Better bundling
2013
Bundling is all around us. The cable companies do it, Walmart does it, Prudential Insurance does it, even your local hardware store does it.
So why do they bundle? Why not sell the parts of the bundle separately? There can be many reasons, but more often than not, the main motivation is to generate incremental sales volume even at the expense of margin. To do bundling right is difficult.
In our many years of advising clients, we have probably seen every conceivable bundling mistake possible. Here are some of the most common:
What all of these examples have in common is that they try to sell things that people don’t want. And people hate to pay for things that they don’t want. The result is that these “bad” bundles only sell if they are deeply discounted, to a point where the manufacturer is virtually giving away the components that are unwanted.
There is a better way to construct bundles. We have a proven, proprietary methodology that analyzes usage and/or purchase data to scientifically construct effective bundles. Our methodology is based on the fact that all structured bundles have a taxonomy (Figure 1) with a core (main reason why customers consider the bundle in the first place) and add-ons which can have more, less or even negative value.
Figure 1 – Bundle Taxonomy
The goal for effective bundling is to identify the core of the bundle, and to determine which potential elements are “worthy” add-ons versus those that are not.
The process entails running correlation analyses to quantify the strengths of the relationships between these elements, and, based on the results, determine which ones belong together and which do not. The strength of the relationships also informs the value of each element as part of the bundle. The outcome is a bundle that will be effective and profitable by attracting incremental purchases.
To learn more about how to build better bundles please go to Resources/Pricing Tools or contact us at 203.514.0515