More reasons for retailers to un-bundle

Last year, I wrote an article titled "Learning to love retail un-bundling". In it, I described examples of how, contrary to the familiar idea of offering discounts on products when bundled together, consumers can instead be just as attracted to individual purchases, provided that the benefits of doing so are clearly laid out.

Now, some soon-to-be published research from Northwestern's Kellogg School of Management reports that customers will pay more for a single expensive item such as a watch than they will for a combination of that item and a cheaper one, such as a pen.

The key behind the findings is a concept called 'categorical thinking' and it works like this: Consumers (and people in general) find it hard to make decisions based on a large number of features to trade off and weigh up. Instead, we prefer shortcuts to make life easier e.g. 'healthy' or 'unhealthy' food. Dr.Chernev, who ran the study at Northwestern, found that people who included a salad in their dining selection tended to perceive that the overall calorie intake of the meal was lower. The salad effectively 'helped' the diners to categorise the meal as 'healthy'.

In a retail scenario, he also found that shoppers willing to spend $225 on a single piece of luxury luggage would only spend $165 on that same item, even when bundled together with a smaller $54 item. Less is more - customers found it hard to keep the 'luxury' category together, when a cheaper item was included.

Now bear in mind that, whilst retailers 'create' value bundles to tempt customers, people are effectively building their own simply by adding components e.g. shopping for a meal using a recipe card or choosing an outfit to wear.

Here's the takeout: Chernev suggests helping shoppers to categorise items, by offering labels other than price. For example, a shoe retailer could use comfort, durability or easy-to-clean. By doing so, shoppers will be less likely to use prices as their primary category label, and so reduce the perception of lower bundle value.

It may not be easy to break the stranglehold of discount bundles on the High Street, but this forthcoming research provides further evidence that unbundling price promotions has real potential both for the retailer's bottom line as well as a simpler life for the consumer.

-------------------------------------------------------

For more information on retail unbundling, contact rick@customerfaithful.com

Cited Forthcoming Research: Brough, Aaron and Alexander Chernev (2012), “When Opposites Detract: Categorical Reasoning and Subtractive Valuations of Product Combinations” Journal of Consumer Research (forthcoming).