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To Bundle or Not To Bundle

Sakshi Malachi

Machine Learning Intern

July 1, 2021

Back in the day, hosting a business on an e-commerce platform was just about selling anything and making huge profits. The competition was not as fierce and the expensive technology at that time, just complimented it. Now, the times have changed with the world opening up to affordable technology and unlimited access to products. Shopping cart platforms like Shopify have eliminated all the entry-barriers enabling anyone to launch an online store in a matter of days and start selling all kinds of products made available to numerous consumers worldwide.

A significant amount of money is spent by the online retailers to drive volumes of traffic to their online stores. With readily available substitutes and close competitors, they are expected to come up with defensive pricing strategies to get maximum out of the additional marketing efforts.

What could you do to sell your products at higher margins while providing your customers a discount at the same time? The solution to this open question lies in the ubiquitous practice of bundling or offering several different products as a part of a cheaper package deal. However, there is a “catch”, the pricing psychology will only work if the buyer is presented with the option to separately buy the same products.

Bundles are all around us. Fast food chains all around the world have been using this to make their customers subconsciously buy at once, more than they intended to. A bundle that has just been created is a product in itself. When a buyer purchases more units of product, the average revenue also shoots up.

And yet we are faced with the question of what to bundle. How shoppers value a product is something that cannot be measured on a nominal scale. It is deep rooted in the process of customer value perception which ultimately leads to the willingness to pay criteria. In other words, customers will only buy the bundled products if they perceive the value to be more than the cost of the individual items.