The Risk of Bundling

Selling experiences in a bundle reduces their individual use.

Selling services such as theatre or museum tickets in a bundle reduces the likelihood that consumers will use them all up. Promoting their individuality is one of the techniques you can use to combat the Sunk Cost Effect.

Soman & Gourville (2001) Transaction decoupling: how price bundling affects the decision to consume. Journal of Marketing Research.

If you purchase individual tickets to five different gigs for a city-wide music festival, as opposed to buying a full pass (full-access “bundled” pass granting you entry to all five gigs), the chances of you attending each individual gig will be higher. This is even though the end benefit, which comprises of access to all five gigs, is the same! But why?

It’s because the act of physically holding onto a new ticket for each day serves as a clear reminder of the money you spent on each individual ticket. Alternatively, buying a season pass or bundle makes this cost less visible, therefore lowering your obligation to attend the plays simply because you prepaid for all the tickets.

A study conducted by researchers has found strong evidence for this bias (Soman & Gourville, 2001). Using historical purchase and attendance data of a 1997 Summer Shakespeare festival, they found that theatregoers who purchased tickets to a single play were certain to use the tickets. On the other hand, budding theatregoers who had purchased tickets to four plays (“a bundle”) were only 84% likely to use their first-play ticket and only 78% likely to use any of their other tickets, across the four plays. In the words of the great man himself, “go wisely. Those who rush (into buying an all-access pass) stumble and fall…”

This study shows us the impact that a purchase’s physical form can have on its use. The researchers suggest that in the end, it all boils down to our perceptions of costs and benefits; when we buy something that involves just one cost and one benefit, both become noticeable and tightly coupled, motivating us to consume to make up for the cost. However, for a purchase that involves one payment and many benefits, the costs and benefits become less clear and decoupled, and this reduces our desire to consume all of the benefits to make up for the cost.

Key takeaways for Decision-Makers

  1. Simply unbundle to motivate This bias can be of great use for marketers in the service industry. If trying to increase consumption of a service, consider unbundling the service in some way to motivate consumption and create a greater feeling of value for money.
  2. Awareness is the secret to a successful bundle Consider making the cost of each unit within a bundle more clear. For example, if you run a yoga centre and are trying to promote regularity of attendance with a multi-session pass, consider highlighting the cost of each session in the fee. You may think “great, they paid for the 10 session pass, but only used half, meaning we have more capacity to sell”, but you forget that in the long run, those once-loyal customers will be far less likely to get another pass if they don’t feel like it was value for money. The purchase becomes a greater risk, and the costs of loyalty go up.
  3. Use timely reminders to inject value into a bundle For membership that includes free tickets as part of the purchase, remind people that they still have tickets available. UK-based Picturehouse Cinemas ought to remind me that I still had two free cinema tickets, especially in the months before my yearly membership ran out. They should use it as a means to reaffirm the value of the initial purchase (some 10 months prior) and as a pre-cursor to that membership renewal email. They’re likely to get a lot more repeat renewals if they did this simple task.
  4. But it’s different for products While bundling can lower actual use of a service, it’s been found to have the opposite effect for products (Gourville & Soman, 2001). Decoupling the costs and benefits of use can increase the purchase of consumable products. For example, while buying a single bottle of wine makes costs and benefits clear (essentially, you may try to sip it slowly), purchasing 10 bottles in bulk makes it less so, lowering the perceived cost and therefore motivating us to drink more. Less sipping, more guzzling, then…

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  • Aspirational membership schemes and belonging The category size bias provides a credible explanation for why we human beings tend to associate with large groups that are viewed favourably by society. Being part of a large and “desirable” social group can make others believe that we also possess the many qualities of its members. For small businesses, it suggests that forming or being a part of a consortium or large and high quality networking group can dramatically elevate your brand image.
  • Communicating category sizes to nudge effectively Highlighting the differences between the large and small categories is highly likely to enhance the effect of the Category Size Bias. For instance, for software companies, stating that there are 10 features in the premium version versus 4 in the free version will help nudge a decision towards the premium version

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  1. The findings from this braingem can nudge better healthcare choices, encourage consumption of a given product, and lead to more confident consumer decisions.
  2. We mistakenly believe that items in larger categories have a higher probability of being picked than ones in smaller categories, despite all items having an equal chance of being picked.
  3. We’ll spend or gamble more money on items put in larger categories.
  4. We’re more likely to take action from tasks when they’re in a bigger list, over a smaller list.
  5. We once we put something into a group, we perceive it to adopt all the characteristics of that group. This suggests that small companies should foster alliances with similarly-principled, more established companies.
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