Product Bundling

What is Product Bundling? 

Product bundling is a strategic marketing technique of combining multiple products or services into one package at a single price. The idea here is that the bundled products will have a higher perceived value for the customer, at a lower cost than if they were to purchase them individually.

Depending on the industry, bundling is used slightly differently:

• In SaaS, product bundling is used to create software packages with different features or add-ons at varying price points.
• For technology services companies, bundling can mean combining hardware, software, and support services all together.
• Retail companies normally bundle complementary products together, such as a razor handle with multiple blade refills or a gaming console with extra controllers and game titles.
• Manufacturers require vendors to purchase all the items required to produce a product — assembly, components, and raw materials — at once.

In addition to increasing sales and purchase value, bundling guides customers toward specific products that increase the value of one another. It’s also a popular tactic for upselling or cross-selling complementary products.

To facilitate product bundling at your organization, you need to program rules, allowable options, and contingencies into your CPQ software. That way, your sales team and customer self-service portal users can easily bundle products in a way that’s (a) possible and (b) feasible.

Synonyms

• Kitting
• Package deals
• Combo deals

Why Companies Adopt Product Bundle Pricing

The #1 reason companies use bundles is to increase sales. By creating a bundle, the customer gets more value for their money and is therefore more likely to make the purchase (and the purchase is a larger total amount). This also helps companies target different segments of customers with varying needs and budgets.

It can also help clear out old or slow-moving inventory by pairing it with a popular or in-demand product. This reduces the risk of loss and frees up space for new products.

Another reason companies use bundle pricing is to differentiate their products from competitors. By bundling in a complementary product that adds additional features or products that are frequently bought together but would have to be purchased separately, companies can offer something their competitors do not.

To summarize, companies bundle their products to:

• Increase their sales and average deal size/order value
• Appeal to different customers’ needs and preferences
• Move out old inventory
• Add additional value customers can’t find elsewhere
• Facilitate the sale of multiple products that function best together

Understanding Product Bundling

Like we mentioned above, product bundling works by combining multiple products or services into a single package, usually at a reduced price compared to purchasing each item separately. This strategy is designed to increase sales, enhance customer satisfaction, and manage inventory more efficiently.

Here’s a detailed breakdown of how product bundling works from a functional standpoint:

1. Product Selection

The first step in product bundling is identifying which products or services to bundle together. You might base this on several criteria:

• Complementarity (for products that work best together or add value to one another)
• Inventory management requirements (for those that need to move off the shelves)
• New product introduction (to boost visibility by bundling new products with best-selling items)
• Customer demand (to make it easier for buyers to purchase multiple items they frequently buy together)
• Market trends (to capitalize on the latest fads and buying patterns)

2. Pricing Strategy

Once you’ve identified the products you want to bundle, you need to determine how much the bundled package should cost.

A common approach is to calculate the total price of all products included in the bundle and then discount that total by a certain percentage. Alternatively, you can set a fixed price for the bundle.

Sometimes, bundles include a perceived added value, such as a “free” item within the package, which also increases the bundle’s attractiveness without necessarily reducing the price of other items​.

In any case, your pricing strategy should still reflect the value you provide to the customer, with a margin that is feasible to your business. And you still have to account for price elasticity.

3. Marketing and Presentation

The key to successful product bundling strategies is to ensure customers see the price of the bundle as a great deal. That’s where marketing and communication come into the fold.

For effective marketing, bundles should be three things:

• Appealing
• Convenient
• Easy to understand

It’s important to clearly communicate the benefits and savings of the bundle to the customers. This can be done through online descriptions, in-store signage, and promotional materials​. Dependin on the product, this can also take place further down the funnel, (e.g., in your blog content or email newsletter).

For more complicated products, this might include demos and tutorials to show customers how the bundled products work together. For example, ecom/retail brands might run a UGC campaign, or a SaaS vendor might show prospects how to use additional features and tools in a bundled package.

To make the ‘marketing’ and ‘presentation’ parts easy, you might want to consider creating bundles around specific themes or seasons, such as holiday gift bundles or back-to-school packages. This makes the offer timely and relevant to customers’ needs.

4. Sales and Distribution

The final step requires you to consier your sales channels and logistics.

Bundles can be sold through various channels — online stores, physical retail locations, and direct sales. In the case of SaaS and technology services, you’ll sell them online or via a sales rep, and the bundles will be delivered right after payment (instant delivery). For physical goods, you’ll have to ship them physically by mail or courier service.

You need efficient logistics and inventory management systems are required to ensure that all components of the bundle are available and delivered together. If you’re selling physical products, you’ll have to optimize stock levels and manage your supply chain to avoid delays and shortages​.

Make sure to keep track of inventory levels, sales data, and customer feedback to continuously improve your product bundles.

5. Customer Experience and Feedback

As sell-through commences, monitoring customer feedback and sales data is an essential part of understanding the effectiveness of your bundling strategy.

Gathering feedback helps you understand customer preferences and improve future bundling strategies. You can do this through surveys, reviews, and direct customer interactions​. If you’re selling through a website or portal, you can also track users’ on-site behavior to see what bundles they’re interested in or what products they typically buy together (bundled or not).

Analyzing sales data helps you determine which bundles are most successful and why. You’ll almost certainly find that bundles with a certain combination of products, pricing, or marketing tactics perform better than others.

Types of Product Bundles

There are a few different types of product bundling:

• Pure bundles
• Mixed bundles
• Mix-and-match bundles
• Upselling bundles
• Cross-selling bundles
• Inventory clearance bundles

Let’s dive into each, and when/why you might use it:

Pure Bundles

Sometimes, products only function as a bundle and not as individual components. With pure bundling, you can only buy the bundle (all products included), and not the individual products.

For example:

• HelloFresh offers meal kits where all ingredients are provided together and not separately.
• Dyson sells its Airwrap styling tool with multiple detachable blow-dry heads.
• Make-to-order manufacturers require customers to purchase each component of the final product in order to guarantee its functionality.
• Microsoft Office 365 includes Microsoft Word, Excel, PowerPoint, Teams, OneDrive, and Outlook as a bundle.
• TV packages include dozens of channels, including some you’ll probably never use.

Pure bundling limits customer choices. But it offers significant value and convenience when the bundled items are complementary and enhance the overall user experience.

It’s absolutely necessary when you’re selling products that cannot function without one another, or when there are simply too many options for unlimited customer choices to be feasible and scalable.

Mixed Bundles

Mixed bundles allow customers to buy the bundle or individual products separately. This means that bundling isn’t mandatory. Instead, it’s a recommended bundle that’s functionally complete.

For example:

• Adobe offers its software products like Photoshop, Illustrator, and Premiere Pro either individually or as part of the Creative Cloud suite.
• Kylie Cosmetics sells lip kits that include a lip liner and lipstick. Customers can purchase these items separately or as a bundle.
• McDonald’s offers individual menu items like burgers, fries, and drinks, as well as combo meals that bundle these items together at a discounted price.

When you have a diverse customer base with varying needs and preferences, offering both individual and bundled options attracts a wider audience. It also incentivizes higher-value purchases from your most dedicated customers (who were going to use each product anyway).

And if you’re launching a new product, mixed bundling can help you introduce it to customers by pairing it with established, popular items.

Mix-and-Match Bundles

Customers can choose from a range of products to create their own custom bundle. This approach is particularly effective in retail environments where personalization drives higher engagement.

For example:

• Build-a-Bear Workshop allows customers to choose their own stuffed animal, select outfits and accessories to dress them up, and purchase them as a complete bundle.
• Chipotle lets customers choose their own ingredients to build a custom burrito or bowl.
• Nike allows customers to personalize their own sneakers by choosing colors, materials, and designs through the Nike By You program
• Retail and ecommerce stores run buy-one-get-one (BOGO) deals on sections of their store, which means customers can pick any two products from that section and get the lower-priced item for free.

Mix-and-match makes the most sense when there are too many options for a standard bundled product to be feasible, or if the customer base is highly diverse with unique needs.

Upselling Bundles

Upselling is the practice of offering a more expensive product or bundle to a customer who’s already interested in purchasing something.

For example:

• Car dealerships offer add-ons and upgrades for a new vehicle, such as leather seats, upgraded sound systems, and navigation packages.
• Online clothing stores suggest additional items (e.g., accessories) that would complement the item currently being viewed in the customer’s cart.
• Subscription services offer premium upgrades with extra features and benefits.

To use upselling as part of your product bundling strategy, you have to position the bundle as a value-add. It works best in conjunction with mixed and mix-and-match bundles, where the customer can easily be convinced to choose the bundle over the individual product or service.

Cross-Selling Bundles

Cross-selling is the practice of recommending additional products or services that complement what a customer is already interested in purchasing. It’s similar to upselling in the sense that the goal is to increase the customer’s order value, but it focuses on selling additional products to a current customer (or one who has already expressed interest in one of your products).

For example:

• Amazon suggests related items when you add something to your cart.
• Telecommunications companies offer discounted packages for bundling internet, cable, and phone services together.

To cross-sell, you have to have a fundamental understanding of your customer base and their needs. You should also look for natural points of connection between your products or services that make sense to bundle together. From there, you can market it to existing customers and start telling future customers about the additional option.

Benefits of Product Bundling

By bundling products together and giving customers product recommendations, you’re providing a more convenient and satisfying shopping experience. But what’s in it for you? Here are some of the key benefits of product bundling:

• Higher sales volume, average order value/deal size, and revenue
• A streamlined sales process with clear offers and packages
• Better customer satisfaction and retention through personalized recommendations, convenience, and added product value
• Lower customer acquisition cost (CAC)
• Higher customer lifetime value (CLV)
• Shorter sales cycles and customer journeys
• Differentiation from your competitors’ products

For manufacturing and retail companies, it also improves inventory management procedures and reduces carrying costs.

Since you can use bundles to test new products, bundling can also contribute to your research, development, and price optimization processes. Customers’ reactions to bundled packages provide valuable insights into what combination of products and services they find most appealing and how much they’re willing to pay for them.

Considerations and Best Practices for Effective Product Bundling

While bundling is a powerful strategy for increasing sales, there’s a right and a wrong way to do it. Here are our essential best practices to follow when creating product bundles:

• Understand your customer base and their needs. Evaluate their buying patterns and preferences, then create bundles that will appeal to them.
• Choose products with compatible and complementary features and benefits. Bundling unrelated items will confuse customers and reduce the perceived value of the bundle.
• Keep pricing competitive. Customers won’t see the value in a bundle if they could just purchase the products separately at an equal cost.
• Clearly communicate the value and savings of the bundle. Make it easy for customers to understand why they should choose the bundle over individual products. Use language like “Save $X when buying these items together” or “Get X product FREE with this bundle.”
• Make the bundle easy to purchase. Have it readily available and easily accessible for customers to add to their cart (or for sales reps to present as an option).
• Guide customers toward the purchase. Create guided workflows on your website that suggest bundles based on the customer’s interests, browsing history, and current selections. Train in-person reps to do the same.

How CPQ Software Enables Effective Product Bundling

Managing bundles manually is complex and time-consuming. That’s where CPQ (configure, price, quote) software comes in.

You can configure product rules in CPQ to ensure that only compatible products are bundled together. You can also set up pricing rules to ensure competitive and profitable bundle prices. with AI-powered CPQ, you can even provide dynamic pricing options based on the customer’s needs and budget.

CPQ Features for Streamlined Bundle Configuration

Here’s a closer look at some specific features of CPQ software that make it easy to configure and manage product bundles:

• Product configurator: An interactive (sometimes visual) tool that allows your team to select products and features before automatically generating a quote. Since you’ve already defined bundles and possible configurations on the backend, you’ll only see options that make sense and comply with your product rules.
• Guided selling and recommendations: Use guided workflows to suggest the most relevant bundle for each customer. Based on previous selections, the system can either require or suggest certain products to add to the bundle.
• Automated price calculations: CPQ eliminates the need for manual calculations and ensures pricing accuracy. You can even set rules to automatically apply discounts based on the products included in the bundle.
• Dynamic pricing: Use AI and machine learning algorithms to analyze profit margins, market trends, and customer data to arrive at the optimal price for a bundle.
• Approval workflows: For custom bundles and discounts, automatically route quotes for approval before sending them to customers.
• Real-time inventory management: Availability checks, inventory tracking, and re-ordering happen instantaneously to ensure items in your bundles are always in stock and ready to go.

Benefits of Utilizing CPQ Software for Bundling

There are several benefits to using CPQ software. For sales teams, it’s the best way to stay organized, save time, and increase accuracy. For companies as a whole, it enables more efficient bundling processes that make it easy to add new revenue streams.

At the very least, you’ll find that CPQ can do the following for your organization:

• Increase sales team productivity and efficiency by eliminating manual quote generation and calculation processes
• Provide a more streamlined buying experience for customers, leading to higher satisfaction, retention, and CLV
• Eliminate pricing errors and margin leakage from manual pricing calculations and disorganized approval processes.
• Streamline inventory management and reduce carrying costs by ensuring accurate product bundling and up-to-the-minute inventory reporting.
• Gain valuable insights into customer preferences, buying patterns, and bundle performance through sales analytics in CPQ
• Enhanced upsell and cross-sell strategies through guided selling and recommendations based on inputs and customer data
• Better sales forecasting and planning by tracking the performance of various bundles and adjusting strategies accordingly.

Examples of Product Bundling in SaaS, Tech Services, and Manufacturing

While bundling is commonplace in retail and e-commerce, it’s also becoming increasingly popular in other industries. SaaS, technology services, and manufacturing companies all use CPQ to configure and manage product bundles.

Here are a few examples:

SaaS: Adobe Creative Cloud

Adobe offers a suite of creative software, including Photoshop, Illustrator, and Premiere Pro, either individually or as part of a bundle. The bundled option, Creative Cloud, allows customers to access all these tools at a discounted subscription rate compared to purchasing each software separately.

With the product configurator in CPQ, Adobe can generate precise quotes for customers in real-time. This enhances the sales process by providing instant quotes to customers on the cost and benefits of bundling different software products together.

Tech Services: IBM Cloud

IBM Cloud offers a range of bundled IT services including cloud infrastructure, AI tools, and data analytics. Customers can choose from predefined bundles or customize their own, depending on their specific IT needs.

CPQ systems allow IBM to configure service bundles tailored to the specific needs of businesses, integrating various cloud and AI tools. The system ensures that the pricing for these service bundles is accurate, taking into account various factors like usage levels, service tiers, and contract lengths.

Manufacturing: Jabil

Jabil, a leader in contract electronics manufacturing, offers bundled services that include product design, manufacturing, supply chain management, and logistics. These bundles provide end-to-end solutions for companies looking to bring products to market efficiently and with minimal overhead.

CPQ tools manage the complex (often custom) pricing structures involved in manufacturing. They guarantee that all elements of the bundle are priced accurately and competitively. Plus, they help customers understand the value of an integrated.

Leveraging Product Bundling and CPQ for Revenue Growth

At this point, it’s clear that bundling products and services with CPQ has a range of benefits for businesses. But what about revenue growth? How can organizations use product bundling and CPQ to drive more sales and increase their bottom line?

To recap, here are a few ways to leverage product bundling and CPQ for revenue growth:

• Price optimization with dynamic pricing
• Upselling and cross-selling with guided selling and recommendations
• Tailored bundling options for different customer segments
• Automated approval workflows for custom bundles and discounts
• Real-time inventory management to ensure bundled products are always available

By integrating CPQ with ERP and conecting CPQ with CRM, you can extend the capabilities of your system and truly maximize revenue growth. With all systems working together, you’ll have a full view of your customers, inventory, and sales workflow. And you’ll be able to generate accurate, customized quotes for bundled products at lightning speed.

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Andrew Parker

Andrew is a professional copywriter with expertise in creating content focused on business-to-business (B2B) software. He conducts research and produces articles that provide valuable insights and information to his readers.