Stories | February 15, 2017

Why more can be less when it comes to package deals

Tempted by a shopping shortcut? It can mean paying a higher price.

You’re on the web looking for a new home internet service. There are many different companies, all with different prices attached to slightly different products – but it’s the packaged “all-in-one” deals which catch your eye.

“I can get everything I need in one go,” you might say to yourself. “Job done! I can go home and relax, or do something else.”

Package “deals”
It is easy to believe a so-called “product bundle” comes with a discounted price – in the above example perhaps combining internet with phone and TV. We may also fall into the trap of thinking the retailer bundles up these products because they know more than we do; we can assume these particular items will work better together.

Sometimes these things can be true – but not always.

Weirdly, heavily discounted packages of items can actually sell poorly; it’s possible that people simply assume the products have something wrong with them. Marketing blogger Alyssa Rimmer explains here how discounting can change perceptions of a product’s value.

Does the offer add up?
Research shows people often choose package deals even when there is no reduction in price compared with buying the individual items separately.

Sometimes, bundles can actually disguise a price rise of one or more items, as this paper points out. And it’s not uncommon for telecoms providers, for example, to offer a bundled deal which is initially cheaper but then increase the price of included items over time – once inertia has set in.

The strategy is effective. A 2013 research paper by Timothy Derdenger and Vineet Kumar looks at how bundling works in sales of video games. Bundling, they confirm, tends to boost sales – especially when items are also available individually.

“We find that the use of mixed bundling leads to cannibalisation of [the sales of] over half a million consoles, but the effect is more than offset by the sale of bundles, leading to an overall increase in hardware unit sales,” they write.

Too much choice
Selecting an all-in-one package also means the shopper needs to make fewer choices. Additionally, it’s harder for shoppers to work out the real value of a bundle, simply because they must think about the prices of several different items.

Often some features of a package will be good and others bad. For example, is it better to buy a gadget like a smart TV that does not have the features you want yet comes with a full set of the right cables?

Well-known research by psychologist Sheena Iyengar shows how too much choice can actually put us off a purchase. A higher number of choices means there is more to think about – a higher “cognitive load”.

A lot on your mind
This effect was explored further in a 2016 paper by Kathryn Carroll with Anya Samek and Lydia Zepeda at the University of Wisconsin-Madison in the USA.

They note that one reason retailers like to bundle different products together is that it tempts people to buy things they don’t need – like packages of unhealthy food. For example, when in a hurry or under pressure to make other decisions.

All-in-one product bundles work because they encourage reliance on our natural thinking traps and biases. This tactic works so well that the Carroll research concludes it should be used to “nudge” folk into buying more healthy food such as fruit and vegetables.

Haste versus waste
Meanwhile, stores often encourage customers to buy quickly, deploying another well-known sales tactic: the “limited time” deal. If a package or bundle of goods is only available for a certain period of time, this piles on the pressure to make a decision, because of regret aversion.

Many of us have sometimes bought more than we intended when we entered a shop. We can worry we’ll miss out on the things we don’t buy . Many of these effects on people’s thinking can be seen clearly at work at supermarkets and during annual sales such as Black Friday and Boxing Day.

Value of time
Another factor contributing to our tendency to buy bundles whether they’re a good deal or not is that we might not really be that interested in the products. We can see shopping as a time-consuming chore, as this Open University paper from 2015 suggests.

This also can encourage us to decide quickly – and perhaps spend more as a result. It is natural to place a high value on your own time: you may not want to shop around – the final reward may not seem worth the effort. Yet it’s so easy to be fooled by what’s on offer.

eZonomics team
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