Applied to everything from fast food to cable TV, bundling offers businesses a tried-and-true way to cross-sell—that is, to sell more things to the same customer. In exchange for a lower price, buyers purchase all the items in the bundle—the burger, fries, and drink, for example—rather than buying each one separately.
Bundling is a particularly good tool in dynamic markets like technology, media, and telecommunications (TMT), which feature a constant innovation cycle and converging market segments. In such an environment, companies are always looking to leverage their strength in one segment to grow in another—computing into consumer electronics or enterprise software into cloud services, for example. They often use bundling as a strategic weapon to combine a product that has a large market share with one in need of greater penetration. Additionally, companies that are already present in a market but haven’t yet been successful may want to emphasize the complementary nature of their products by creating a “better together” value proposition.
But despite the attractiveness of bundling in TMT markets, companies too often fail with this strategy, for four major reasons:
- Customers are not convinced that the bundle meets their needs.
- The price of the bundle is not compelling enough compared with the price of the bundle components purchased separately.
- The process of buying the bundle is too complicated.
- The bundle does not generate incremental profits.
Bundling decisions in the TMT space can be complicated. Below we offer four simple yet powerful rules of the road that can give leaders a clear sense of when bundling makes sense.