How to perceive bundling
Creating a bundle is like creating a new product. Given the important market advantage of reduced product introduction time, bundling has an added appeal. A bundle is a group of products or services offered as a package. Not a marketing gimmick!!
As consumers we see the marketing aspect of bundling, but decisions about bundles aren’t (or at least shouldn’t be) the sole province of the marketing department. Eg: In the given example
Chrysler was able to reduce the price of the car, including a typical option package, by more than $1,000. The price reductions were made possible by reduced manufacturing costs: longer production runs lowered setup costs; reduced interactions resulted in better quality; and reduced carrying and shipping costs alone accounted for a $2 million per year savings. Note that Chrysler presented the consumer with a new menu of choices at new prices; it introduced new products. Two important advantages over the typical “start from scratch” First, bundling avoids the large expenses and high risk of failure associated with the research and development. Second, bundling begins with good information on customer preferences and production costs. Implications of managing bundles as new products:
(1) Bundles have a wide variety of potential uses, and (2) implementing a bundling strategy requires a serious commitment. Bundling can be profitable when it lowers costs, expands demand, or enhances the performance of the products. Three market-expanding strategies:
Aggregation bundling, Trade-up bundling, and loyalty bundling. Guidelines to conceder before bundling:
Guideline 1: Promote bundling among components that have high setup costs. Guideline 2: Bundle items that have a high contribution margin ratio. Guideline 3: Target the bundle for an aggregate market and offer higher priced individual items to unusual customer segments. Guideline 4: In a price insensitive market, create comprehensive bundles when demand is...
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