical systems. The most well-known example is the bundled computer package complete with a monitor, mouse, keyboard, and preloaded software for a single price. Alternatively, one could select and buy each component of the system separately. All components being equal, the differences are that the buyer doesn't have to purchase each item separately, and that the bundled package could cost as much as a third less than the each-sold-separately package. Bundling can be of products from one company, but cross-industry bundling is not uncommon—for example combining airline tickets with credit cards.

Bundling has been researched for over thirty-seven years. While it doesn't always pan out, bundling has been shown to be an effective and profitable marketing strategy under a variety of circumstances, including so-called pure bundling, in which a group of products are only available as a bundle and aren't sold separately, as well as mixed bundling, where the products are sold both as bundles and as individual units. Industries that have implemented bundling of goods and/or services include utilities, telecommunications services, software and computer companies, journal publishers, automobiles, vacation packages, and fast food restaurants, to name a few. Bundling usually saves the consumer from 7 percent to 15 percent over the cost of purchasing the items separately.

APPROACHES TO BUNDLING

Companies may choose to bundle goods for several reasons, including cost efficiency, market opportunities to enhance profits, and competitive strategy. Due to economies of scale, bundling may result in cost savings on the supply side. For instance, in some scenarios

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a company may save on packaging and inventory costs by bundling products rather than carrying them separately. There has been a fair amount of published research delving into what kinds of bundling practices are most likely to produce cost savings. Factors a company must consider include whether the bundled products compete with each other and whether the demand for the bundled products is positively or negatively correlated. And even though the tendency is to price bundles lower than the sum of their individual components, in some cases companies successfully pursue strategies in which the bundled price...