The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
Understanding the bundling bias
Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
To explain this concept using an example, consider a cinema offering a bundle of five movie tickets for $51 – much cheaper than the $75 it would cost to buy each ticket separately. However, the bundled tickets are only valid for a month.
Let’s say that the consumer is a movie fanatic and manages to see three movies during those 30 days. With the remaining two tickets now invalid, the consumer has essentially paid $17 per ticket. If they had opted to buy three separate tickets, they would have paid $15 per ticket. Here, the bundling bias caused the consumer to spend more and in the process, receive less.
Exploiting the bundling bias in business and marketing
Businesses who sell bundled packages invariably increase sales and profit generation. If we return to the example of the movie fanatic, the cinema made an extra $2 on each movie the consumer attended. But it’s important to note that the cinema owner makes money on each ticket sold in the bundle – regardless of whether the consumer attends each of the five movies.
Of course, if the cinema also owns a candy bar, then it may lose out on sales if movies are less well attended. However, management can simply anticipate a lack of patronage by selling more tickets above and beyond cinema capacity.
Research has also shown that the nature of bundling is important for businesses. Physically bundling products together was found to be much more effective than the digital or monetary bundling of items
Bundling bias and the sunk-cost fallacy
The bundling bias has strong links to the sunk-cost fallacy, which is another cognitive bias describing consumer tendencies to follow through on something if money has been invested into it. If the movie-goer buys a single bundle of five tickets but sees three movies in a month, they are likely to determine that they have followed through on their investment.
This is because the bundle constitutes one “investment” – or purchase – and not five as in the case of buying each ticket separately. Bundling items also makes the cost of each ticket (and thus the cost of recouping the investment) less obvious to the consumer.
Building bias and price anchoring
When leveraging a bundling bias, it’s critical also to leverage the anchoring effect.
In short, bundling has to drive business value (increased profits for the company) and customers’ value (increased perception of the product).
That’s critical, otherwise, the bundle might be perceived as getting more of something but, as a customer, having a perception of it as less valuable.
That’s a mistake that many companies do as they start to bundle up more and more features into a product without an understanding of what really drives business value for customers.
In that case, the company that’s using bundling in the wrong way is opening up the way for other players actually to leverage an unbundling strategy!
When does it make sense to unbundle?
In a market dominated by a few large players which ended up offering a product that is made of many other bundled ones, there might be an opportunity for new entrants in that market.
Often, when bundling becomes too aggressive, the value of that bundle might actually decrease the product’s perception for final customers.
This opens up the way to an effective unbundling strategy.
A successful unbundling strategy starts from a very simple question: “what’s the most valued product in a bundle?” or “what’s the feature that users use the most within a plethora of features offered by the bundler?”
With that simple question, you can reverse engineer the most valuable side of the product, thus offering only that as a go-to-market strategy.
Once you understand what product within a bundle or features within a complex product is perceived as the most valuable to users and customers, you can:
- Create a very simple product with only that feature.
- Offer the product for free while having premium features as paid (freemium strategy).
- Focus on the feature or product customers find most compelling over time, making it even better than the dominant player!
In short, by identifying these gaps you can build a valuable, simple product, on top of more complex, existing, bundled products, and create a successful business from scratch, by leveraging an unbundling strategy!
- The bundling bias describes the human tendency to not make use of each product or service bought in a bundle.
- The bundling bias can be exploited by businesses with smart marketing strategies. Anticipating that consumers will not use every product or service in a bundle, they can simply sell more to increase profits.
- The bundling bias is closely related to another bias in the sunk-cost fallacy. With the cost of each product in the bundle less clear, recouping the initial investment becomes largely subjective which often leads to a reduction in bundle value.
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