People love bundles. Watch the customers at a fast food restaurant. They buy bundles containing items and larger sizes they don't purchase otherwise. They buy these combos, with items and sizes they don't want or need, even when the financial savings are minimal. In fact research has shown they'll buy bundles even if they cost more than the sum of the component items.
Why are bundles so irresistible? What is it about them that exerts such influence over behavior?
Bundles let the consumer avoid something called the ambiguity effect – a cognitive bias where decision-making is affected by a lack of information. Put simply it means that people would rather make a choice where the likelihood of a positive outcome is known, rather than one where it is unknown.
Let's say you stop at a fast food restaurant and the clerk says "would you like one of our combos that come with a side and a drink?" as they direct you to a sign that shows you exactly what those prices are. If you are one of the many people that would order a side and drink anyway a bundle removes any ambiguity. By letting you see a single price for all of the things that you want you know the likelihood of positive outcome simply by looking at that price. You know exactly what the full meal is going to cost you.
On the other hand, without knowing the combined price of the individual items you won't know the likelihood of a favorable outcome if you order separately – you don't know how much it is going to cost you. The bundle makes the decision simpler.
Let's go back to the fast food example above. The information you would need to avoid the ambiguity effect when ordering separately is probably available to you. You just have to find the individual prices and add them up. This isn't always easy – as fast food places keep adding items to their menus it can be hard to find all the prices, and most people don't relish doing math in their heads.
The bundle lets you skip all that work. That is tremendously appealing. Most people are already forced to think too much and make too many decisions. Not having to find and add all those prices... that is very appealing. Not agonizing over the sizes of the side and the drink... also very appealing.
Think about another vendor who excels at bundling - the concession stand at the movie theater. In a crowded, noisy theater lobby their snack combos let the moviegoer know at a single glance what it will cost for popcorn and a drink, maybe some candy too. That is much easier than trying to piece together your own combo, especially when you are out and trying to relax.
As the operators of convenience stores realize people will always pay for convenience.
People assume that bundles offer savings, or some kind of special deal, even when they aren't there. Maybe it is because there was a time they were routinely referenced as "value meals". Maybe it is because we generally assume that ordering more means greater savings.
But with most bundles savings are small. Movie theater concessions have some of the highest margins imaginable, but the discount on bundles is tiny – usually around 2%.
Why so small? Sellers realized that they didn't have to discount any more than that. Bundles are appealing people will choose them even when they are more expensive than the sum of their component items.
Back to the movie theater... one customer loves the popcorn and soda. For them it is a vital part of the moviegoing experience, and they're buying it at almost any cost (they are not price sensitive). They care less about the candy. But, because they place such a high value on the popcorn, it seems almost like the candy is being included for free.
Consumption Effects of Bundling: Consumer Perceptions, Firm Actions, and Public Policy Implications
The bundle “transfers” some of a consumer’s surplus associated with one item in the bundle to another item that initially has a negative surplus, thus making the overall bundle have positive consumer utility.
Have you ever been in a situation where you thought you were going to make a straightforward purchase but, as the salesperson started informing you about additional fees and charges, all you could think was "just how much is it going to cost me to get out of here?". Bundles avoid that. By getting all of the information out there right away the consumer can feel like they are making an informed decision, rather than being "nickel and dimed" to death.
In some cases it's just about saving time. If a busy person is ordering flowers they may not want to hear the additional costs (delivery fee, service charge, etc.) added and explained on a line-by-line basis. They just want to buy a result – the delivery of flowers. A bundle offers them a reduction in ordering costs. Not the actual financial cost, but the time and energy it takes just to place the order.
For many sellers this is counterintuitive. They believe that consumers will blanch at a single higher price that includes all the components.
Some consumers will, and they should have the option of purchasing a la carte. Other consumers will prefer bundles. You need to take care of both.
This is why a mixed bundling strategy (where the items in the bundle can be purchased individually) is usually better than a pure bundling strategy (where the items are only available when purchased as a whole bundle).
Beyond Cost Plus is sponsored by FloristWare – the most powerful, affordable and easy-to-use POS software for retail florists – as part of their commitment to the floral industry and desire to see flower shops be more successful.