Why pay full price for something if you can get what you want, plus another item, at a discount? This is called bundling, and researchers have been studying the pros and cons of it for decades.
Although many consumers think of bundling as a modern concept - it’s often used to combine TV, internet, and phone services, for example - the practice has been around for years in a variety of forms.
As a homeowner or renter, navigating the benefits and pitfalls of bundling household services means using a little common sense and a bit of economic reasoning. It also requires being aware of when and how products are bundled.
What is bundling?
Everything from fast-food combo meals to items in a two-for-one deal could be considered bundled, especially if sold at a lower price than the separate parts.
For households, bundling might mean purchasing home and car insurance together at a slightly lower rate - the average American, for example, saves 16 percent when bundling the two policies, according to the latest data from InsuranceQuotes.com.
The possibilities for bundling household services abound, according to Andrew Schrage, co-owner of Money Crashers Personal Finance: "You might find someone on Craigslist who can help with electrical, plumbing, and air-conditioning/heating needs. You’ll likely get a discount, because you’ll be bringing that person more work."
Mixed versus pure bundling
There are several types of bundling, each with varying levels of consumer benefit, according to George John, a professor at the University of Minnesota's Carlson School of Management. As a homeowner, you’ll most likely encounter these two types:
- Mixed bundling. The consumer chooses between separate items or a bundle. The pieces will likely be more expensive individually, but the consumer has the option to buy just one piece.
- Pure bundling. Occurs when the seller offers only a bundle and no individual pieces. This would happen, for example, if a town has only one moving service, which requires clients to buy its cardboard boxes.
In such a scenario, consumers are worse off, because the seller increases its profit by requiring such a deal. The company can get away with it "because they have a very strong market position," John says.
Understanding your needs is key
Why are so many services offered in bundles? "This is somewhat controversial, but it turns out that companies make more money when they offer you discounts on those bundles, because consumers get tempted into buying it," John says.
To win at the bundling game, keep your needs in mind, and stay strong in the face of alluring deals. Bundles are a true victory for consumers only if they genuinely need all parts included in it.
When consumers fail to shop around for the other items in the bundle and go for the packaged deal instead, they often walk away with products they don't want or need - and sometimes pick up lesser-quality goods along the way.
Finally, the touted time-saving advantage of combining bills, which service providers sometimes use as a selling point, may not economize that much time, especially if a consumer would be signing up for automatic bill payments anyway.
Service providers "want to take your attention away from the fact that it's actually a price move. They want to tell you that you're getting a better experience if you bundle," John says.
Client-controlled bundling
Consumers triumph when they control what’s in the bundle. Have a nanny who you pay a little extra to make dinner each night? That's a bundle. “It’s totally a good deal, because you know the benefit that comes from having the same person watch your child and cook for you. You've made the judgment," John says.
At the end of the day, discipline is key. Saying no to unnecessary items, looking for other options instead of pure bundling, and refusing to be duped by false benefits will ensure you win the bundling game.
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- 5 Questions to Ask Potential Mortgage Lenders
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