WHY DO FIRM BUNDLE TWO PRODUCTS TOGETHER AND HOW IS IT LIKELY FOR THEM TO MAKE PROFIT?

What is product bundling?

Product bundling is simply means combining two or more goods together and selling them as on one combined product. It is mostly common in market with imperfect competitive product. It is a marketing strategy that joins products or services together in order to sell them as a single combined unit. Bundling allows customers to purchase two or several product at the convenient purchasing power from one company. The products and services are usually related, but they can also consist of dissimilar products which appeal to one group of customers. It based on consumer’s value the grouped package more than the individual items.

Why do producer go into product bundling?

Producers go into product bundling because of so many reasons, bundling of two products gives the producer to offer more affordable prices for their customer with also a better interest for them. Bundling enhances an organizations offering mix while at the same time minimizing cost of both production and selling. This is attractive to consumers who will benefit from a single, value-oriented purchase of complementary offerings. Bundling is attractive to producers by increasing efficiencies, such reducing marketing and distribution costs. It can also encourage customers to look to one single source to offer several solutions.

Product bundling may also incorporate products from multi producers. Example of this is the palo alto software may include one of their business planning product with an accounting software package, or participate in a small business bundle” through a major computer manufacturer whose customers would have the opportunity to purchase with their new PC. In these situations, bundles may cost effectively open to new marketing channels.

FACTORS CONSIDER WHEN BUNDLING INCLUDE

1. VOLUME: bundling typically increases unit sales volume.
2. MARGING: bundling can reduce margins.
3. EXPPOSURE: bundling may offer new channel opportunities or exposure to new potential customers.
4. RISK: if executed incorrectly, bundling may cannibalize more profitable sale, resulting in lower contribution margins and potential channel conflict.

This last example has three important implications.