Discount by Bundling
7/04/05

Boost sales by offering a bundled discount.

Discounting by Bundling
By: Matt Michel

Danny Kleinpeter at Ranger Sewer emailed me following the last Comanche Marketing tip to add, “You forgot something very powerful. It’s so good that I use it on difficult clients. It's discounting by package.” Packaging or bundling is a great marketing strategy. It differs from discounting by addition discussed before.

Discounting by addition is the tactic of adding something to close a sale in lieu of reducing the price. Discounting by bundling is a preplanned package or offering.

One of the classic examples of bundling was Microsoft Office. When Microsoft first came up with a plan to sell Word and Excel together, both products were marketplace followers. Lotus 123 was the dominant spreadsheet program. WordPerfect was the dominant word processor. Both were felt to be superior to Microsoft’s offering. Yet, neither company had an answer when Microsoft offered a bundle and by the time they responded, it was too little, too late.

Your cable provider offers a bundle. You spend more for cable than you would if you selected each channel separately. Lately, the premium channels have been assembled as bundles, rather than separate channels.

Bundling simplifies things for the consumer. Instead of a series of decisions, they are faced with one decision. For the consumer who makes use of the entire bundle, it saves money. Many may only use part of the bundle, but the discount still makes it a good value.

Retailers use bundling to help move merchandise. For example, a retailer may find himself stuck with a supply of pocket datebooks and wall calendars that are not moving. As January rolls around, the retailer needs to move them or eat them.

Rather than offer a 50% discount on each, he bundles the datebook with the wall calendar. Buy a wall calendar for $10 and get a pocket datebook free (a $6 value). The total discount for the bundle is 38%, rather than 50%. Plus, retailers have discovered that merchandise often moves faster than discounting items separately.

Bundling is a marketing strategy, not a sales strategy. Bundles work best for products with low marginal costs (e.g., software, movies, cable channels, etc.). Yet, they can work well with installed products or in-home services where a significant variable cost is the cost of getting a service truck to the home.

A plumbing contractor could bundle kitchen and bath faucet replacements. An air conditioning contractor can bundle a furnace or an electronic air cleaner with an air conditioner (or a UV light with an air cleaner or humidifier).

A carpet cleaner could bundle furniture cleaning with carpet cleaning. An electrician could bundle a decorative pole light with landscape or accent lighting. An insurance company could bundle a nominal amount of life insurance with homeowners insurance. The list goes on an on.

In each case, a bundle should have a total value that is much less than the separate cost. Give it a try.


Source: Comanche Marketing. Reprinted by permission.
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Copyright © 2004 Matt Michel