Bundling Your Way To Bigger Profits

This post was originally featured on FastCompany.com.  The original blog, written by Nick Nanton and JW Dicks can be found here: Bundling Your Way To Bigger Profits

Did you ever try to add one channel to your cable or satellite TV service? If you tried, you probably failed, because TV channels are routinely bundled by the big boys like DirecTV, DISH, and Time Warner. That means if you want TLC, you might have to also pay for the History Channel. If you want MTV, you might also have to pay for VH1.

This practice prompted Senator John McCain to tell The Washington Post“When I go to the grocery store to buy a quart of milk, I don’t have to buy a package of celery and a bunch of broccoli….I don’t like broccoli.”

Senator McCain is lucky–there are many grocery stores to choose from and none of them would ever attempt to make you buy broccoli to get milk. However, it’s most likely that there is only one company bringing TV into your living room at this moment, and it will most likely make you subscribe to BroccoliTV if you desperately want The Milk Channel (if, of course, either of those entities actually existed).

The practice of bundling, selling more than one product together in a package deal, is an effective marketing practice that can boost your sales and your revenues if used correctly. However, because you undoubtedly have more competition than DirecTV, you can’t get away with “pure bundling,” in which the customer can’t buy one or more items in the bundle separately. Studies have shown that will actually reduce your sales by over 20%.

In most cases, however, bundling is a highly effective marketing approach. The book industry, a business with more competition than it knows what to do with, has recently discovered its benefits. A few months ago, a U.K. imprint, Angry Robot, began offering a free digital copy of each print version of a book it sells. Now, you might think that would water down sales. What’s to stop readers from passing out the e-books to friends and keeping the print copy for themselves? Well, the opposite happened–the new practice actually tripled their sales and shifted the focus from “print vs. digital” to “added value.” And those extra revenues were created with absolute minimum costs, since e-books have a one-time-only production cost.

Other publishers have recently found other advantages with bundling. The Wall Street Journalearlier this year reported on book companies that are now using bundling to bring attention to book titles that lacked the visibility to spur sales on their own. Publishers are bundling them with more established books, either by discounting the second book or, in some cases, just plain giving it away (especially if it’s a digital copy). “It’s a way for us to introduce for free an author to a reader that they might want to know,” Maja Thomas, senior vice president of Hachette Digital, told the Journal.

Here are a few of the many benefits that bundling your products can bring:

* The buyer gets to determine value.

Say you’re bundling a video and a book together for $50. One customer might think the video was worth $40 and the book was worth $30, while another customer might flip those values around, with the book being worth $40 and the video $30. That doesn’t matter, because both customers will agree that they’re getting a deal by purchasing the two products for $50.Etsy.com cites this as a primary reason for sellers to bundle on their site.

* Bundling spurs quicker sales.

Studies show that a bundle that appears to be a great deal will motivate buyers to act more quickly than they would have otherwise. If you’ve ever added an item to the cart on Amazon.com, you’ve seen how they’ll “suggest” an additional similar product at a lower cost if you buy both, and if that sort of bundling didn’t work, they wouldn’t do it!

* Bundling spotlights products that are being ignored.

Yoking a forgotten product to a popular one is a way to help the former gain recognition with the help of the latter. TV networks used to do this all the time–classic shows like Seinfeld andM*A*S*H didn’t become ratings successes until they were moved into timeslots next to other much more popular shows and viewers actually sampled them. If you feel one of your products didn’t take off like it should have, this is an excellent way to give it a “second life.”

* Bundling offers big profits on products that have little to no extra production costs.

As noted, giving away a free copy of an e-book with a printed book costs the publisher almost nothing, but brings a lot of added value to the buyer. Similarly, most Blu-ray movies are now packaged with DVD and digital copies of the same film, because the extra cost is almost non-existent, as is the case with copies of video games. In this age of digital products, it’s easy to add a pre-existing product, charge more for the bundle, and trigger extra revenues that otherwise wouldn’t have existed.

Again, bundling works best when you offer the customer a choice. The more control buyers feel they have, the more comfortable they are choosing your products. Remember the days before iTunes, when, if you wanted a great song, you had to buy a whole CD that probably mostly sucked? That made you feel like you had been ripped off–and that’s not a feeling you ever want your customers to take away from a sale.