You see it everywhere. In the airport, on Amazon, in college bookstores, and carpet cleaning services, bundling is the open secret used to increase cash flow. The basic truth is – it works.
What is Bundling
Bundling is combing items that are often bought together at a perceived discount or convenience. The thought process behind it is simple – increase the average transaction value of the customer. That is exactly how it works, and anyone can do it. Some of us just don’t think about it. Here are some examples about how bundling is all around you, silently increasing sales.
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Learning from Airports
For the last couple of decades, I’ve spent a lot of time in airports. Since I’ve owned bars in the past, I have a curiosity about how other bar market and sell one of the world’s oldest commodities. The one special that’s remained consistent in the airport bars is the Side Car Special. This is where you buy a draft beer, and they offer you a shot of a mid-range liquor for a reduced price. Why do they do that?
Premium and Low Cost Bundles
Let’s say that the special is this. Buy a draft beer for $9 and get a shot of whiskey for $3. The first reason why they do it is obvious. You spend $12 versus only $9. The second reason is a little more indirect. Chances are draft beer has a high demand in the airport, where whiskey may sell more slowly. This means whiskey sits on the shelf longer. To keep inventory moving, they offer the special. But what about the reduced cost? Whiskey is rarely sold for $3. In the average liter of alcohol, you should be able to sell 21 drinks. Even at $3 each, you make money when you buy the bottle of whiskey for $15 wholesale and sell the contents for $63 (21 shots x $3). Easy choice. Sell more and bring in more contribution dollars in the form of gross profit.
That is the basic mechanics of the special. You win when you bundle a fast-moving item with a slowing moving item.
You see this in a couple of other places as well.
Other Examples of Bundling
In college bookstores, the most common bundle I see is the t-shirt rolled up in a baseball cap. The premise is the same. The college usually sells more T-Shirts than hats, so selling the combination at a discount makes total sense. You get the buyer that may have bought just one to increase their transaction and get both items.
I’ve even seen this work in service industries and its genius. My favorite is the bundle used by carpet cleaning services. They will offer a per room cleaning special for the carpet, then offer you a per piece of furniture cleaning special while they are in your home. It makes perfect sense.
“Hey, I’m in your home with my equipment. How about we clean this sofa too?”
Amazon has a different take on bundling. Even though they don’t offer a true discount to buy combined items. They do make it super convenient. Have you even noticed, or better yet, used the “Buy It With” feature?
They make is so easy for you to spend more money.
So, if you are looking for ways to increase sales and cash in your business. Find services or products you can bundle together. Believe it or not, your customers will thank you with cash!
Authored by Mike Milan