Bundling Bias

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.

Types	Examples	Outcome/Benefit
Product Bundling	Microsoft Office Suite	Increased sales by offering a suite of applications.
	Fast Food Combos	Higher sales as customers choose bundled meals.
	Adobe Creative Cloud	Subscription revenue from users accessing specific apps.
Service Bundling	Amazon Prime	Attracting subscribers with a range of benefits.
	Cable TV Packages	Offering multiple channels, appealing to diverse interests.
	Gym Memberships	Providing access to various amenities and classes.
Feature Bundling	Cell Phone Plans	Encouraging customers to opt for comprehensive plans.
	Streaming Service Bundles	Providing access to multiple streaming services.
	Theme Park Passes	Offering access to multiple parks and attractions.
Policy Bundling	Bundled Insurance Policies	Combining different types of insurance coverage.
Mixed Bundling	Software Subscription Services	Allowing users to access individual apps or the entire suite.
	Microsoft Office Suite	Offering individual applications or the full suite.
	Streaming Service Bundles	Providing choices within a bundled package.

Table of Contents

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.

The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision.

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.

How?

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.

Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.

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!

Case Studies

Microsoft Office Suite:
- Microsoft bundles various productivity applications like Word, Excel, and PowerPoint into the Office Suite.
- Users may pay for the entire suite, even if they primarily use one or two applications, such as Word and Excel.
Amazon Prime:
- Amazon offers a bundled subscription service called Amazon Prime, which includes benefits like free shipping, video streaming, music streaming, and more.
- Subscribers may join primarily for the free shipping, even if they rarely use the other bundled services.
Cable TV Providers:
- Cable companies bundle numerous channels into packages, offering basic, standard, and premium tiers.
- Customers may subscribe to higher-tier packages with many channels, even if they only watch a fraction of them.
Fast Food Combos:
- Fast food chains like McDonald’s offer combo meals that include a burger, fries, and a drink.
- Customers often purchase combo meals even if they only want the burger or a specific item, leading to additional sales.
Gym Memberships:
- Many gyms offer bundled memberships that include access to various amenities, classes, and facilities.
- Members may pay for the bundled membership, even if they mainly use the gym equipment and not the additional services.
Software Subscription Services:
- Adobe bundles multiple software applications, like Photoshop and Illustrator, into the Adobe Creative Cloud subscription.
- Users may subscribe to access one or two applications, even if they don’t use the entire suite.
Cell Phone Plans:
- Mobile carriers offer bundled plans with unlimited data, talk, and text, even if customers primarily use data or only text and talk.
- Customers may choose bundled plans due to perceived value, even if they don’t fully utilize all included features.
Theme Park Passes:
- Theme parks offer annual passes that include access to multiple parks, water parks, and special events.
- Pass holders may buy these passes even if they only visit one park, potentially feeling that they are paying for features they won’t use.
Bundled Insurance Policies:
- Insurance companies often bundle home, auto, and life insurance policies together.
- Customers may purchase bundled insurance even if they primarily need coverage for one type of policy, leading to higher premiums.
Streaming Service Bundles:
- Streaming platforms like Disney+ bundle their services with Hulu and ESPN+.
- Subscribers may choose these bundles for access to a specific service but not fully utilize all the bundled offerings.

Key takeaways

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.

Key Highlights

Definition of Bundling Bias: The bundling bias refers to the cognitive bias where consumers are less likely to use all products in a bundled package, leading to decreased value for the bundle and its individual items.
Effect on Consumer Behavior:
- Bundling involves selling multiple products or services together at a lower price than if purchased individually.
- Consumers often don’t fully utilize every item in the bundle, resulting in a perception of reduced value.
Example Illustration:
- Consider a cinema selling five movie tickets as a bundle for a discounted price.
- Consumers may not use all tickets within the validity period, ultimately leading to a higher cost per movie seen.
Business and Marketing Exploitation:
- Businesses benefit from bundling by increasing sales and profits even if consumers don’t use all items.
- Bundled items are priced attractively, making each item’s value less obvious to consumers.
Bundling Bias and Sunk-Cost Fallacy:
- Bundling bias relates to the sunk-cost fallacy where consumers feel committed to an investment (bundle) and follow through even when not fully utilizing it.
Price Anchoring:
- Leveraging bundling requires understanding the anchoring effect, where the initial price becomes a reference point for consumer decisions.
- Bundling should drive both business and customer value to maintain a positive perception of the product.
Unbundling Strategy:
- When bundling becomes too aggressive, it may decrease the perceived value for customers.
- Unbundling involves breaking down a bundled product to focus on the most valued feature or component.
- Successful unbundling identifies the core value and builds a simple, valuable product around it.
Key Takeaways:
- The bundling bias indicates that consumers often don’t use all items in a bundle, leading to reduced perceived value.
- Businesses can exploit this bias to increase sales and profits.
- The bundling bias connects to the sunk-cost fallacy and price anchoring.
- Unbundling can be an effective strategy to focus on the most valued aspect of a bundled product.

Connected Thinking Frameworks

Convergent vs. Divergent Thinking

Convergent thinking occurs when the solution to a problem can be found by applying established rules and logical reasoning. Whereas divergent thinking is an unstructured problem-solving method where participants are encouraged to develop many innovative ideas or solutions to a given problem. Where convergent thinking might work for larger, mature organizations where divergent thinking is more suited for startups and innovative companies.

Critical Thinking

Critical thinking involves analyzing observations, facts, evidence, and arguments to form a judgment about what someone reads, hears, says, or writes.

Biases

The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.

Second-Order Thinking

Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.

Lateral Thinking

Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.

Bounded Rationality

Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.

Dunning-Kruger Effect

The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.

Occam’s Razor

Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.

Lindy Effect

The Lindy Effect is a theory about the ageing of non-perishable things, like technology or ideas. Popularized by author Nicholas Nassim Taleb, the Lindy Effect states that non-perishable things like technology age – linearly – in reverse. Therefore, the older an idea or a technology, the same will be its life expectancy.

Antifragility

Antifragility was first coined as a term by author, and options trader Nassim Nicholas Taleb. Antifragility is a characteristic of systems that thrive as a result of stressors, volatility, and randomness. Therefore, Antifragile is the opposite of fragile. Where a fragile thing breaks up to volatility; a robust thing resists volatility. An antifragile thing gets stronger from volatility (provided the level of stressors and randomness doesn’t pass a certain threshold).

Systems Thinking

Systems thinking is a holistic means of investigating the factors and interactions that could contribute to a potential outcome. It is about thinking non-linearly, and understanding the second-order consequences of actions and input into the system.

Vertical Thinking

Vertical thinking, on the other hand, is a problem-solving approach that favors a selective, analytical, structured, and sequential mindset. The focus of vertical thinking is to arrive at a reasoned, defined solution.

Maslow’s Hammer

Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).

Peter Principle

The Peter Principle was first described by Canadian sociologist Lawrence J. Peter in his 1969 book The Peter Principle. The Peter Principle states that people are continually promoted within an organization until they reach their level of incompetence.

Straw Man Fallacy

The straw man fallacy describes an argument that misrepresents an opponent’s stance to make rebuttal more convenient. The straw man fallacy is a type of informal logical fallacy, defined as a flaw in the structure of an argument that renders it invalid.

Streisand Effect

The Streisand Effect is a paradoxical phenomenon where the act of suppressing information to reduce visibility causes it to become more visible. In 2003, Streisand attempted to suppress aerial photographs of her Californian home by suing photographer Kenneth Adelman for an invasion of privacy. Adelman, who Streisand assumed was paparazzi, was instead taking photographs to document and study coastal erosion. In her quest for more privacy, Streisand’s efforts had the opposite effect.

Heuristic

As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.

Recognition Heuristic

The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.

Representativeness Heuristic

The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.

Take-The-Best Heuristic

The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.

Bundling Bias

Barnum Effect

The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.

First-Principles Thinking

First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.

Ladder Of Inference

The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.

Goodhart’s Law

Goodhart’s Law is named after British monetary policy theorist and economist Charles Goodhart. Speaking at a conference in Sydney in 1975, Goodhart said that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart’s Law states that when a measure becomes a target, it ceases to be a good measure.

Six Thinking Hats Model

The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.

Mandela Effect

The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.

Crowding-Out Effect

The crowding-out effect occurs when public sector spending reduces spending in the private sector.

Bandwagon Effect

The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What in marketing can be associated with social proof.

Moore’s Law

Moore’s law states that the number of transistors on a microchip doubles approximately every two years. This observation was made by Intel co-founder Gordon Moore in 1965 and it become a guiding principle for the semiconductor industry and has had far-reaching implications for technology as a whole.

Disruptive Innovation

Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

Value Migration

Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.

Bye-Now Effect

The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Groupthink

Groupthink occurs when well-intentioned individuals make non-optimal or irrational decisions based on a belief that dissent is impossible or on a motivation to conform. Groupthink occurs when members of a group reach a consensus without critical reasoning or evaluation of the alternatives and their consequences.

Stereotyping

A stereotype is a fixed and over-generalized belief about a particular group or class of people. These beliefs are based on the false assumption that certain characteristics are common to every individual residing in that group. Many stereotypes have a long and sometimes controversial history and are a direct consequence of various political, social, or economic events. Stereotyping is the process of making assumptions about a person or group of people based on various attributes, including gender, race, religion, or physical traits.

Murphy’s Law

Murphy’s Law states that if anything can go wrong, it will go wrong. Murphy’s Law was named after aerospace engineer Edward A. Murphy. During his time working at Edwards Air Force Base in 1949, Murphy cursed a technician who had improperly wired an electrical component and said, “If there is any way to do it wrong, he’ll find it.”

Law of Unintended Consequences

The law of unintended consequences was first mentioned by British philosopher John Locke when writing to parliament about the unintended effects of interest rate rises. However, it was popularized in 1936 by American sociologist Robert K. Merton who looked at unexpected, unanticipated, and unintended consequences and their impact on society.

Fundamental Attribution Error

Fundamental attribution error is a bias people display when judging the behavior of others. The tendency is to over-emphasize personal characteristics and under-emphasize environmental and situational factors.

Outcome Bias

Outcome bias describes a tendency to evaluate a decision based on its outcome and not on the process by which the decision was reached. In other words, the quality of a decision is only determined once the outcome is known. Outcome bias occurs when a decision is based on the outcome of previous events without regard for how those events developed.

Hindsight Bias

Hindsight bias is the tendency for people to perceive past events as more predictable than they actually were. The result of a presidential election, for example, seems more obvious when the winner is announced. The same can also be said for the avid sports fan who predicted the correct outcome of a match regardless of whether their team won or lost. Hindsight bias, therefore, is the tendency for an individual to convince themselves that they accurately predicted an event before it happened.

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