Bundling definition
/What is Bundling?
Bundling is the practice of clustering together several complementary goods and services into a single package price that is lower than the sum of their individual prices. This is done when the group of offerings is considered to be an attractive package for a significant number of customers. It can be cost-effective for sellers, who can sell more products to existing customers, rather than incurring the considerable expense of acquiring new customers.
Bundling arrangements are usually considered to be longer-term, and so are not treated as a one-time promotion. These arrangements can increase the sales volume of a business, while keeping sales away from competitors. The concept is an especially attractive one for sellers that recognize a significant lifetime value from each customer; they can use bundling to retain customers for extended periods of time in order to maximize profits over multiple years.
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Pure Bundling
Bundling is usually designed to give customers the choice of buying products individually or as a bundle. A variation is pure bundling, where there is no choice - customers must buy the bundle. A good example is Microsoft Office, which requires customers to buy the firm’s Word, Excel, and PowerPoint products, because there is no way to purchase these products individually.
Advantages of Bundling
There are several advantages to using bundling to sell products. One is that the inherent discount built into these deals creates a perception of value for buyers; this creates an incentive to purchase a bundled product, rather than making a stand-alone purchase of just one of the products in the bundle. Second, this approach also presents an upselling opportunity, if the bundled products are higher-priced than what customers had originally intended to purchase.
Example of Bundling
As an example of bundling, a bank offers a free checking account when a customer agrees to take on a mortgage. Or, a computer manufacturer sells a mainframe computer that is bundled with a warranty plan and initial training package. As another example, an insurer provides a homeowner with both car insurance and homeowners insurance for a single reduced price.