Consider This Research Before Product Bundling

Martin BishopSeptember 7, 20153 min

Which strategy works the best—a narrow, specialized positioning where a product focuses on one feature or an all-in-one solution where products offer a range of features? Turns out that bundling more features into a product does not automatically increase perceived value and often less is, in fact, more.

Alexander Chernev of the Kellogg School of Management has researched this area.

He tested various consumer products including toothpaste. His results show that consumers expect whitening-only toothpaste to whiten teeth better than toothpaste that both whitens and prevents cavities. This happens because consumers rely on a “zero-sum heuristic” which devalues the perceived performance of features if they are bundled together compared to a product with just one feature.

In other research, he found that bundling products sometimes even has a subtraction effect, meaning that consumers value the combined package as less than the value of the single-feature product. He was able to demonstrate this effect when he paired expensive items with inexpensive ones (a $2,000 computer with a $100 printer). Consumers valued the computer less when it was paired with the cheap printer than when it was sold by itself. He attributes this to the fact that people think in terms of categories, not numbers. In this case, they mentally downgraded the value of the computer from being expensive to moderately expensive when paired with a cheap printer and then didn’t think it was as valuable.

Here are five implications of this research:

1. Product development: Tempting as it may be to load up on features to a single-feature product to make it appealing to a wider range of consumers, this study suggests that this approach may fail. More is not always more and, if the competition sticks with single-featured products, consumers are likely to discount each new feature you add for no net gain in benefit.

2. Throw-ins: Beware of throw-ins—adding that cheap printer to entice people to buy an expensive computer or a fitness CD to increase sales of a home gym may be counter-productive.

3. Pricing: Chernev shows that pricing plays a critical role. If an all-in-one product is priced higher than a single-feature product, consumers don’t devalue its multiple features. So pricing all-in-one products at the same price as specialized products is counterproductive from both a margin and revenue standpoint.

4. Line extensions: The problem with pricing an all-in-one product higher than a single feature product is that it’s difficult to manage a product line with multiple price points—it’s simpler to have one price across the range so that all the products can be promoted together. One solution—everything is some kind of bundled offering—e.g. all different combinations of toothpaste and no single feature offering.

5. Branded features: The research doesn’t speak to the role of branding but I think it does change the dynamic. P&G’s addition of branded, extra features (Tide with a Touch of Downy or Crest plus Scope), for example, may break the zero-sum heuristic because each component of the bundle has already an established value. In these cases consumers will be more inclined to recognize that the bundle is providing additional value vs. a single feature produce even if it’s line-priced.

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