How bundled products and pricing momentarily alter our preferences.
Bundling of products is a strategy by which several products are grouped and sold as a single unit, for one price. This is a subtle technique used by many businesses to attract customers to buy more products which, in turn, reduces the store’s inventory waste and likely increases the amount of garbage disposed. Last night, I visited Popeyes to get some chicken strips for R50.49. Upon taking a closer look at the menu board, I realised that I could get a three-piece combo of five chicken strips, small chips, and a small drink for just R54.49. By paying only 8% more than I had initially intended, I got what I wanted, and much more! Needless to say, I couldn’t pass up this deal.
Although I was quite happy with my order and what, at the time, seemed like a good deal, I ended up not consuming the whole bundle. As much as I like good fast-food deals, I’m not a fan of soft drinks. Ultimately, I lost out on the full value of the bundle and added one more garbage item to my dustbin.
Why do we tend to prefer bundled products over products purchased individually?
This phenomenon is explained by the bundling bias - which refers to our propensity to prefer purchasing products that are sold as a bundle – irrespective of whether or not we’ll consume all items. When bundled, the price of each item is lower in comparison to individual prices. As a victim of this effect myself, I believe we tend to exhibit this behaviour because we sometimes like to choose deals that sell the illusion of value for money.
Soman and Gourville 2001 indicated that price bundling makes it difficult to clearly identify the price associated with each item in the bundled package and this affects our decision to consume. Other research shows that we are likely susceptible to the bundling bias because of other biases. The bundling bias is closely related to two biases - the sunk-cost effect (which is our tendency to follow through with our course of action because we have already invested effort, money or time on it), and mental accounting (which refers to our tendency to treat the same amount of money differently depending on our subjective criteria).
Many businesses benefit from product bundling and in some instances, both the company and customer stand to benefit. For example, an insurance company can offer life insurance, liability insurance, legal protection insurance, dental insurance, and occupational disability insurance all in one bundle. By offering bundled financial services this way, a company may give the appearance of a one stop shop to the customer.
How does this affect us?
We believe that we benefit from bundling, as we often pay a little less for the bundled product or service than we are willing to pay for each unit in the bundle separately. While at the critical moment of purchase, the product of interest may seem attractive to us, this bias may lead us to lose out on the full value of the product purchased - much like I did after purchasing that Popeyes special. While this effect can be positive in some scenarios, there are times when we reflect on our purchases and feel that we would have been better off by just buying the items we left the house for. This suggests that there is a loss of value for every item purchased and not consumed.
Product bundling can heavily influence our purchasing decisions, lead to a wasteful tendency, and benefit businesses more than consumers. This cognitive bias thrives on our irrational money spending habits every time we fall prey to it.
In a nutshell:
Many businesses, from financial service providers to fast food outlets, can exploit the bundling bias by selling more products and expecting the consumers not to use all the products or services in the bundle.
The bundling bias highlights our tendency to buy more under the guise of saving, while we end up not utilising each product in the bundle.
This bias is more effective when we are less affected by other biases such as mental accounting and sunk cost effect.
To avoid this bundling bias, try to make a list of what you want to purchase and stick to it. This approach works to utilise the sunk-cost effect when making decisions to purchase because we are more likely to follow through with our purchase when we weigh-up the benefits of each individual item and avoid wastefulness.
Next time you are tempted to buy a bundled meal from Popeyes, carefully consider whether you are willing to consume every single item in the bundle!
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