News

Better by the bundle?

24 October 2012

The Retail world is full of examples of successfully bundled products. From 'Meal deals' at the supermarket and 'Happy meals' at the fast food restaurant to the numerous examples, in the gaming world, of a game console 'bundled' with a selection of games.

The fundamental concept is that by purchasing a 'bundle' of products the shopper gets a better deal than by buying each item individually and the retailer sells more products. But does it work?

Vineet Kumar, an assistant professor in the Marketing Unit at Harvard Business School teamed with Timothy Derdenger of Carnegie Mellon University on research in the gaming market that culminated in their paper 'The Dynamic Effects of Bundling as a Product Strategy'.

The main conclusions of the research were:

Kumar concluded 'It's crucial to allow that flexibility to the consumer. In fact, more sales might result if a company like Nintendo gave consumers even greater choices, perhaps by allowing them to choose among a variety of games to bundle with the console. Bundling is a rather easy way of putting new product offerings together to complement the product line. There's more potential to get it right than to get it wrong'.

Our view:

'Flexibility' is the key. Customers want to get quotes for individual products and benefits and then to compare them with bundled options easily and quickly. Unfortunately, all too often a bundled option is not available simply because of the constraints of legacy technology. So the consumer does not get that flexibility that bundled options provide and the product manufacturer cannot maximise the ability to sell more products.

Total Systems' bluescape application has been designed to enable providers to take full advantage of the ability to bundle products across any type of business line - allowing a full 'mix and match' approach with the ability to react to customer needs instantly and adjust prices 'real time' if required.

Although the research quoted here was based on the hand held video game market, Kumar felt that a bundling strategy is likely to work with a variety of products and we feel this is certainly true in the financial services market.

The research showed that it is important to consumers to be able to buy each product independently as they may only ever need one component. However, if they acknowledge a multiple need, then the offer of bundling their required products together with a discount is likely to nudge them into the decision to buy - and that has to be a valuable end result.

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