Why do we buy things we don’t actually need? Emotion plays a big role; purchasing a product can make you feel good about yourself (workout clothes) or that you belong to a community of others who share your values (shoes made from recycled materials). Most of us also like to get a good deal (admit it: getting the most for your money has brought a smile to your face). You can build an emotional connection with your products through brand building and creating compelling lifestyle content. But you also can tap into the power of “good-deal glee” with a smart product bundling strategy.
Before you jump in, note that product bundling isn’t as simple as packaging products together and offering them at a lower price. There’s some strategy – and some psychology – to consider when thinking about how bundling could work to increase eCommerce revenue.
The psychology of perceived value
When we shop, we use what researchers call “categorical reasoning.” This is the process of unconsciously categorizing products as “expensive/luxury” (e.g., diamond bracelet) or “inexpensive/low cost” (e.g., woven string bracelet), and judging their value in our minds.
This automatic categorization plays into the psychology of “the Presenter’s Paradox,” which has a direct impact on bundling strategy. The Paradox refers to the presenter’s (merchant’s) perception that adding more products to a bundle increases the overall value, while the recipient (customer) views the value of the bundle as the average of the included items. Therefore, pairing a low-cost item with a luxury item may actually make the bundle less attractive than selling the luxury item alone.
Wait; what?! It’s true. Research backs this up. Categorical reasoning gives products a sort of “aura” that affects the products they’re bundled with. There’s a similar effect when we order a double cheeseburger with a salad. The salad makes us feel like the entire meal is less fattening (though in reality, we’re eating extra calories).
The psychology of discounts
When it comes to deciding how much to discount your bundle, there are many factors to consider, including your business goals. However, to determine what might be most compelling to consumers, remember that in general, people don’t like doing the math. It’s often easier to conclude that the better deal is to get an item added in for free, versus getting an overall discount. For example, one study showed that consumers preferred getting 33% extra coffee beans for free instead of 33% off the price, which was actually the better deal. Also, discounts are relative. Ten dollars off of a $20 item is more compelling (half off!) than $10 off of a $100 item. Another strategy to consider is the “rule of 100,” in which consumers find a “percentage off” more compelling for products priced under $100 (25% off of $50) and a “dollar amount off” for items over $100 ($500 off of $2,000).
Bundling best practices
If you want to use product bundling to increase average order value (AOV) and bring in more revenue, it’s a good idea to give some strategic thought to what products you bundle together. You’ll want to consider:
- Psychological factors – how do I address categorical reasoning?
- Your audience demographics/psychographics – how does this bundle benefit them?
- Sale data – what are customers already naturally buying together?
- Inventory data – what product isn’t moving?
- Competitor offers – can I offer a compelling alternative?
The following are a few tried-and-true reasons why and how to implement product bundling. Some strategies will work better than others, depending on your customer, market, and business goals, so you’ll need to test.
- Heighten perceived value: Remember, the value of the bundle is perceived by shoppers as the average of the bundled products, so try bundling together products of similar value and offering them at a lower price than if the consumer bought them separately. Another way to avoid lowering the perceived value is to offer bundled products in bundles only (not also as individual products).
- Increase convenience: Reducing the number of choices customers have to make before they buy can make shopping easier, so bundling complementary products together can be very effective. For example, one click to buy everything needed for nighttime skin care, including face cleanser, toner and moisturizer. Another version of this strategy is to bundle a gift card of equal value with a purchase, providing a convenient way to share or gift favorite products to a friend.
- Clear out inventory: Product bundling can be a great way to move inventory that’s not selling fast enough or will be phasing out. But don’t tack it onto any old product. Keep in mind best practices about perceived value and convenience.
- Introduce new products: Highlight new flavors or new products that are complementary to existing, popular products via bundling. For example, a customer may want to try a new protein powder flavor in addition to his favorite flavor.
- Offer gift ideas: Choosing the right gift can be hard – but you can make it easier! Bundled complementary products make great gift ideas. Try offering several bundles at different price points and packaging options to satisfy various gifting needs.
To bring your product bundling strategy to life, there are various apps that integrate with Shopify Plus that can help you streamline the logistics. For example, automatically recommend bundle variants as alternatives to a single item on a product description page or at checkout, and keep track of inventory used for bundles so you don’t run out unexpectedly. However, it’s critical to understand how all of your backend systems work together and how they should be integrated with the bundling software.
We’re happy to help you choose the software that’s best for your eCommerce business, make sure you have the right backend platforms in place (i.e., accounting and fulfillment/inventory systems), and help guide your product bundling strategy to help increase eCommerce revenue.