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.
|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.|
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.
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.
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!
- 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.
- 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.
- 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:
- Unbundling Strategy:
- 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