It can be a clever way to encourage buyers to spend more money with you. Give them the opportunity to buy a combination of products from you at a discount from their separate prices.
But this pricing tactic, known as mixed bundling, does have a side-effect you need to be aware of. In this article I’ll explain what this side effect is and two precautions you should take.
Imagine our company sells two products, A and B. That means we have three categories of buyers:
[1.] “A and B” buyers
[2.] “only A” buyers
[3.] “only B” buyers
Suppose our company begins offering products A and B together at a discount. In other words, Price (A+B) < Price (A) + Price (B).
Here’s the side-effect: The “A and B” buyers are now purchasing the same products as before, but they are paying less for them. Our bundle discount is cannibalizing some of our profits from the “A and B” buyers.
But don’t forget our “only A” and “only B” buyers. The bundle discount will convert some of them into “A and B” buyers. If enough of them increase their spending, the extra profits from these buyers will exceed the cannibalized profits.
If you decide to use mixed bundling, there are two precautions you should take to reduce the cannibalization effect.
First, do not bundle “got-to-have” products together. To the degree people are already buying these products together, you’ll hurt your profits. You’re more likely to stimulate new sales when you bundle a “nice-to-have” product with a “got to have” product.
Second, do not offer too large of a bundle price discount. The larger the bundle discount, the more bundles you have to sell to make this move pay off. Start with a small discount — something in the neighborhood of 10% — and observe the effect it has on bundle sales. You can always increase it later.
Remember, some profit cannibalization is an inevitable side-effect of mixed bundling. But you can reduce that by carefully selecting which products you bundle together and the price discount you offer. Mixed bundling is still a clever way to encourage buyers to spend more money with you.