Any company with a desire to succeed in business must adopt a valuable and effective pricing strategy, capable of creating profitable revenue. Though the concept of this itself may not be complicated, the number of different pricing strategies present can be, and many brands struggle to determine which methods will best benefit their profits. When making a decision to buy, consumers compare the various options available to them, measuring their perceived value of the product against the cost, and any alternatives in the market. This is one of the reasons why a number of companies have now begun to adjust their pricing strategy options.
What are Bundles and A La Carte Pricing?
There are two ways in which a consumer may make a purchase: as a packaged bundle, or “a la carte“. For instance, if you were buying a selection of television channels, an a la carte solution would permit you to choose and pay for each of the channels you want, whereas a bundle would give you a single price for a collection of channels. Although a la carte pricing may seem simple on the surface, it’s actually one of the most complex pricing approaches available – leading to low productivity and confusion for buyers and sellers alike. As you might expect, with an a la carte option most customers will spend less, and buy fewer items. What’s more, the buying decision the customer makes will rely more on “saving money” than getting the value and solutions they want. On the other hand, bundling or “bundle pricing” can increase market penetration and provide benefits for both customers and companies.
When a bundle doesn’t exist, customers are far less likely to buy the entire package. For example, if value meals at fast food restaurants didn’t exist, a lot of customers would avoid getting drinks and fries with their burgers – or might order a smaller meal. Similarly, when buying a car, a customer may neglect to buy additional add-ons when presented individually, and will instead choose to buy only the bare minimum of features that they can live with.
Bundling Benefits Businesses
When done properly, the right bundling strategy for a service or product can be great for business profits – both for improving individual sales, and delivering more conversions over time. According to research, in the banking industry, product bundling can increase profits by anywhere between 15 and 30%. When determining how much money a business can make, it’s important to consider the cost of customer acquisition, in comparison to the lifetime value of that customer. For a company to be successful, the lifetime value of the customer should be greater than the CAC, and by selling multiple components and products in a single solution, businesses can generate higher initial returns.
Some companies utilize bundling as a way of packaging popular items with products that don’t sell as well. On the other hand, some use it as a way of upselling their customers, by providing them extra value through a compatible product or service to the one they already want. Bundling can connect to both pricing strategies, and product design, and may be used to leverage and protect market power for a company. What’s more, there’s greater simplicity in selling a bundled product, as it can lead to far lower selling and marketing costs.
Bundles Can Add Value for Customers
Although bundling or creating packages of products and services provides benefits for businesses, it’s important to recognize that buyers can also access increased value from this pricing strategy. After all, the customer is far more likely to benefit when the objective of the seller is to create a more efficient market solution for their target market. For instance, offering a value meal that provides a drink and fries alongside the burger can help customers to be more satisfied with their purchase.
At the same time, bundling helps to fight back against decision fatigue in the buying process. While consumers appreciate choice – they don’t like dealing with an overwhelming selection of choices – which is one of the reasons why Amazon and other companies provide recommendations of additional purchases to customers based on their buyer preferences.
The right pricing strategy can even enhance consumer confidence in your brand, as if a customer feels satisfied with the comprehensive solution he or she has accessed through your package of bundled products or services, the chances are they’ll ascribe more value to your brand. This means that the next time that buyer needs something, they’re more likely to come to your company for help.