Packaging basics
An aspect of pricing that is as old as time is the principle of
combining goods or services in various combinations and then
offering a price for such a group. In industry parlance this is
known as packaging or bundling. Don’t be fooled by the name,
this topic extends well past the method in which a physical
good is wrapped and presented. Packaging encompasses a farranging set of tactics and considerations designed to entice
the buyer while rewarding the seller. A working vocabulary of
the common approaches used in bundling remains a fundamental building block of a professional’s pricing knowhow.
Generally speaking, bundling of discrete purchase options
into a single package benefits the seller. In the rational buyer’s
perfect world, each component piece of a purchase transaction would be separate and priced in consistent relative value
to the others. In such a world, the buyer would have access to
his most efficient deal, as he would choose only the options
that suited him. Imagine buying a car from a dealer who let
you customize every last option, choosing only what you really
need. Now remember every time you’ve bought a car: everything works on the idea of packages. Though there are quite a
few sunroofs out on the road that get little to no use, they were
all paid for – at high margin.
Making bundling work
We know that bundling is invariably in the seller’s favor, and
so we must wonder: how can bundling goods generate perceived value for the buyer? The answer is straightforward:
bundling presents an opportunity for the seller to propose a
discount.
Leveraging an intelligent bundling strategy, the seller can enlarge average deal size by dangling unnecessary but heavily
discounted items in front of the buyer.
The buyer will often be irrationally enticed by such offers,
sensing that the incremental power of each purchase dollar is
uniquely enlarged in the context of the bundled offer being
presented.
Tiered pricing
Bundling often presents itself in the form of tiered pricing. Particularly in the modern world of software, there is an increasing and justified investment in understanding the segmentation of the target market, and offering bundles at different
price points to each segment of this market.
In practice, this segmentation is often a ruse. A product that is
available for a monthly subscription may offer 4 different
plans for the express purpose of framing the intended plan in
a favorable, understandable light. The distractor plans will
typically serve to establish value of each component part by illustrating the price of at least one plan that is insufficient, and
at least one that is bloated and too expensive. This tactic can
work brilliantly, demonstrating the thoughtfulness of the bundle (all the things you seem to need, none you don’t) while –
as we know – serving to offer a bundled discount that is quite
favorable to the seller
