The psychology of bundling - Why I’m happy to pay for Cable TV, but I hate renting movies

I am feeling traumatised right now. Recently, in order to save on costs when I moved home, I let my all in one telephone, data and cable TV package lapse.  In my new house I went with a Naked DSL plan meaning that I have data only.

This means I use Skype for my phone calls, Apple TV for movie rentals, and when I am bored I go adventuring on YouTube. Hey, it fills the time – and there is an amazing array of content from talented people on YouTube if you go looking.

What is really getting to me is having to pay for movie rentals.

Don’t get me wrong, the rational part of me recognises that renting movies and buying TV series is actually cheaper than my old cable TV package, but somehow it feels painful. Every time I press the button to pay I wince – I can’t explain why, but it just feels awful. I am rethinking my purchase decision every time I buy something. This has me thinking about bundling services again, and what works, and what doesn’t.

I like Google Apps – pay $5 per user per month, and you have great functionality for a small business.

I like Vimeo - $199 a year for unlimited corporate video services.

I think whoever came up with ESRI’s payment system for using online GIS services needs a stern talking to for being an idiot. I do not want to buy a bunch of credits for a long list of services I don’t understand and spend them in ways I don’t understand. If ESRI were to give a packaged price (e.g. $50 per user per month, plus a bit more for really data intensive work) then I’d go for it. In the world of Big Data they are trying to serve, their pricing model is guaranteed to drive people away.

There’s a lesson in all this for our businesses. Customers like to know how much they are going to pay. Bundle your services and give fixed price packages, no more than two or three packages, and let your customer choose.

If Apple TV allowed me to pay $50 a month for a certain number of movies or TV shows, I’d feel fine.

Think of your bundling in terms of ease of use and certainty of pricing, rather than pricing up each individual service and offering completely flexible usage. The bundled package will fit their opportunity cost for accessing your service. You may be offering a cheaper product with completely flexible services, but you are forcing your clients to confront the buy decision each time they use your product, and that’s a major psychological barrier.