TL;DR
- Bundle discounts can boost sales but often erode profit margins through over-discounting, poor inventory planning, and unnecessary discounts on best-sellers.
- Use tiered discounts based on spending thresholds (higher discounts for larger purchases)
- Pair slow-moving inventory with high-demand products to clear stock while maintaining value
- Differentiate between seasonal (time-sensitive) and evergreen bundles for different discount strategies
- Leverage data by tracking AOV, margin thresholds, and bundle KPIs to optimize pricing
- A/B test different bundle configurations to find what works best
- Avoid discounting products that already sell well at full price
Bundle discounts have the power to not only transform casual browsers into customers, but also to increase average order value (AOV).
However, the need to boost sales by offering discounted bundles can often backfire and eat into profit margins.
The key is to focus on strategic pricing in your Shopify bundle discount strategy. And that’s what we deep dive into in this blog.
Let’s get started!
Why and how do bundle discounts erode margins?
Although bundle discounts are attractive for customers, they can silently impact profitability. Here’s how discounts impact margins.
1. Over-discounting without volume increase
One of the most common mistakes made by Shopify merchants is offering extra discounts in the hope that it will increase sales. However, when sales do not increase in proportion to the discount, it affects profit margins.
For instance, say you offer a 30% discount on bundles, hoping it will increase sales by 30%. But if sales increase only by 10%, it cuts your margins. This sort of over-discounting often happens when merchants try to copy competitors’ strategies without understanding.
2. Poor inventory planning
Another mistake merchants make is bundling together products with similar margins and customer appeal. This means merchants are bundling products that can be sold individually, and slow-selling products remain in the inventory.
As a result, you’re doubling efforts on products that were already selling well. This can lead to stockouts of these bundle products, and you might have to break bundles or replace those products. Both these actions disturb your eCommerce bundle pricing strategy and customer experience.
3. Applying discounts on best-sellers
A Shopify bundle discount strategy that many merchants apply is offering discounts on best-sellers, thinking it will increase sales and lead to more revenue. However, this strategy decreases profit margins. If your star products are performing well at full price, there’s no need to reduce its price and decrease your profits.
Including these star products in bundles with discounted pricing doesn’t serve any purpose. By doing so you’re reducing revenue from products that were selling well. This strategy trains your customers to wait for discounted prices to buy products.
Shopify bundle discount strategies to protect margins
To protect your profit margins while offering bundle discounts requires well-thought strategies. Here are some effective strategies you should try.
1. Tiered discounts based on spending thresholds
Offering discounts proportionate to customers’ spending creates a psychological incentive structure. This helps protect high-margin sales and rewards larger purchases. Here’s how you can implement discounts based on spending thresholds:
- Instead of offering a flat 15% discount on all bundles, offer 10% on bundles over $80, 15% on bundles over $100, and 20% on bundles over $150
- By offering tiered discounts, you can preserve margins on lower value sales
- Tiered discounting structure provides incentives to customers for making more purchases
2. Bundle slow-moving and high-demand products together
Another Shopify bundle discount strategy is to bundle slow-moving and high-demand products. By bundling slow-moving and top-seller products, you can enhance the perceived value of the bundle and incentivize customers to purchase products. This way, you can sell stock that is stuck in the inventory. Moreover, these bundles increase the AOV compared to selling the items individually.
Here’s how you can apply this strategy:
- Club products that customers are already interested in with items that are hard to sell and have been in your inventory for a long time. The idea is to enhance the bundle value and also solving your inventory problem
- Example, bundle together excess stock from the last season with the bestsellers of the current season. Make the slow-moving item a bonus or complementary item, not the main product
3. Differentiate seasonal versus evergreen bundles
While you might have evergreen bundles that you offer all year round, you can also create seasonal bundles based on varying demands and needs of different times of the year. And when you do so, it is essential to differentiate between the two. Here’s how to apply this Shopify bundle discount strategy:
- Create holiday bundles, back-to-school bundles, Christmas bundles, etc.
- Ensure you highlight them, promote them, and make their availability time-sensitive
- Seasonal bundles are time-sensitive, and hence, create urgency and customers tend to purchase them even if the discount is less
- Evergreen bundles may not provide too much discount, but maintain healthier margins as they offer ongoing value – convenience, complementary products, curated selection, etc.
Example:
How to use data for profitable product bundling
Strategically planning data-driven pricing for bundles can truly make a positive difference to your business profitability. Here’s what you can do:
1. Analyze AOV and margin thresholds
You can track your AOV and margin thresholds to understand and plan profitable pricing. Here’s how to do it:
- Calculate your current AOV and profit margin for each customer segment or channel
- Determine your minimum acceptable margin, which is the threshold below which sales would not generate enough/desired profits for you
- Once you have these benchmarks, define different bundle scenarios and the profits they could generate
- For example, if your AOV is $70 with a 30% margin, and your minimum acceptable margin is 15%, you can know how much discount your different bundles can afford to offer
- If you bundle high-margin products with low-margin items, the calculation will change
- Uniform pricing and discounting strategies do not work well for products with different costs
2. Test different bundle configurations
Instead of planning your Shopify bundle discount strategy based on assumption, experiment with different bundle configurations to understand what drives customer behavior. Another factor to consider is to treat bundling as an ongoing optimization process, not a one-time pricing/discounting structure. Here are some things to try:
- Run A/B tests. Show some customers bundle A (three products, 15% discount, and some customers bundle B (four products, 20% discount)
- Track conversion rates as well as profitability metrics, such as gross margin per order, net profit after discounts, and CLV for bundles and individual product purchases
- You can price a limited-product (three product), thoughtfully curated bundle in a way that it will outperform a bundle with five products and a higher discount
- Some bundles can have products that drive future sales and enhance lifetime value even if the initial profit margin is less
3. Track bundle performance KPIs
When you track performance metrics, you can optimize bundles. For instance, you can understand what is working and what isn’t working and make adjustments to your eCommerce pricing strategy. Here’s how you can do it:
- Measure bundle take rate, the percentage of customers choosing bundles over individual products
- Track margin per bundle sale
- Improvement in inventory based on bundled and unbundled slow-moving products
- Customer acquisition cost to lifetime value ratio
- Track if bundles are stealing sales from individual purchases
- Are bundles attracting new customers and increasing sale frequency
- Track these metrics on a weekly and monthly basis
How Shopify brands run profitable product bundling
For running a successful Shopify bundle discount strategy, you have to balance customer appeal and margins. Many brands have figured out how to do it, and they keep optimizing and adapting their strategy from time to time. Let’s look at some case studies.
A skincare brand faced a challenge in selling one of their best products – a face serum that gave excellent results to users and high margins to the brand, but customers hardly purchased it. So, rather than offering higher discounts on the serum, the brand created a bundle including the serum and other complementary products.
This worked for the brand because customers experienced enhanced value with the added complementary items. The brand could maintain margins on the serum. The bundle also included information about how to use the bundled products together. The result? A 47% increase in AOV with only 8% margin compression.
How does Appstle Bundles & Discounts help Shopify brands avoid margin erosion?
Appstle Bundles & Discounts is designed for Shopify and Shopify Plus stores to set up and manage advanced bundling pricing and discounts structures. The app provides features that enable dynamic pricing that automatically adjust pricing based on various factors, such as inventory levels, customer purchase patterns, real-time customer activity, etc.
Example: Shopify brand Noode uses Appstle Bundles & Discounts App to create and manage its bundling and discounts strategy
The app also helps manage bundles based on inventory levels. For example, the app ensures you never oversell bundle combinations. This prevents stockouts.
Appstle’s dashboard helps track all KPIs, including margin per bundle, lifetime value, etc. This enables merchants to run ongoing optimization.
Moreover, with Appstle, you can set up different types of bundles, use real-time analytics for dynamic bundle pricing, easily integrate with other platforms and apps, create various bundling use cases, and more.
Summing up: Is your Shopify bundle discount strategy in place?
Product bundling has many benefits, but when not planned well, your Shopify bundle discount strategy can backfire and eat into profits. To avoid this, apply the strategies we discussed earlier in this blog.
Implementing a Shopify bundle discount strategy doesn’t need to be complex. With Appstle Bundles & Discounts, you can set up and automate your bundling program. With a comprehensive set of built-in features, the app compliments Shopify and Shopify Plus platforms.
When you use Appstle to automate, personalize, customize, and drive real-time data actions, so is its impact on your sales and profit margins.
Install Appstle Bundles & Discounts on your Shopify store today.
