The hidden secret of bundling

Previously, we talked about the importance of simplifying your offers. Today, I will give you a couple of actionable tips that are going to impact your bottom line.

I would like to refer to Dan Ariely’s work. He is a Professor of Behavioral Economics at Duke University. He is also the author of “Predictably Irrational”, an extremely interesting book on human behaviour. He predicts many cognitive mistakes that we make. Such mistakes range from innocent ones such as confusing colours or length of lines to more serious errors like donating your organs. The book is a must read. But, let’s use one example he gave during his TED speech.

Ariely sees a subscription offer that made no sense at the Economist’s website. There were three options: Online only subscription for $59, print subscription for $125 and print and online subscription for $125. Obviously, the Economist made a typo and removed the offer from their website shortly. Offering an inferior option for the same price does not make any sense. Or does it?

Ariely conducts a research and shows the three options to subjects. Of course nobody chooses the middle option (print only for $125). A whooping 84% chooses the print and online option for $125 while 16% chooses the online only option for $59. That is no surprise. But wait, it is not over! Tables turn when he eliminates the middle option and runs the research again with two options (Online only for $59 and print and online for $125). This time 68% chooses the online only option! The expensive option that sold 84% before is now down to 32%.

As you see, the seemingly useless option serves as an anchor boosting the popularity of the expensive option. When you are presented with an obviously better option, you tend to choose it even though it is more expensive.

Today’s actionable tip: Always, have an almost identical yet inferior version of the option you want to sell. You will see that it will improve your sales! Why don’t you give me an example of such a bundle?


3 Comments Add yours

  1. I think this is really good advice with one caveat. Perhaps it is the example, which is about a bundle that is paper + digital, but I think there is an implicit danger here. Is the bundle actually offering much value to people who will primarily read the magazine electronically? Are people being tricked? That is what is implied… since the same people would just be happier (at lower cost) with an electronic option? Which is another way of saying, will they regret their decision? If they regret it, you haven’t gained much long term. From a business side, convincing the 52% (68-16) to choose the higher cost is better…. but from consumer side what does this mean? So for all businesses, make sure your bundle is real value.

  2. Soydanbay says:

    Hi Richard,

    Great to hear again from you. As per this particular example, yes I believe the author (Ariely) implies that people were tricked. Because in his book, he mentions that the Economist removed the offer mysteriously.
    You are totally right about your comment. You can’t gain long term loyalty by tricking people. My point was that if you offer two packages, then you can create a third one strategically, so that you can increase the odds of selling the more expensive package. Yet, there has to be demonstrable difference of value among packages. The Economist’s example is an extreme.

  3. Soydanbay says:

    Very useful info on pricing:

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s