A bundle discount converts customers who buy one product, and is handed for nothing to those who already buy both. The right depth balances the two.
A bundle discount should be just deep enough to convert the customers who would otherwise buy one product, and no deeper, because every customer who already buys both gets the discount for nothing. On an illustrative pair of products listed at 60.00 and 40.00, the contribution-maximising bundle sells at 88.00, a 12.0 per cent discount, and lifts contribution by 47,000, or 18.1 per cent. At 25 per cent off the bundle loses money against selling the products separately.
Worked in full in Pricing Strategy by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Mixed bundling, selling the products separately and as a bundle, works by sorting customers. Those who value both products highly keep buying both. Those who value one highly and the other a little take the bundle, because the discount makes the second product worth having. The discount is the price of that sorting, and it is paid to everyone who takes the bundle, including those who did not need it.
Two products, A and B, sold to 8,000 customers in seven segments. Each segment has a willingness to pay for each product, of the kind a conjoint study or a set of win-loss interviews would produce. The figures are illustrative.
| Segment | Customers | WTP for A | WTP for B | Sum | Buys at list |
|---|---|---|---|---|---|
| A only | 1,500 | 66 | 5 | 71 | A |
| Already buys both | 1,000 | 72 | 46 | 118 | A and B |
| Balanced | 1,000 | 55 | 50 | 105 | B |
| B-led | 1,000 | 30 | 60 | 90 | B |
| A-led | 1,000 | 64 | 32 | 96 | A |
| Lukewarm | 1,000 | 48 | 40 | 88 | B |
| B only | 1,500 | 8 | 44 | 52 | B |
Each customer picks the option with the largest surplus, willingness to pay minus price, buys nothing if every surplus is negative, and takes the larger purchase when two options give the same surplus. At list prices alone the business earns 430,000 of revenue and 260,000 of contribution: unit margins are 35.00 on A, 25.00 on B and 60.00 on the pair.
A customer takes the bundle at price Pbundle if WTPA + WTPB − Pbundle is at least as large as the surplus on what they buy today, and not negative.
In Excel, with the two willingness-to-pay columns in C and D and the bundle price in $H$1, the bundle surplus is =C2+D2-$H$1; compare it with =MAX(0,C2-60,D2-40,C2+D2-100), the best surplus without a bundle.
The segments that matter are those whose combined willingness to pay is above the bundle price while one product alone is below its list price. Lowering the bundle price walks down that list: 95.00 picks up the balanced segment, 92.00 the A-led segment, 88.00 the lukewarm segment. The next segment, B-led, values the pair at 90 but already enjoys a surplus of 20 on B alone, so it needs a bundle at 70.00 before it moves.
Another way to read the same test: a customer who already buys B is being offered A for the bundle price minus 40.00. At 88.00 that is 48.00 for A, exactly what the lukewarm segment will pay for it.
| Segment | Moves from | to | Per customer | Total change |
|---|---|---|---|---|
| Already buys both | A and B at list | bundle | 60.00 to 48.00 | -12,000 |
| Balanced | B | bundle | 25.00 to 48.00 | 23,000 |
| A-led | A | bundle | 35.00 to 48.00 | 13,000 |
| Lukewarm | B | bundle | 25.00 to 48.00 | 23,000 |
| Other three segments | unchanged | 0 | ||
| Total | 47,000 |
The 3,000 converted customers add 59,000 of contribution. The 1,000 who already bought both now pay 12.00 less each, a giveaway of 12,000. The net is 47,000: contribution rises from 260,000 to 307,000.
| Bundle discount | Bundle price | Bundles sold | Revenue | Contribution | vs no bundle |
|---|---|---|---|---|---|
| 5% | 95.00 | 2,000 | 480,000 | 285,000 | 25,000 |
| 10% | 90.00 | 3,000 | 500,000 | 290,000 | 30,000 |
| 12% | 88.00 | 4,000 | 542,000 | 307,000 | 47,000 |
| 15% | 85.00 | 4,000 | 530,000 | 295,000 | 35,000 |
| 20% | 80.00 | 4,000 | 510,000 | 275,000 | 15,000 |
| 25% | 75.00 | 4,000 | 490,000 | 255,000 | -5,000 |
| 30% | 70.00 | 5,000 | 500,000 | 240,000 | -20,000 |
Between 12 and 25 per cent no new customer converts: every extra point of discount, 1.00 off the bundle, is a pure transfer of 4,000 to the 4,000 bundle buyers. At 30 per cent the B-led segment finally moves, but at 70.00 the bundle earns 30.00 of contribution, only 5.00 more than B alone, while the 4,000 customers already in the bundle each pay 18.00 less than at 88.00.
Selling only the bundle is worse still in this market. The best pure bundle price is also 88.00, but the A-only and B-only segments, 3,000 customers, buy nothing, and contribution falls to 240,000.
Bundles are usually reviewed on attach rate or bundle share of sales. On that view 30 per cent off is the best offer in the table: it sells the most bundles, 5,000, and lifts revenue from 430,000 to 500,000. Yet contribution is 20,000 lower than with no bundle at all, and 67,000 below the bundle at 88.00, which also earns more revenue, 542,000.
Two numbers decide the discount. The combined willingness to pay of the marginal segment you want to convert, which sets the price, and the number of customers already buying both, who collect the discount for nothing. A business where most bundle buyers would have bought both anyway should offer a small discount or none; one where most are single-product buyers with a lukewarm interest in the second can go deeper.
The discount on a bundle is a deduction like any other on the way from list to pocket price, and the trade-off between margin given away and volume gained is the same one behind what one point of price is worth.
Price the bundle at the combined willingness to pay of the last segment worth converting, then check that the margin gained on converts exceeds the discount handed to customers who already buy both: 59,000 against 12,000 at 88.00 here. Past that point every extra point of discount is a gift. Pricing Strategy works discounts, price increases and what one point of price is worth, and the free workbooks for the book carry the discount arithmetic.
There is no typical figure that holds across markets; the right depth depends on who takes the bundle. In the illustrative case the contribution-maximising discount is 12.0 per cent, a bundle at 88.00 against 100.00 of list prices. A 15 per cent discount earns 12,000 less, 20 per cent 32,000 less, and at 25 per cent the bundle loses 5,000 against not offering one.
Only when few customers want just one product. In the illustrative market 3,000 of 8,000 customers value only A or only B; selling the bundle alone at its best price of 88.00 loses them and earns 240,000 of contribution, against 260,000 with no bundle and 307,000 with the bundle offered alongside the products.
Mostly the customers who would have bought both products anyway: they keep buying both and pay less. In the illustrative case 1,000 such customers receive 12.00 each, a 12,000 giveaway, against 59,000 of extra contribution from the 3,000 customers the bundle converts. The more of the bundle's buyers were already buying both, the smaller the discount should be.
This article is one calculation from Pricing Strategy. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: business operations: cost, contracts, pricing and supply chain → · All 1614 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.