Bundling Your Way to Success
Working hand-in–hand, Sales and Marketing teams of companies can generate
significant cross-sales / up-selling by bundling products / services together. Of
critical importance is piloting the concept to determine the best mix and to
ensure revenue optimization.
In almost every sector, there exists a great, relatively untapped opportunity for
generating cross-sales. The opportunity – bundling – is the concept of putting
complementary products and/or services together and selling them as a package
to the customer base. The critical point here is that some type of value is created
for the customer, be it a discount, convenience, etc.
Some companies have for years been practicing bundling, and have even been
defined by the concept – case in point , Microsoft’s Office software bundle. Their
strategy to offer a package of solutions (Word, Excel, PowerPoint, etc.) rather
than standalone software has been pointed to as one of the key reasons why
companies like Novell or Word perfect failed with their offerings.
The software sector is only one example – bundling can be seen in practice in
other sectors such as retail (i.e. toothbrush packaged with toothpaste),
hospitality (i.e. discounted breakfast if packaged with the room reservation), and
telecom (fixed-line, mobile line, internet, and IPTV packaged together), as the
concept knows no boundaries. It cuts within and across sectors as well, as
companies can team up to offer bundles (i.e. instant coffee bundled with coffee
The concept can support numerous strategies, and accordingly, the reasoning for
using it should be well defined. The most common reasons include:
Generating cross-sales: By using the demand for one product to boost the
sales of another. An example – bundling a printer with a laptop in order to boost
printer sales, playing to the printing need of laptop purchasers that will develop
sooner or later.
Up-selling: By generating demand for a product through incentivizing the
customer base. An example of this – bundling free basketball tickets and free
monthly magazines with upscale VIP season tickets for a football club, hoping to
drive up demand of more expensive tickets through offering additional benefits
in the form of a bundle.
Product uptake: Bundling a new product with an existing one to generate
customer trials and then hopefully future purchases of the product separately.
An example of this – a shampoo bundled with a new soap for free, generating
trial usage and then uptake in the future.
When designing a bundle, there are two critical pitfalls to be wary of. First and
foremost, the bundle should not strip away brand value – customer perception is
critical and must be considered when designing the bundle, otherwise, it can
harm the overall company value and have lasting consequences. Any cola brand,
for example, would have to think twice about bundling its product with an
alcohol brand – while there could be a positive increase in sales in the short-
term, the long-term harm that could come to the cola brand for being associated
with an alcohol brand could be overwhelming.
Second, the bundle should make sense financially – extensive analysis and
piloting need to be conducted to ensure this is the case. A certain degree of
revenue cannibalization will take place, and could ultimately hurt the bottom line
rather than help it. A scenario of such a case can help bring clarity to this point:
Bundled Total Monthly Sales Total Total Net
Scenario Price (Units) Revenue Margin Margin
A 10 1000 10000 10% 1000
B 20 100 2000 50% 1000
Total Monthly Total Net
Bundled Scenario Price Sales (Units) Revenue Margin Margin
Product A 10 1000 10000 10% 1000
Product B 20 10 200 50% 100
Product A & B
Together 25 100 2500 24% 600
In the above case, despite a 1% increase in sales, there is a drop in net profits
due to the pricing discount offered to the customer. The reason for this in that
cannibalization has occurred – meaning customers who were already going to
purchase the two products separately were given a discount that was not
needed – they would have bought the products without any incentive anyway.
Launching such a bundle would cause detriment to the bottom line rather than
helping it, and is a common mistake made by many a company. The best way to
avoid committing such a mistake is to conduct extensive piloting to ensure a
financially sound bundle has been designed before mass roll out.
In the pilot, the following should be assessed, monitored, and fine-tuned:
Cannibalization Effect: The correlation between the packages sold and its
effect on standalone product purchases, specifically to see the financial impact
and the effect on consumer behavior.
Customer Perception: The perception the bundle is creating with the
consumer – is the package “cheapening the brand,” does the created value come
across to them?
Employee Performance: The scripts the employees are using, the messages
that work best at selling to customers, the most effective way of convincing
customers to make the purchase.
Packaging: The physical packaging of the bundle, the marketing
communications in place to promote the bundle, the location of the bundle.
The importance of conducting thorough piloting cannot be stressed enough
around bundling. Only when the value proposition is well designed and the
bundle solidly tested and determined to be financially sound should it be rolled
out across all sales channels and further supported by more mass-scale
About Forte Consultancy Group
Forte Consultancy Group delivers fact-based solutions, balancing short and long term
impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety
of service offerings for numerous sectors, approached in three general phases -
intelligence, design, and implementation.
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Forte Consultancy Group | Istanbul Office