Advantages and Disadvantages of Price Bundling

Price bundling is a pricing strategy used in marketing in which the company or seller combines several products or services and then sell it at a single price rather than charging different prices for different products or services. So for example if one goes to eat at restaurant and one restaurant is charging $50 for dinner which includes main course, starters, desserts and same restaurant is charging $30 for the main course, $10 for starters and $15 for desserts than first case is example of price bundling where the restaurant can claim that customer is getting $5 discount if he or she selects the first option. In order to understand this concept better let’s look at some of the advantages and disadvantages of price bundling –

Advantages of Price Bundling

  1. The biggest advantage of price bundling is that company can sell its weaker or inferior products with its main or stronger products which in turn leads to two things one is that company will be able to charge higher price for the bundled product or service and another thing is it will help the company in clearing the idle stock available with the company. So in the above example during winter season people generally eat less ice cream but due to bundled pricing company will able to sell ice cream in the form of deserts to the customers.
  2. Another benefit of price bundling is that customer get a discount for the bundled product so a customer who is thinking of buying a television and DVD player and the cost of television is $5000 and cost of DVD player is $1000. Now if some electronic company is selling a bundled product of television and DVD priced at $5500 then the customer can save $500 due to price bundling is done by the company.
  3. Due to price bundling, a company can market its less known product to customers and can create demand for that product which in turn will create the extra source of revenue in the long run for the company. So for example in the above example if restaurants starters are not well known then due to bundled pricing all customers will eat starters and if it is good then customers will come to the restaurant to eat starter only which will be beneficial for the restaurant.

Disadvantages of Price Bundling

  1. The biggest disadvantage of price bundling is that customers have to purchase the products or services even when they do not want it. So for example in the above case if 4 people go to a restaurant and 2 people have diabetes then for them deserts is an unwanted product which they have to take if they opt for $50 dinner.
  2. Another limitation of price bundling is that company has to give some discounts for the bundled product or service leading to loss of revenue for the company. Hence in the above example if an electronic company can sell DVD and television separately comfortably then price bundling can be revenue losing proposition for the company as the company is losing $500 per sale of bundled product of television and DVD.
  3. Another demerit of price bundling is that sometimes customer view bundled products as inferior product as they consider it to be the effort by the company to sell their outdated products along with main product which in turn can turn away some customers towards competitors leading to fall in the sales of the company as well as bad reputation for the company.

As one can see from the above that price bundling has merits, as well as demerits and any company thinking of adopting this pricing strategy, should carefully analyze above points and then take the decision.

0 comments… add one

Leave a Comment

Related pages

the materiality conceptdifference between tax and tariffadvantage of debit cardtraditional economic system advantages and disadvantagesadvantages and disadvantages of advertisementdefine payback methoddefine law of diminishing marginal utilityfund flow cash flowconsumer nondurable goodsdebentures as a source of financeintraday traderprepaid insurance journal entryautocratic leader characteristicsadvantage of jittrial balance is preparedbenefits of deflationmulti segment targeting strategy exampleswhy is a trial balance preparedconsignees meaningcash reserve ratio statutory liquidity ratiomateriality conventionsemi durable consumer goodswhat is trial balance in hindidefine predeterminationdefine dupont analysisdisadvantages of decentralizationexplain debenturescomparative balance sheet formatdisadvantages of marginal costingdifference between consignee and consignorunearned revenue accounting entrybundling pricing strategyexamples of monopolistic competition companiesdevaluation of moneymanufacturing overhead examplesexamples of products with elastic demandfactoring vs discountingimplication of capmadvantages of competitor based pricingdefine fixed deposit accountdirect indirect quotationlaw of diminishing utilityhorizontal analysis of financial statementadvantages and disadvantages of command economydifference between monopoly and oligopolymerits and demerits of zero based budgetingdisadvantages of profitability ratiosadvance from customer journal entryadjusting journal entries unearned revenuepenetration marketing strategyadvantages and disadvantages of jit inventory systemadvantages of barteringdirect and indirect quote in forexdefine dupont analysisfull form of fdiexplicit cost and implicit costadvantages and disadvantages of accounting rate of returnelectronic clearing servicemanufacturing overheadscrossing of chequeshorizonal mergerdisadvantages of a bank loandisadvantages of monopolistic competitionwhat does the word consignment meanexample of systematic risk and unsystematic riskhorizontal analysis of financial statementconglomerate merger meaningadvantages of swot analysismulti segment targeting strategy examplesconvertible bonds advantagesmateriality in accountingwholesale vs retail definitionautocratic leadership style pdfmarket skimming and market penetrationstrengths and weaknesses of traditional economyfull form slrdisadvantages of merger and acquisitionhorizontal merger