Advantages and Disadvantages of Bundling

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  • Topic: Product bundling, Value meal, Insurance
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Bundling Products:
The Advantages and Disadvantages of Bundling Products

Willie Roy Ramsey, Jr.

PROC 5830: Pricing
Dr. Douglas Mowczko
May 5, 2012

The Advantages and Disadvantages of Bundling Products
I. What is Product Bundling
A. Examples of Business
1. Restaurants
2. Cellular services
II. Advantages
A. Lower prices
B. Variety
C. Older Products
III. Disadvantages
A. Flexibility
B. Penalties
C. Correlation

The Advantages and Disadvantages of Bundling Products
There are a variety of reasons why companies are transforming from the traditional way of selling products to bundling products. This paper will examine some of the reasons these decisions are made. The purpose of the paper is to make the seller and consumer aware of the advantages and disadvantages of bundling various products. The concept of bundling products is to secure two or more goods or services from a single vendor. It involves the willingness of the vendor to provide two or more services at a basic rate. When bundling is applied, it saves a great deal of money. Many companies may offer a cable TV bundle which allows the customer to watch cable television, use telephone service, and use the Internet. Customers tend to save money when combining all three instead of buying separate services individually. Convenience is another reason why customers tend to favor bundling products. Customers can have one vendor for all of their personal needs. The benefit comes when they are paying for the bill. One payment is due to one vendor. There is no need for multiple payments to various vendors. Companies like AT&T and Verizon Wireless use bundling to appeal to many consumers. These companies use lower pricing on the bundle which in turn catches the consumers’ eye. Some companies like Best Buy and Circuit City tend to bundle some of their products as well. An example of such bundling can include receiving a free printer when you purchase a computer. The word “free” alone will catch the eye of any consumer. In this example, the printer is considered the incentive or added benefit to the customer for purchasing the computer. Many fast-food restaurants exercise the bundling option in their meals. Restaurants like MacDonald’s, Burger King, and Wendy’s all use bundling in their value meal deals. On average, it is cheaper to purchase a value meal than a single item. For example, a Big Mac from MacDonald’s would cost about $3.99 just for the sandwich. If you choose the option to buy the value meal, you will receive fries and a drink for around $5.30. To the consumer, this is added value because they look at the overall meal. Of course, the drink is definitely a plus because you need something to wash down the burger. Deals such as these are very enticing to the customer. Another example of bundling can be found in the software industry. A software company often offers options in a package deal to consumers. These added deals may consist of Microsoft word, excel, and power point. Many consumers already know that this software is very expensive. Customers will see these options as a way to gain more products at a much lower price. Vendors and suppliers also benefit from using bundling as a means to attract consumers. For the vendor, having customers paying one bill invoice is an easy process. Another advantage to the bundling process for the vendor is customer appreciation and continuous service. Consumers are more willing to continue business with a company who provides various options in its package deals. In addition, consumers can add great value by relaying the message to potential customers of how much savings they are receiving. Understanding this concept will bring new clients into the company. Vendors also look at the potential of selling other items when bundling their products. For instance, if a vendor sold a car wax machine with sponges as a package then...
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