Bundle Pricing, But Limit BOGOs

Would you pay the Taiwanese equivalent of $1,000 to purchase the case for an Apple iPad? An ecommerce retailer there says the case is currently her best-selling item, although the price is more than 25 times what it would cost in most other parts of the world.
     Ah, but there’s a secret: A Bloomberg Businessweek article reports that when your case is delivered, inside is a free iPad with 3G wireless and 64 gigabytes of memory. You see, the sale of Apple iPads by Taiwanese retailers is currently banned. The most straightforward way to sell them is to charge for the case and give away the iPad.
     This seems the ultimate in BOGOs—Buy One, Get One. Purchase one item and get an additional item at no additional cost. However, this also seems the ultimate in weird applications of BOGO promotions. It works only because the value of the iPad is so well recognized. Researchers at University of California-Berkeley, University of Southern California, Stony Brook University, and Indiana University find that if a product is seen by the shopper as being offered for free as part of the BOGO, the shopper devalues the worth of the product.
     Aside from BOGOs, bundled pricing—in which an amount is charged for a combination of products, services, and/or fees—can work out well for you. But in announcing bundled pricing to consumers, clearly point out the benefits to them. That’s important because researchers at Harvard University have shown how the opposite of bundled pricing—called partitioned pricing—is better at highlighting the benefits of the individual components of the package.
     One benefit of bundled pricing that shoppers find especially attractive is the ability to choose. Consider cable TV services. As a rule, the customer must buy a package of channels rather than picking only those specific ones they plan to watch. A New Yorker article earlier this year discussed how consumer groups are objecting to the enforced purchase and how an effective response from the cable companies is to highlight the value of being able to select from many choices, including some the customer wouldn’t have known to sample otherwise. Economists refer to this advantage as “option value.”

Click below for more:
Use Promotions with Lasting Payoffs
Move Shoppers Beyond Fixating on Price
Use Partitioned Pricing to Highlight Benefits