Are bundles bad for business?


According to conventional wisdom, product bundles are a great way to build customer loyalty, drive revenues and improve your brand image.  With a bundling strategy, consumers who purchase one product are tempted with incentives to buy  another, often complementary product.  The marketing premise – supported by solid evidence in many firms – is that companies can maximize total customer revenue by offering a second product at discount versus selling each product individually. Not surprisingly, bundling has become popular in many B2C and B2B markets ranging from telecommunications to financial services.

Bundle with care

Does bundling’s good reputation hold up to research? No, according to professors Alexander Chernev and Aaron Brough in a recent article in the Harvard Business Review.  Their research found significant problems with bundling. Specifically:

  • Consumers will pay more for a single expensive item, such as a TV, than they will for a combination of that item and a cheaper one, such as a radio.  In their study, people were willing to spend $225 on one piece of luggage and $54 on another when the items were offered separately. However when the bags were offered as a package, people were willing to spend just $165 for both
  • Bundling will have a negative effect on the perceived value of a product when a less expensive item is added as part of a bundle. The research found that when consumers were offered a choice between a gym membership and a home gym, slightly more than half preferred the home gym. But when a fitness DVD was included with the home gym, only about a third chose it.

It’s all in your head

In 5 experiments, real consumers were shown a series of real brand name products—phones, jackets, backpacks, TVs, watches, shoes, luggage, bikes, wine, and sunglasses – varying in price.  Respondents in one group were asked how much they would pay for each item by itself, and those in another group were asked how much they would pay for a bundle combining a high-priced and a low-priced item.

Psychological factors – specifically a process named categorical reasoning – are behind this consumer behavior. People naturally tend to classify products as either expensive or inexpensive.  This categorization influences how they judge products. When an expensive item is bundled with an inexpensive one, people categorize the bundle as less expensive, and this lowers their willingness to pay for it.    

It’s the bundle and price points that matter.  Categorical reasoning does not happen when lower priced products are valued side by side against more expensive products. This effect is only seen only when the two items are considered part of the same offering. Moreover, categorical reasoning does not arise out of differences in the perceived quality of the bundled products. Devaluation can happen when both items are of similar quality and brand image but different price points.

Marketing implications

Bundles aren’t and shouldn’t go away so fast.  However, this research suggests that firms should use them carefully. For example:

  1. Get consumers to focus on non-price attributes like reliability, performance or design.  This will eliminate the price effect since people categorize along just one dimension at a time. The findings show that when customers focus on one of those attributes, they’re much less likely to categorize items in terms of their expensiveness.
  2. Design bundles where each product has similar perceived value, image and price points.

For more information on our products and services, please visit the Quanta Consulting Inc. web site.

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2 comments so far

  1. […] the requirement that customers purchase tickets for popular and less popular sports within a bundle.  In its place, the LOC had each sport stand on its own, with its own flexible pricing […]

  2. […] — the requirement that customers purchase tickets for popular and less popular sports within a bundle.  In its place, the LOC had each sport stand on its own, with its own flexible pricing […]


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