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To bundle or not to bundle?

February 4, 2013 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

Business owners can’t seem to win. If they bundle their offerings, customers ask for itemization of the various components with the price of each clearly stated. If business owners offer an ala carte menu, customers want to know what the total cost is going to be. How do you deal with these divergent customer interests?

The short answer is...bundle your offerings. Here’s why.

Buyers fear hidden costs

My wife and I needed to replace our carpeting. We visited the first store. The salesperson said “Our price includes tearing up the old carpeting, moving furniture, installation and disposal of the old carpeting.” A complete bundle of offerings.

The second store’s salesperson said “This carpet is $x per square foot.” My wife asked “Does that include removing the old carpet?” “No, that’s an extra $.20/square foot.” “What about moving the furniture?” “That’s an extra $y per room.” Each question uncovered an additional cost. The ala carte pricing approach.

The salespeople at both stores were friendly, patient and demonstrated a genuine desire to see that we got what was right for us.

Shortly after we left they second store I asked my wife “Which store do you prefer?” See said “I like the first store. I’m afraid that there’ll be additional costs that we haven’t uncovered at the second store.” Her response highlights the greatest fear that many buyers have - the fear of undiscovered costs.

This fear is especially prevalent in decisions in which we have little, if any, background or make the purchase infrequently. Most of us have been burned by ala carte menus because we didn’t know the right questions to ask and the salesperson didn’t volunteer information about hidden costs. You can remove this concern by bundling your offerings and clearly stating what is included in each bundle.

Budget options

Bundling allows you to meet a variety of budget needs with considerably less work. The carpet companies could have offered the complete bundle as store #1 did, which I suspect most buyers want anyway.

A second bundle could have included everything but carpet disposal. A third bundle would allow the buyer to remove and dispose of the old carpeting, limiting the buyer’s cost to installation and moving furniture. Three bundles with three different price points - easy choice.

Simplicity

With bundling we, as customers, can focus our attention on choosing the quality and color of carpeting, get three prices for each selection and decide which fits our budget.

Let’s contrast that with the ala carte approach. With ala carte pricing I have to weigh the price of six elements of the project:

• Carpet
• Pad
• Carpet removal
• Moving furniture
• Installation
• Carpet disposal

As you read the list did you find your mind drifting to questions like:

• I wonder what the price of each of these elements are?
• Am I willing to sacrifice carpet/pad quality for carpet removal? Furniture moving? Disposal?
• If I decided to dispose of the old carpet myself, what environmental issues do I face?
• Will my trash hauler even accept it? How much time will I have to spend finding out?
• If I decide to remove the old carpeting myself, how long will that delay the project?
• Does that open the door to warranty issues later?

Did you feel your mind wanting to shut down at the prospect of making all of these decisions? Interestingly, the same questions exist whether the carpet company uses bundling or ala carte pricing. The difference is that the company using bundling has simplified the analysis for you. In doing so they make the decision-making process easier for you. The easier the choices are, the more likely you are to make one.

The easier it is for your customers to decide, the easier it is for you to close the sale. Don’t let the complexity of an ala carte buying decision result in ‘No Sale’ for your business.

Caveat

When creating bundles don’t forget the impact that the bundle will have on your cost structure. Let’s say that a buyer wants to remove and dispose of the carpeting themselves. They only want to pay you for the installation of the new carpet and furniture moving.

The problem you should be anticipating is that they’re not going to do a good job of removing the old carpeting and pad. The pad can be especially difficult to remove. If your customer fails to do a good job, you’re faced with a dilemma. Do you:

• Tell them they need to do a better job?
• Tell them that there will be an additional charge to finish the removal?
• Absorb the cost?

None of these alternatives are attractive. The first two alternatives risk antagonizing your customer. The third can add dramatically to your installation cost.

You can avoid these problems by making sure that the bundles you create allow you to maintain your commitment to quality while controlling your costs.

Bundling offers great advantage over ala carte pricing. It:

• Eliminates the buyer’s concerns about hidden costs.
• Makes the buyer’s life and yours much easier.
• Allows you to meet the buyer’s budget requirements with less effort.
• Protects the quality and profitability of your offerings.

Ala carte buyers

What do you do about prospects who absolutely demand that you provide an ala carte listing of the various components of your bundle and the price of each? Refer them to your competitors.

These folks are price buyers and they’re using this tactic to help them negotiate a better price. As a group price buyers are the least loyal and most difficult people in the world with whom to work. Don’t waste your time and energy trying to please people who can’t be pleased, refer them to your competitors.

About Dale Furtwengler

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