Competitive bidding changes and out of control audits along with ongoing insurance reductions have inspired HME providers to explore other opportunities to help offset the cost difference. Retail sales and product bundling play a significant role for the future to enhance both profits and company growth.
What is product bundling?
Product bundling is the combining of two or more products or services together, creating differentiation and greater value, therefore enhancing the offer to the customer for a basic rate.
Bundling has been researched for more than 40 years, and it can go by many names: gifts sets, package deals, collections. While it does not always pan out, bundling has been shown to be a very effective and profitable marketing strategy under a variety of circumstances, including so called “pure-bundling,” in which a group of products are available only as a bundle and are not sold separately.
Bundling is based upon the idea that consumers usually save 7 to 15 percent more on the value of the grouped package than the individual items when purchased separately. Consumers typically compare prices before deciding on a purchase—and consumers love choices because they make them feel in control.
Bundling is attractive to consumers who benefit from a single, value-oriented purchase of complementary offerings. Bundling helps to increase efficiencies, thus reducing marketing and distribution cost. It allows the consumer to look at one single source that offers several solutions.
When effective, a product bundling strategy can significantly increase profits on individual sales over time. Selling multiple products in one solution means a greater initial return on the cost of acquiring a customer.
Bundled pricing is a strategy to help generate a large range of buyers: buyers looking for deals, buyers looking for convenience or buyers looking for advice on items that complement each other. Bundled pricing may be accompanied by a discount, but it doesn’t have to be. As a seller, you can make your sales efforts more efficient simply by selling more items as bundles, and you can ultimately maximize your sales from each customer that you attract.
Consider a rolling walker—this item assists with walking, sitting and standing, and it could easily be bundled with related mobility items such as a shower bench, raised toilet seat with arms, grab bars, lift chair or even a scooter.
In this example, the psychological strategy is to use bundling as a way to package less popular products with hot-selling items. Although this is sometimes criticized, it still attracts a large range of buyers looking for a deal. You can also create long-term opportunities for add-on sales when you get multiple products in a customer’s hands. As with most marketing practices, there is no exact formula for how to create a bundled package that will succeed in the marketplace, and any formula will have several qualities that appear common to many practices.
This marketing tool can help businesses sell more items in one customer encounter, and can open doors to new products and new marketing channels. If the product combination is right, the decision to bundle often involves taking these three variables into consideration:
- Volume: Bundling typically increases unit sales volume.
- Margins: Bundling can lower the cost of goods sold, and can therefore increase your profit margins.
- Exposure: Bundling may offer new marketing channel opportunities or exposure to new potential customers and referral sources.
Customers often prefer to achieve a cluster of satisfactions through one purchase. People buy products to solve problems or to address specific needs. If a customer has multiple needs and your product bundle addresses most or all of them, this is convenient for the customer so that they can make one stop instead of many.
Additionally, customers often experience economies of scale when buying a bundle of products. If they have a need for the individual components in the bundle, they typically understand that the total price is lower when the products are purchased as a bundle.
Keys to Success
As with all business strategies, there will be some trial and error with product bundling. Typically long-term benefits and better customer relationships develop if customer convenience and value is your motivation. Your business should carefully analyze revenue and profit projections for both unbundled and bundled options. If bundled solutions generate lower profits with no customer advantages, this strategy makes little sense. Therefore, it is critical to track product bundling performance and customer satisfaction to help ensure that there are long- term benefits.
All of these factors must be considered in terms of the revenue opportunity and exposure for potential bundle offers. Determine if and how bundling has a place in your store, and develop a marketing plan that will increase value for your customers, referral sources and your organization.
Be selective. With the right bundle, everyone can win.