3 Ways Product Bundling Increases Revenue
Recently, I took to the Internet to find a solution for a common runner problem: I needed something to hold my phone and key that wasn’t an armband (tanlines, people) and that wasn’t a fanny pack (not cool, ever, period).
I googled and came across Running Buddy, an ecommerce company that sells various sizes of pouches with super-strong magnets you can place over your shorts waistband. No arm tanlines. No uncool fanny packs.
Sweet! Let’s try it.
I needed the case to fit my iPhone 6, so I chose that model which is listed at $22.88. Just before I was going to checkout, I scrolled down to see that they were offering a bundle of two pouches for $39.99. A deal! If I were to purchase 2 at regular price, I would be spending $45.76.
With the bundle, I could buy two for a few dollars more than buying just one, a few dollars less than buying 2 separately, and have an extra one as a great gift to give to my running buddy.
That’s how a product bundle sale works – from the shopper’s perspective.
The benefit to the customer is quite obvious, but this post will examine the psychology behind this, as well as what benefits are generated on the business-side of this tactic. Let’s look at 3 ways product bundling can increase your ecommerce company’s revenue.
1. Customers see bundled products as a “deal”
The primary reason that product bundling works is that customers see getting more than one product for a slightly higher price than a single product as a deal.
Bundling products increases their perceived value, and also earns customer loyalty because the need to go to another site or store is reduced. (source) So, your customers can save and get what they want in one place.
Ecommerce companies can bundle products that customers like together, or they can bundle complementary products. Why buy a single bag of Stumptown coffee when there’s a delicious chocolate bar that will enhance its flavor and your coffee drinking experience? This coffee and chocolate pairing is about the same price as if you were to buy both items separately, but the catch: you’d have to go elsewhere to buy the chocolate. This bundle succeeds in convenience.
Another ecommerce company, Nic Harry, specializes in men’s socks and is a good example of selling bundled products as a deal. They sell limited edition designer accessories as style packs.
Let’s look “The Blue Pack” as an example. It comes with 3 blue items: a scarf, a lapel pin, and a pair of blue socks for $58 USD. If you were to buy each of these items separately, the scarf ($37), lapel pin ($11), and socks ($16) would total up to $64 USD – a whole $6 more than buying the pack!
In addition to the cost savings benefit to the customer, the fact that NicHarry organized these packs by color adds a convenience factor for buying a pack. If you were buying a gift and know the recipient’s favorite color is blue, then you can’t go wrong.
2. It influences customers’ buying decision
Though you might not have realized yet, each time you buy something online your purchasing decision is hugely being influenced – both at conscious and subconscious level. A recent survey conducted around the drivers of purchasing behavior found that more than 85% of respondents realize that majority of factors and cues driving decision making are subconscious. (source) That statistic is kind of odd in that the participants are realizing this after they’ve purchased, but that’s the way your subconscious works.
Though our subconscious may influence us in many ways when it comes to buying, one of the main things it capitalizes on is convenience.
Let’s look at a possible example of how an average consumer purchases an outfit:
Method 1: browse website, individually click each item, carefully consider if the items will pair well together, add items to cart, second-guess, exit website.
Method 2: browse website, see curated items that look nice together, click to shop those items, buy all.
While purchasing different outfits, average consumers have no idea how some outfits come together. They generally get an idea of what’s supposed to match by looking at a model, or a curated collection or set of products.
A recent apparel startup making waves, Outdoor Voices, has curated sets of apparel for both men and women. The above image is a great example of bundling products together for men who could subconsciously purchase this collection because they like gray and here are a bunch of gray pieces that look good together. In this strategy, bundled products help make the purchasing decision easy.
3. It increases average order value
When it comes to increasing the overall revenue of an ecommerce website, a go-to strategy for many ecommerce business owners is to focus on various tactics that can increase their conversion rate. Tracking and optimizing conversion rates will, of course, help you increase conversions. However, if your ultimate goal is to increase your total revenue, you should also focus on another metric: average order per value (AOV).
AOV is the total revenue generated per number of checkouts. Mathematically speaking, AOV = Revenue / Conversions.
Bundling products together encourages a customer to spend more, and therefore increases their average order value (AOV). Let’s look at an example from BaubleBar. A customer enters the site looking to buy a new pair of earrings, which are around $30 USD. However, they see the product bundle “Play By Ear” where they can select 3 pair for $48 USD.
Here are a couple of ways how increasing average order value can help your online retail:
- Understand buyer habits: Focusing on AOV helps you understand more about your customer buying habits, which allows you to better track what drives purchasing behavior. (Are your customers buying a 3-item bundle more than a 5-item?) This is relevant data that can help shape your customer acquisition strategy.
- Increases ROI: In ecommerce businesses, customer acquisition costs are constantly rising as marketers flood high-performing channels. By successfully increasing the average order value, you can increase revenue at a lower cost. This company increased their average order value from $160 to $182 in just 15 days by bundling products!
Should You Bundle?
Product bundling is a strategy that can absolutely work on the subconscious of your customer. But, you can’t just dive head-first into it. There are four important things to consider:
- Does your ecommerce platform support bundling? Your inventory management needs to be well-integrated with your front end so you don’t sell more than you actually have in stock. Not sure? Here’s a guide to choosing the best ecommerce platform.
- Can you afford it? With bundling, you’ll have an increased AOV, but the margins on the individual items themselves will be lower. Make sure and select items that you can afford to bundle.
- Is your voice loud enough? Just putting a bundle offer on your site will not incentivize buyers. They need to hear about it. It would be wise to create a marketing campaign around your bundles to make sure your customers know what’s available to them.
- Measure, measure, measure! Make sure you’re tracking the performance of your bundles so you can learn from them. Glean all the data you can – only then will product bundling truly be a strategy that grows your ecommerce business.
Like What You Read?
If you’ve tried product bundling in your own online retail business, let us know in the comments what has worked for you. You can always keep up with us and our ecommerce business tips and tricks on LinkedIn and Twitter.