A few years back, buying a mobile plan used to give a measure of anxiety bordering seizures.
The menu would be a few pages long with high doze of options with base rates, pulse rates, time of day among many other such items. The buyer was free to make any number permutation and combination from the menu.
One needed to be an adept mathematician to run a mental optimisation algorithm to find the best plan. Since I am anything but, I would go by the advice of the retail agent. And for the next few days, I would regularly get pangs of regret for missing out on that mysterious best plan.
Though I often sought counselling from my friends who were experts in these matters, their elaborate methods for plan selection barely registered in my mind.
However, all this changed for better when Airtel launched myPlan, which is a classic example of product bundling.
Bundle to simplify purchase process: When you have many possibilities, the buyer can get confused and delay the purchase decision. You can help the buyer by making a fixed menu. To focus on the core idea of this post, I have omitted some details from the actual plan. So, lets say the menu looks like this.
Assuming that we have two users, one who prefers speaking on phone and the other who prefers to use phone for data services, their choice would look like this.
This reduction in choices, remarkably, brings down the purchase agony. There is another good reason to bundle.
Bundle to exploit different willingness to pay: Buyers are heterogeneous in their needs and accordingly their willingness to pay. At McDonald you can buy a burger for Rs. 50 and Coke for Rs. 60. Lets assume that its 12 noon and two people enter the store.One is hungry and the other is thirsty. Also, to simplify the matters lets assume that they are considering to buy only burger and coke. Their choice preference against the prices would look like this.
However, we know that McDonald offers value meal bundles. Lets see how does the buyer purchase decision change when bundled price is offered.
Clearly, the firm benefits from additional 54% of revenue. Of course, you would need to do a market study to understand buyers’ willingness to pay and some spreadsheet analysis to find profitability at various prices.
What goes into a of bundle? Typically you would bundle items that are consumed together. So, you would not expect a bundle of burger and coffee.
Where else do we see product bundles? Price bundles are ubiquitous. Here are some examples
Air conditioner + Installation services
Hotel room + breakfast
Savings account + brokerage account
Next time you sell your services, ask yourself, how can bundling improve your revenue and profits.
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