Bundling Business Model: What Is It and How Does It Work? [Include Pros and Cons]

The objective of any company is to maximize its profitability. Each company looks to sell more products and services to its customers. However, your business is not the only player in the target niche. Other businesses are also offering similar products and services.

To stand out, you must come up with a strategy that will give your venture a competitive edge. Many entrepreneurs develop various business models to gain a competitive advantage. Bundling is one of these models. But before you consider it, you need to understand what it is and how it works. Read on to learn more.   

What is the Bundling Business Model?

As the term suggests, the bundling business model involves packaging different products and services and offering them as a single unit. The combination usually goes for a lower price than the two separate products. Companies using this strategy seek to boost the sales of the combined products by having a customer-friendly price.

Essentially, it is a common strategy among the monopoly companies that dominate the market. The aim is to lock customers and shield itself from possible competitors. The products offered can be different or related but appealing to the target customers. Hence, a company can combine two or more products/services and offer them as a single bundle.

How Does Bundling Business Model Work?

Bundling is a powerful way to gain a competitive advantage in the market. But you might be wondering how does it work? The model starts with identifying complementary products or services for bundling. For instance, these can be tea, bacon, and bread or flight and accommodation. The focus is to have products and services that customers need available at pocket-friendly prices.

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A business can choose different types of bundling depending on its target goals. Some bundling types include pure, mixed, cross-selling, mix and match, gifting bundles, and others. Pure bundling is where you can only buy the products as a bundle. The company does not offer bundled items as standalone products.

Mixed bundling involves combining two individual products and offering them lower prices. The customers can buy each product separately, but they would pay more. Mix-and-match is the next option. Here, the seller allows customers to choose different items and make a customized bundle.

Cross-selling is also a common type of bundling where you offer complementary products as add-ons to the main item. The next bundling type is the gift which involves a combination of products that one can provide to their loved ones. A good example is combining flowers and chocolates during Valentine’s Day and offering it as a single unit for lovers to gift their loved ones.  

In other words, bundling involves selecting items or services that can complement each other and selling them as a single unit to help the customers afford them.

Examples of Bundling Business Model

Bundling is a common idea in both the online and offline arena. Businesses have been using this approach to maximize profits and keep customers intact. There are many examples of retailers applying it as their central business model.

Mcdonald’s is a good example of a company utilizing the bundling model. This company combines burgers, French fries, and soda under the Happy Meal bundle. This aspect helps them drive more sales than they would if they offered each product separately.

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 Microsoft is another company utilizing this strategy. This digital technology company offers different software on its office packages as a single unit. Microsoft Office contains various programs that a computer user needs. With this package, it can lock out competitors and retain a huge number of customers who rely on its products and services.

Also, some insurance companies combine home and auto policies and offer them as one unit. Hospitality and tourism businesses also utilize this model to boost sales during the holiday seasons.

Pros and Cons of the Bundling Business Model

Undoubtedly, the bundling business model can be a perfect option for any venture. It can help you grow a strong customer base and boost sales. However, it does not lack its share of disadvantages. So, before you pick it as your operational model, you need to consider these aspects. Here are the pros and cons of using the bundling model:

Pros

Boosts your average value order

The goal of every business is to sell more products and services. It always feels good when your sales are growing each day. Bundling offers you an opportunity to achieve this objective. The strategy enhances your average order value by enabling you to sell more pieces of each product.

For instance, instead of selling erasers, pencils, and sharpeners individually, you offer them as a bundle, increasing the pieces sold for each product. So, it boosts your sales level.  

Lower the marketing costs

Marketing requires investment in resources. You need cash to popularize each of your products in the market to enhance their sales. When you opt for a bundling strategy, you can save on your marketing costs. Instead of marketing each of the single products, you will seek to promote the entire bundle as a single unit. This way, you will lower the marketing costs.

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It helps you avoid dead stock

No doubt, businesses struggle with dead stocks. Bundling can save you from such an experience. The approach enables you to combine high-selling with low-moving products. This way, you balance the selling rate and eliminate the possibility of having dead stock in your stores.

Cons

Risk of hurting separate items reputation

Customers have a different perception of various products and services in the market. This perception informs their purchase decisions. Though bundling can help you boost sales, its success depends on customer perceptions.

Sometimes, customers can negatively perceive your bundle products and view them as substandard. Also, the customer may not like the idea and prefer buying individual products. This aspect hurts their reputations and can impact your targeted sales goals.

Conclusion

As you can see, bundling the business model can be a good idea. It can help you drive more sales while lowering your marketing costs. However, this will depend on customers’ perceptions. Your desire must align with customers’ views for it to be successful.  

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