… creating high demand value through wrapped product bundling
In 1979, Dan Bricklin and Bob Frankston released VisiCalc, the world’s very first electronic spreadsheet for early microcomputers like the Apple II and Tandy TRS-80. It was a miracle. For centuries, hand-written spreadsheets had long been a staple of finance and accounting. But now, for the very first time, anyone with a personal computer could instantly recalculate an entire worksheet for changes in data or formulas without the tedium of hours of manual calculations. VisiCalc was an instant hit, and over the next six years sold over 700,000 copies.
Of course, success attracts competition, and soon there were several challengers on the market like SuperCalc and Microsoft’s MultiPlan. The landscape became a virtual arms race, with each product continually trying to provide better features and superior performance. But in 1981, a watershed moment occurred. IBM launched its runaway hit personal computer, the IBM PC, and in 1983 Lotus Development Corporation’s Lotus 1-2-3 was released for this new platform. This was the first electronic spreadsheet that was optimized for the advanced processing power, memory, and screen size available on IBM’s new machine. 1-2-3 was a gigantic success becoming the PC’s first killer application, and seemingly overnight, VisiCalc’s sales dried up. In 1985 Lotus Development Corporation bought VisiCalc’s now bankrupt parent company, immediately halting production of the VisiCalc software.
One of the reason’s 1-2-3 was such a success was that this was the first software package that bundled a spreadsheet, simple database, and charting capability into one software program (hence the name 1-2-3). Lotus’ spreadsheet, along with Ashton Tate’s dBase (database), and Satellite Software International’s WordPerfect (word processing) formed a triumvirate of software applications (albeit from separate companies) that defined office productivity on the IBM PC’s DOS platform well into the 1990’s
With the introduction of the Microsoft Window’s operating system in the mid 1980’s, Microsoft also announced its intention to release an integrated office suite for that platform, which it finally introduced as Microsoft Office for Windows in 1990. The first office product bundle contained only three applications, Word, Excel (the successor to MultiPlan), and PowerPoint. All three applications took outstanding advantage of the new graphical user interface of the Windows operating system, while the competition was still firmly immersed with the original IBM PC’s DOS command line based operating system.
Eventually, these firms counter-attacked with their own integrated Windows based office suites such as Lotus’ Symphony, but it was too late. Microsoft’s commanding lead on the new operating system could not be overcome. Today, Microsoft estimates that over 1.2 billion people use the Office suite, while the names of Lotus 1-2-3, dBase, and Word Perfect (as well as assorted others) are merely line items in the software hall of history.
What happened? Simply this: product bundling
… Microsoft offered a good, but continually evolving, suite of products that worked seamlessly together …
By offering what customer’s really wanted in one simple unified package for one simple price, Microsoft offered a good, but continually evolving, suite of products that worked seamlessly together on the new Windows platform. Customer’s no longer had to go to separate vendors to purchase their needed suite of productivity applications.
The bundling of products and services is a tried and true marketing strategy. Everyday examples include:
- Car manufacturers may offer sport and technology bundles to top up the features of their base car model
- The cable TV company may offer premiere and movie buff channel bundles, beyond basic cable
- Theatre’s offer ticket bundles for the “Spring Season” of plays
For consumers, there is a tangible benefit when companies package two or more items together to create a higher perceived value for a price (usually) lower than what you would have had to pay for the items separately.
Although bundling can be highly convenient to a purchaser, it can also give a clear strategic advantage to the seller. An article by Anthony Tjan in Harvard Business Review analyzed how this can work in expensive hotel rooms. He uses these two scenarios:
- Ask the guest to pay $750 for a hotel room, PLUS the option of paying $10 for a bottle of water in the room, or
- Ask the guest to pay $760 for a hotel room, and receive a COMPLIMENTARY bottle of water
Tjan reasons that most people will find the first scenario excessive and will put them off buying the add-on. However, if the bottle of water is a “complimentary” item (but added into the cost of the hotel room) they would be far more likely to pay for this. Tjan explains that this is because the guest will have already committed to this price beforehand when booking their stay and upon arrival they see the bottle of water as being free, even though it technically isn’t. Essentially, it keeps the customer happy but also leads to the hotel making more money.
How to implement a product bundling strategy
Your very first experience with a product bundle may have been as a child with a box of crayons.
Your very first experience with a product bundle may have been as a child with a box of crayons. In one convenient package, you were given an assortment of hues to scribble, color, and shade your way to creative heaven. You were hooked on bundling ever since! Here are the steps to implement a product bundling strategy for your business:
- Have a thorough understanding of your customer’s usage of your products (i.e. the “use case”). What are the natural product combinations they will use to accomplish a task? What are the typical up-sell and cross-sell products?
- With this understanding, create simple bundles of your products that will address the common use cases above.
- Offer these use case bundles in different ways to test demand. Here are some examples:
- Offer the products in the bundle at individual prices. Eg. A $15 hammer + $12 screwdriver + $9 measuring tape, or;
- Hammer + screwdriver + measuring tape in a $29 toolkit [a 19.5% discount]
- Hammer + screwdriver for $27, plus get a FREE measuring tape [a 25% discount]
Product bundling can be a very attractive incentive for your customers, and can often increase demand for your offers. But with everything, test, test, test to see what drives the best sales overall.