Product Bundling is the combining of several Products together and selling them for a single Price. The Products can be identical, from the same Category, or altogether different. The Bundle Price is typically less than the Price of the individual Products, but the Price can be higher if the creation of the Bundle adds value (such as the integration of various electronic components into a working system).

Wikipedia lists out the situations when Bundling is most successful:

• There are economies of scale in production.
• There are economies of scope in distribution. This can be seen in consumer electronics bundles where a big box electronics store offers all of the components for a home theatre setup.
• Marginal costs of bundling are low.
• Production set-up costs are high.
• Customer acquisition costs are high.
• Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product or service.

This Market Simulation explores Joint Bundling, where Customers have the choice of purchasing the ‘Twin-Pack’ Bundle or the individual Product.

This Case Study provides a high-level overview of the workflow without detailed explanation. It assumes you are already somewhat familiar with KNIME and Market Simulation. If not, start by reviewing the Building Blocks and Community Nodes.

The Spacely Sprockets company noticed that Customers either bought 1 or 2 Sprockets. Spacely estimated that Customers valued the second Sprocket about 30% less than the first, but that it was still often worth it for these Customers to buy the both individually if Sprockets were a critical component. Spacely believed that packaging two Sprockets together as a Bundle and selling them at a discount would increase Profitability. Spacely reasoned that, while the value of the second Sprocket would still be lower, the cheaper Bundle would drive more sales.

The Top-Branch of this Market Simulation models a two-stage Market: Customers purchase their first Product, then decide whether they wish to purchase a second Product.

The Market itself is a Duopoly with Spacely Sprockets and Cogswell Cogs competing. But the two Products are almost identical, sharing the same Cost, Price, and average Customer Willingness To Pay (WTP).

After Customers purchase their first Product it is assumed that they will reduce their WTP for a second Product by 30%. A second ‘Simulate Market‘ node then calculates how many Customers purchase a second Product.

Two-Stage Results

Combined results from the first-Purchase and second-Purchase.

The Bottom-Branch of this Market Simulation adds the Bundle as another Product choice. Customers can either buy:

• An individual Spacely Sprocket,
• A Spacely Sprocket Twin-Pack, or
• An individual Cogswell Cog.

It is assumed that Cogswell does not also create a Bundle. Furthermore, Customers who might purchase two Cogswell Products are not considered.

Final Comparison

The Bundle increases Quantity, Revenue, and Profitability by 12%.