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Bundling Products to Help Your Customers

October 2017 Marketing, Selling

If you don’t know what you need, walking into a store like REI can be intimidating. They have gear for all sorts of outdoors activities, and it can be hard to know even where to start. A guiding hand, especially for beginners, is very valuable.

And REI knows this. That’s why they have friendly, knowledgeable staff. It’s why they offer classes and activities to introduce people to new activities or up their skills in a particular hobby. It justifies their 100% Satisfaction Guaranteed return policy (reducing the mental price of a purchase, knowing it can be returned). Everything is oriented to make sure the customer has a good time and keeps coming back.

And it’s also why they offer a Camp Bundle:

For $239, you can get a tent, sleeping pad, and sleeping bag, which is a $40.85 (14.6%) savings from buying the items separately (October 2017 prices).

For the inexperienced camper, having a prepacked option available that covers the basics greatly reduces the time and effort required to begin participating. A less stressed customer with a faster and more comfortable purchase decision is a customer that many companies would love to have.

Types of Bundling

Price bundling typically involves combining two or more discrete products with heterogeneous demand, with the demand for the bundle resulting in higher profits despite it effectively being a discount on each individual product. A good example would be a McDonald’s Value Meal, combining a Big Mac, fries, and a drink. I may not want one component of that as much as the next, but putting them all together at a discount becomes mighty appealing.

 

Is this what REI is doing with the Camp Bundle? Partially, but not fully. The Camp Bundle is meant to give you a full camping experience; whereas you can buy each product separately, you essentially do need all three to participate. Additionally, a sleeping pad is a complementary product to a sleeping bag. It’s unlikely that you would demand the pad and not the bag (unless you already have a bag, in which case you wouldn’t be interested in the bundle anyway).

 

I think it’s better to understand the Camp Bundle as a volume bundle: you purchase more, and you get a discount. REI may not see increased profits on the sale of the bundle, as with pure price bundling, but by providing a valuable entry point into the outdoors it aims to see these customers again.

Value of Bundling

In both senses, however, bundling adds value for the customer by simplification. Most shoppers would actually rather be guided, either by an expert or by customer popularity, to a smaller set of decisions rather than have to decide between every option and combination possible. (And for those who don’t, they can still buy everything separately.)

Many companies and industries are plagued with product complexity. Much of this comes from lack of market or customer segmentation. If you don’t know who or what you want to target with your products, it’s easy to start to sell nearly anything so long as a single potential customer may want it.

In some situations, that makes sense. A supplier of machine parts will naturally have an enormous number of SKUs. If you need a certain part, you need that certain part.

Typically it is not beneficial to have your customer choose between 20 similar products, each divided into 20 different sub-products, each with 20 different levels of power, leading to thousands of different configurations. Aside from the seller’s sales, marketing, and operations burden of keeping such a product catalog, does the buyer know what they need? How can you help your customers buy from you, rather than scare them off?

Bundling can be a great way to lower complexity for the customer as well as increase profits for the company. But it takes proactive strategy and good analysis, a clear sense of what segments you want to target and how you can make life easier for them. What are you doing to make buying from you easier?

Tiered Bundles?

If bundling adds value for the customer and the Camp Bundle consists of basic products, we might expect REI to offer higher tiers of the Camp Bundle aimed at intermediate, advanced, and expert campers. The product materials could be stronger, lighter, or geared toward certain niches of camping, such as winter or kayak.

Is REI missing an opportunity here? Potentially, but probably not. While the Camp Bundle can cover a wide swath of customers, as you increase in sophistication you also increase in variability. People who spend a lot of time with any activity, not just camping, tend to want more control over the individual components that they use. They know enough about their own preferences to make those sorts of decisions, plus the value of expressing their own personality through product choices increases as they identify more with the activity.

With that said, I think there’s room to expand the Camp Bundle horizontally to include more products. If the goal is to equip a basic customer with everything they need for a successful night of camping while reducing the time and effort required to choose between dozens of options, I believe a “Camp Bundle +” that adds a camp stove, lightweight cooking pot, and lantern/headlamp, for example, could work well. Let’s see if they try it.



About the author

Kyle Thompson-Westra is a Consultant at Wiglaf Pricing. His background includes digital strategy, marketing analytics, and international relations. He holds a BA from Tufts University and an MBA from DePaul University.

Kyle Thompson-Westra
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