The Great Burger Bundle Bungle

Posted by Reed Holden on Aug 12, 2020 8:42:00 PM
Reed Holden
Recently, McDonalds had a special pricing promotion that caused a 10% reduction in demand for fries. Allegedly, the drop in demand was the result of a 99-cent burger promotion. The promotion unintentionally incentivized consumers to switch from buying their usual combo meals that included fries and a drink at a bundled price. These combo meals are a traditional winner for franchises as customers who normally buy just the burger and a drink can opt to add fries at a discount versus purchasing all three items separately. They might even choose to “super-size” it with bigger drinks and fries at higher prices, adding more profit to the purchase. As a dad and now a granddad, I have fallen into that trap more than once!
Kid and hamburger

McDonald’s dollar promotion succeeded in driving sales for burgers but short-circuited the purchases of combo deals which had been a solid mainstay of the product offering. While Mickey-D’s executives did not publicly comment, our hypothesis is that both sales and profits took a pretty good hit because soft drinks and fries are huge profit centers for fast food operations.

While this is a simple pricing example, the lessons learned can apply to all companies that offer bundled or packaged solutions to their customers. Currently, we are in discussions with quite a few companies who are interested in bundling their offerings to offset declining sales due to the pandemic. Good bundles, when executed properly, can be a source of competitive advantage that will draw in demand from competitors. If you are considering giving bundling a go, consider the following:

  • Bundling products and services works in almost every buying environment. It simplifies the purchase and causes customers to buy more because of the discount of the bundle versus the individual prices of items. The discount doesn’t need to be large—just 10-15% is often effective
  • To work, bundled prices should be lower than the combined list prices of the components. If the price of any of the individual items in the bundle is lower, the incentive to buy the bundle is lost. Sellers cannot use a bundle to raise the prices of the components unless prices of the components are raised too! The critical success factor lies in controlling the prices of the components of the bundle
  • Individual product prices must be reviewed and rationalized within the context of the bundles in which they are included, even during short-term or end-of-month promotions. That is the only way to protect the integrity of the bundle. It is critical that buyers know they are getting the best deal by buying the bundle
  • Developing Give-GetsSM options within a bundle is one of the most powerful sales tools that salespeople can use to execute more profitable deals

History has shown that bundling works in almost every environment. This strategy leads to greater customer satisfaction, higher sales, and higher profits. But, like anything else, bundles need to be executed with precision. If a great marketing company like McDonalds can “bungle their bundle,” it is wise to approach your bundling strategy with advanced planning and caution. Can you supersize it?

Topics: pricing, bundling