A CEO of an airline in an interview was referring to bundling and unbundling of offers in the airline industry. He stated if unbundling was allowed in the airline industry then sales would improve, he states each airline would fix a base price and then based on the services a customer would be charged. The basic price would not include any services. So cabin bags, seat preferences, food served would all come at a price. Whereas the government should fix an upper limit to the price so that the airlines do not misuse it. According to him this would help the airlines perform better.
While most of the companies prefer bundling offers due to reasons such as higher sales volume, support the new products by bundling with a strong product. For a customer it’s a great value as combined products than two individual products. Bundling is possible only in categories which has high volume and margins.
Bundling is witnessed in various industries. In India it witnessed in the restaurant business especially the fast food restaurants. They always have a value pack which includes a starter; a main course a dessert and a soft drink at a price point e.g. Rs 499. This is priced better than individual products. Here the intention being a customer generally buys only a starter and a main course or he buys a main course and a dessert and the bill value is on an average Rs 350. By bundling of the offer he is tempted to spend additional Rs 199 as he gets 2 more products which would otherwise cost him around Rs 250. Thus he saves Rs 51. Thus this is a win- win for both parties.
This is also witnessed in cable industry which bundles various channels into a subscription,
This interview by the CEO made think on the relevance of bundling and unbundling in the retail context. Retail thrives on bundling offers while unbundling is predominantly missing. Bundling enables the retailer to increase the average selling price per bill and number of products per bill sold. E.g. A customer who wants to buy toothpaste will buy a bundled offer with toothbrush if the bundled offer is value for money. This leads to the customer buying two products instead of one thereby spending a higher amount with the retailer.
A bundle offer is done if the products are complimentary like breakfast cereals and milk, bread and jam, shampoos and conditioners or if the products are used as an ingredient for preparation of the same dish like sabudana and peanuts or are must haves in any household like rice and oil or are part of any festive celebration like basmati and dates. So it’s important for a retailer to identify such products which a customer would be interested in buying together if offered at a good price.
There are a lot of industries in which bundling can be explored. E.g. in multiplexes a customer, apart from the movie ticket also buys popcorn and other food products so why not provide a bundle offer with a great discount. This would lead to customers who would not be buying popcorn due to its high pricing will to buy it if the pricing in the bundled offer is right.
As this article started with unbundling let me know what other industry can we look at unbundling from airlines?
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