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Bundling is one of the killer moves in merchant promotions. But is it always effective? Obviously not. When two products you both desire are bundled together, making you want to take them home, you might hesitate and even feel that 1+1<1. Why is that?

How to Make It More Effective

Bundling is a common promotional tactic. Where does its appeal to consumers come from? According to prospect theory, buying the same items together in one payment causes less pain than paying separately multiple times. Therefore, even if the total price is the same, bundling can be more attractive than selling separately. Moreover, most of the time, bundling also offers additional discounts, so many people assume that bundling is always more attractive.

It is generally believed that as long as the product combination is well designed, bundling can easily achieve good results. Therefore, many studies focus on how to make bundling more effective rather than comparing the pros and cons of bundling versus not bundling. For example, giving an equal quantity (rather than equal proportion) discount in bundling. Manjit Yadav found that defining the discount amount on the most important product in the bundle is more attractive than defining it on the whole bundle or on less important products. Chris Janiszewski and Marcus da Cunha found that discounting the product in the bundle that is above the reference price is more effective.

So, is it possible that two products with positive value for consumers, when bundled together, make consumers feel that the total value is less than one of them? This sounds incredible, but marketing scholars Aaron Brough and Alexander Chernev found that this does happen under certain circumstances, which is what we call the "1+1<1" situation.

Subtractive Valuation Occurs

Intuitively, consumers' valuation of products is mostly additive. Especially when a product with positive value is added to another product with positive value, the total value is usually greater than the value of either product alone. So, under what circumstances does subtractive valuation occur?

Brough and Chernev believe that previous theories found a lot of evidence of additive valuation because they always bundled products in the same price range, such as a shirt worth $500 and one worth $400. Consumers' valuation of the bundle would likely be higher than the valuation of a single shirt. However, if you bundle a shirt worth $3000 and one worth $100, consumers' valuation of the bundle might be lower than the valuation of the $3000 shirt alone. Of course, such valuations are always done separately: consumers either see only the $3000 or $100 shirt for individual valuation, or see both shirts for overall valuation.

In one experiment, researchers had 240 consumers value products in six categories. Each category included a relatively expensive product and a relatively cheap product. Participants were randomly divided into three groups: one group valued only the expensive product, one group valued only the cheap product, and the last group saw the combination of the two products and valued the bundle. The results showed that subtractive effects occurred in all six product categories.

For example, when buying a motorcycle, consumers who saw only the expensive motorcycle were willing to pay $2348, those who saw only the cheap motorcycle were willing to pay $616, but when seeing the bundle, consumers were only willing to pay $1624 for both, which is 31% lower than the valuation of the expensive motorcycle alone. The average subtractive effect across all product categories was 25%.

The Psychological Error of "Category Averaging"

Why does this subtractive valuation occur? Brough and Chernev believe the root cause is that the two products belong to different price categories: expensive and cheap. When consumers value a product, they first determine which price category it belongs to: expensive, moderate, or cheap.

The price category determines the valuation range for the product, and they adjust based on specific product information. When bundled products belong to the same price category, consumers only need to add up the valuations based on the number of products, leading to additive valuation. But when valuing products from different price categories bundled together, consumers unconsciously first perform category averaging, then adjust the total price based on the number of bundled products. For example, if a shirt worth 3000 yuan is considered expensive and a shirt worth 100 yuan is considered cheap, when bundled together, consumers first average the categories, calculating that the combination belongs to the moderate price range, roughly between 500 and 1000 yuan.

Finally, consumers reverse-engineer the overall valuation of the bundle, using the typical unit price of a moderate-priced shirt, say 1000, and multiply by 2 to get a final valuation of around 2000 yuan. Thus, subtractive valuation occurs, and the total valuation of the two bundled items is even less than the price of the single 3000-yuan shirt.

Avoiding the Subtractive Effect

Now that we understand the consumer psychology behind subtractive valuation, we should try to prevent consumers from distinguishing price categories for individual products in a bundle. To confirm this process, the experimenters conducted another experiment. In this experiment, half of the participants followed the exact same procedure as the previous experiment (with different products), divided into three groups: one valuing the expensive product, one valuing the cheap product, and one valuing the bundle. The other half also had the same three groups, but during valuation, participants were asked to perform functional classification, such as classifying by shoe sole thickness. This way, they had no time to think about price categories, and the subtractive effect would be weakened.

The results were as expected: participants who did not perform functional classification showed an average subtractive effect of 43% (similar to Experiment 1), while those who performed functional classification showed not only no subtractive effect but also an average additive effect of 10% (a negative subtractive effect indicates an additive effect).

Obviously, the subtractive effect is something merchants do not want to see. So how can we avoid this unwise 1+1<1 promotion?

First, avoid bundling similar products from different price categories.

Second, although not mentioned in this article, bundling products from different categories may also cause the same problem. For example, bundling a high-end shirt with a low-end belt would likely produce the same subtractive effect. If your store has products of different price levels mixed together, you should price each item separately rather than bundle pricing.

Finally, guide consumers to focus on other non-price factors to interfere with the psychological factors that cause the subtractive effect.

Of course, this subtractive effect caused by categorical thinking is not limited to product bundle pricing. It also appears in other consumer decisions. For example, if meat with a high calorie index is placed on the same plate as vegetables with a low calorie index, consumers may feel that the calories are lower and healthier than when only meat is present, even if they are on a diet. Merchants can use this subtractive effect in bundling to enhance product appeal or make the subtractive effect work for them.

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