A store at Dwarka, in Delhi, is currently offering a Godrej refrigerator along with the same brand’s microwave oven for Rs 20,000. The retailer claims that the items would cost Rs 19,500 and Rs 4,200, respectively, if bought separately. This is a great bargain, right? Judging by the increase in footfalls since the offer was launched, many a consumer would think so. Not necessarily.
Combo deals or bundled offers, though not a new phenomenon, seem to be gathering steam of late. Says Harish Bijoor, brand strategy specialist and CEO, Harish Bijoor Consults Inc: "A recession, where customers typically defer purchases, is a great time for bundled offers." For the uninitiated, a bundled offer is one where a seller combines two or more products or services in a package. According to Bijoor, such offers are more consumer-friendly as buyers perceive that they are getting a good deal.
Unfortunately, the word ‘perceive’ is the key. Bundling limits consumer choice and can include hidden costs. Retailers often bundle a freebie along with a product, particularly if they want to advertise a new launch (for instance, Emami is offering five free pieces of Sardija cough drops with 100 ml of the syrup) or push a flagging product. In such cases, the monetary benefit of the offer is clear.
However, the value proposition is more ambiguous when it comes to a combo offer, like the Godrej fridge-microwave deal. On paper, you are saving nearly Rs 4,000, but you need to question the lure of the microwave oven. Godrej is definitely not the industry leader in this segment. Also, more often than not, the perceived value of bundled offers is usually higher than the actual cost incurred by retailers.
This retail strategy also makes way for upselling possibilities. The bundled offer is the hook, but customers can then be tempted to buy paraphernalia. Have you splurged on a PC with discounted broadband deal? How about a printer or some game CDs? Care to check out the latest handsets? Says Devangshu Dutta, CEO, Third Eyesight: "From the consumer's perspective, multipacks are generally smart buys. However, if you're in a budgetconscious mode, you need to be careful that you are not buying more than you would normally consume. This is one of the most important drivers for retailers and brands to offer multi-buys."
Before reaching for your wallet, ask yourself, what's in it for the retailer? The reason retailers favour a bundled scheme is that it allows them to lure the discount-hunting Indian consumers without devaluing their brand with price cuts. Explains Aditya V. Agarwal, director, Emami Group, which introduced the ‘buy one, get one' or BOGO concept in India: "In many ways, a discount is a starting point. It helps in creating a buzz and ensures higher sales."
Bundling also helps retailers attain product penetration and win customer loyalty along the way. If the number of products bought by a customer is one, the chance of losing the customer is 1:1. But if the number of products purchased by the customer is three, the chance of losing him drops to 1:18.
What makes it the strategy of choice for retailers is the fact that it is very profitable. Take pizzas. More often than not, a single pizza would suffice for two people, but if a pizza outlet launches a BOGO offer, many would happily take on the free pizza. In this case, if the BOGO offer is priced at Rs 80 and assuming it costs Rs 15 to make a pizza, the store's profit would be Rs 50 {80-(15+15)}. However, if it announces a half-price deal on a Rs 80 pizza, very few would be willing to pay for the second pizza. The store would then make a single pizza sale and its profit would be lesser at Rs 25 (40-15).
The only way to escape such a siren song is to ignore the discount factor and ask if you really need all the products in the bundle. If it fits your budget, then go for it, but try to look for quality over quantity.
Combo Deals On Offer
Faber: Faber’s Triple Advantage electric chimneys, which promise smart suction, zero clogging and easy cleaning, are currently bundled with stainless steel cooktops. Depending on the model you choose, you can save up to 35%.
Emami: The brand has launched a new offer on its flagship product, Boroplus Advanced moisturising lotion. Buy a 300 ml pack worth Rs 98 and get a 75 g Pure Skin glycerine bar worth Rs 23 for free.
Total Mall: Buy a complete top-of-the-line living room set, including a sofa set, television wall unit and centre table, and save nearly 50%. The market price of the items is Rs 41,700, but the bundled offer is for Rs 20,999.
Adishwar’s: The retail chain is offering a number of combo deals, such as a mixer grinder, wet grinder and pressure cooker set from Pigeon for Rs 4,990, a 40% discount. Or buy a Godrej microwave oven and get a free vacuum cleaner worth Rs 4,990.
