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.

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!

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.

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.

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.

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.

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.

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.

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.

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.

Read Next: Heuristics, Biases.

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