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Product bundling is a marketing strategy that involves offering several products for sale as one combined product. This strategy is very common in the software business (for example: bundle a word processor, a spreadsheet, and a database into a single office suite).
It is most successful when :
- there are economies of scale in production,
- there are economies of scope in distribution,
- consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product,
- when the marginal costs of bundling are low.
- when production set-up costs are high,
- when customer acquisition costs are high
Product bundling is most suitable for high volume and high margin (i.e., low marginal cost) products.
In oligopolistic and monopolistic industries, product bundling can be seen as an unfair use of market power because it limits the choices available to the consumer. In these cases it is typically called product tying.
See also : marketing, product management
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