It is no secret that companies are trying to increase their average order values (AOV) by adding more products in a bundle. However, the price of each product continues to decrease as competition for the customers becomes fiercer, and new strategies must be employed to remain profitable. This article explores how companies can improve AOVs with an economy of scale strategy before offering a few examples of what might work best for your business. Of course, every company should aspire towards expansion. This isn’t a hidden fact. On the other hand, many company owners hear growth and immediately think of client acquisition techniques, new product releases, and ways to boost conversion rates.
All of these strategies are beneficial to the success of your business. However, they aren’t the only strategy to increase sales and expand your company. You may also develop by raising your average order value and making more money with your present goods, services, and conversion rates.
Do you have this statistic on your radar? With this formula, calculating is simple.
How can you figure out your average order value(AOV)?
You must urge your clients to spend more money on each transaction to boost your AOV. In principle, this is fantastic. We’ll show you how to go about doing it. Several strategies encourage your present consumers to spend more money each time they visit your store. Product bundling is one of the most effective ways to boost AOV. Upsells, cross-sells, and discounts are used in this marketing strategy. It also aids you in making more money by concentrating on your pricing approach. Essentially, the psychology underlying product bundling encourages individuals to spend more on each transaction by purchasing more items at once. As a consequence, the value of your specific order will increase.
A product bundling strategy may help your business whether you offer items or services. But it’s not as easy as combining two or three unrelated objects. It may be more harmful than beneficial. If you’ve never done this before, deciding which items should be grouped and how to present those alternatives to your clients might be difficult. As a result, utilize this advice as a model for improving the average order value of your business. Here’s all you need to know about it.
Tactics to increase AOV:
Pairing low-cost things with high-end goods or services is not a good idea.
When firms try a product bundling strategy for the first time, this is the most typical error we encounter. It makes sense: if they’re attempting to maximize profits and someone buys something inexpensive, why not try to get them to purchase something pricey as well? Bundling products does not imply that you should put two or three goods together and expect people to pay extra for them. Put yourself in the shoes of a customer for a moment.
Let’s pretend you’re in the market for a new automobile and your budget is about $20,000. Is it going to tempt you to buy the car if the dealer throws in a free t-shirt and a baseball hat with the purchase? Let’s imagine you’re looking for a t-shirt and a baseball cap that include the symbol of your favorite automotive business. The two items cost about $40 when purchased together. Then, at the checkout, it’s urged that you are buying a vehicle as well. Your total now stands at $20,040. Do you participate in it? A product bundle isn’t made up of two goods that don’t belong together. This is true if one item is much less expensive than the other. However, many companies mistakenly believe that two things equal a bundle, ultimately hurting them.
A grouping like this confuses your customer’s first purchase rather than encouraging them to buy more. Let’s look at it more closely. The Presenter’s Paradox is research published in the Journal of Customer Research on consumer perception and product packaging. This is what happened. They provided two alternatives for bundling items for potential buyers. The first option was an iPod Touch with a case included. The iPod Touch with a cover and a free music download was the second choice. The second option, which had a free download, was chosen by almost everyone (92 percent). On the other hand, consumers were ready to pay extra for the initial bundle, which did not include a music download.
Why? The benefit and cost of such download are insufficient to increase the bundle’s perceived worth.
In actuality, the less expensive item — a single song? What am I going to do with one piece? – reduces the overall package’s perceived worth. That’s not what we’re looking for. Rather than lowering a bundle’s perceived worth, we aim to raise it. By increasing the perceived worth of your items, you may charge more for them.
When a low-cost add-on is combined with a high-cost product, the whole package becomes less enticing. This article in the Harvard Business Review examines a series of research that came up with the same conclusions. According to the survey, consumers were more willing to spend $2,299 for a home gym than they were to pay the same amount for the same gym packed with a training DVD. This is because a DVD does not increase the perceived value. It has the opposite effect, lowering the weight. If you’re presently adopting an approach like this, it may harm rather than benefit your average order value. This is a simple and easy remedy. This guide also includes examples of items and services that should be bundled.
Emphasize the importance of saving.
Offering a discount is an excellent method to increase the attractiveness of your product bundles. It’s a straightforward method. A customer’s overall purchase will be less expensive if they buy two or more things together than if they buy each separately. You must, however, make it clear that they are saving money. So, tell them how much money they’ll save if they purchase the package. Here’s an excellent example from Lowe’s.
A washing machine and a dryer are included in this product combo. Customers may save $340 by purchasing the pair together. That’s getting near to the price of just the washer or dryer, the buyer would consider. If you don’t inform them, they won’t realize how good a bargain they’re receiving. It would be best if you didn’t have your clients perform the arithmetic or go through your rates manually. Make it clear and prominently display the savings on your website, like in the example above. It’s even more enticing in this case since the savings are bundled together. The consumer isn’t only saving $170 on each, which may not seem to be a significant amount. They’ll save $340, which is a lot more impressive. Consequently, they’ll be more inclined to purchase them all at once to save money.
Bundle products that are often bought together.
Remember how the automobile was wrapped with a t-shirt and a cap in the hypothetical scenario? Another reason why the bundling tactic won’t work is that those things aren’t typically bought at the same time. When customers purchase something particular, you need to find out what else they’ll need. Return to Lowe’s example from before. When a consumer buys a washing machine, there’s a strong chance they’ll also buy a dryer. It’s a successful technique to combine the two goods. This is much more sensible than combining a dryer and a dishwasher. Although they are both household appliances, they are unrelated. You may offer shampoo and conditioner as a package if your firm sells shampoo. Consider including a box spring and frame in the package if you’re selling a mattress. These are all goods that complement one other. Take a look at this AT&T sample.
People often acquire their TV, Internet, and phone services from the same company. This is a well-oiled machine when it comes to price bundling. I was hoping you could look at the three possibilities listed above to understand what I’m talking about. The cost of merely watching TV is $60 per month. However, when you combine TV and internet, the price is just $15 higher. Customers obtain something that would ordinarily cost $110 if bought individually for $75 when they buy a product bundle like this. That’s a fantastic offer. This is superior to selling a TV bundle with free remote batteries or anything inexpensive that does not provide value or inspire people to purchase. AT&T may improve the value of their orders by 25%. Take a moment to consider it. If your firm makes $1 million in sales per year, just boosting the AOV from $60 to $75 may earn you an additional $250,000 per year. AT&T goes a step further by offering a second package that includes home phone services. The order value is 58 percent greater when clients purchase this combo instead of only TV.
Make use of anchor pricing.
Another technique to demonstrate value in your product bundles is anchor pricing. The concept behind this practice is that varied pricing on your website creates a perceived worth in your clients’ minds. It’s a tried-and-true method. For example, what’s the best way to sell a $500 watch? It looks great next to a $1,300 eye. The anchor will be the $1,300 item, making the $500 item seem to be a far better value.
Let’s look at AT&T’s third choice, which is to add a home phone for an extra $19.99 per month. How many people do you think are interested in having a phone line? This option may be more about providing another point of comparison to make the middle choice more interesting than raising the order value. Because the $75 bundle isn’t the most costly, it seems more acceptable pricing. The $60 TV bundle also acts as a launching pad. It establishes the value of television alone, making all subsequent product bundles seem to be a good bargain based on the customer’s impression of the single product.
You may use this method to your product bundles by including more costly bundles or selling individual goods at a more excellent price than when they’re packaged. It makes no difference if your clients don’t buy the more expensive bundles. Instead, they may act as anchors, focusing on the remainder of the possibilities.
Customers would appreciate it if you recommend things to them.
Show your consumers things that will go well with the one they’ve previously purchased. Depending on the conditions, the consumer may not even be aware that you offer those extra things or need to purchase them until you do so.
This is a tactic that Amazon excels at more than anybody else.
If you’re looking for razors on Amazon, you’ll see that shaving cream and blade replacements are among the most popular items purchased with those razors. The buyer will discover that these goods must complete what they were shopping for initially. Rather than going back and looking for these things, Amazon provides a button that allows you to add all three to your shopping basket quickly. By improving your checkout process, you may increase conversions. Amazon has boosted the order value with product suggestions when you click to add. The best part is that none of the items are even reduced. To have a successful bundling strategy, you don’t need to provide specials or dramatically reduce your costs. You may boost your AOV simply by showing and promoting related goods that value the customer.
Volume discounts are available.
You may, however, provide discounts. For example, you may bundle the same product or service with itself in addition to combining it with other things. With Subscribe & Save, Amazon does this. It provides your consumers an incentive to spend more than they planned to — and to make their next repeat purchase from you instead of somewhere else in the future.
As with Amazon’s 5% membership discount, the price per item reduces as the volume grows. However, the average order value will continue to climb. Again, Todo Bien Tours is a great example.
This firm offers bus trips as a service. The price of a ticket for one of their tours fluctuates depending on how many tickets are sold at once. If you purchase two tickets, they will cost $84.15 each, for a total of $168.30. On the other hand, groups of ten pay $69.30 per ticket. Despite the lower per-item cost, the whole transaction costs $630. The order value has increased by more than 400%.
Please take note of how their website’s price structure is put up. The graph shows the % discount depending on the number of tickets bought and the amount saved for each key. This exemplifies one of our earlier points: the importance of saving. By combining this method with volume discounts, Todo Bien Tours may profit from greater average order values.
Allow clients to make their packages.
According to studies, buyers are 80 percent more likely to purchase anything if given a tailored experience. Furthermore, 68% of clients are willing to pay extra for this service. As a result, customizing your packing technique might be beneficial. It’s a fantastic strategy to boost the average order value of your business. Instead of informing your consumers of the things you’re combining, let them make their own decisions.
Please take a look at how Texas Beard Company does it.
Customers who purchase the bag will get lower rates on other items. People are more enticed to buy because of the personalized package. This is why. Assume the container includes a bag, beard balm, mustache scissors, and a beard brush, but the buyer already has a pair of mustache scissors. The box isn’t appealing to that individual. They don’t need any of the items supplied, thus it isn’t good for them. This is related to the concept of perceived value. Though the mustache scissors have monetary worth, their value to that consumer is zero, lowering the package’s overall perceived value. Customized choices add a lot of value to the box. Find a method to incorporate this concept into your company as well. It can work whether you’re selling a product or a service.
Conclusion
Increasing your average order value is one of the simplest methods to expand your business. This is because you won’t need any new items, consumers, or conversion rates to achieve your goals.
All you have to do now is figure out how to persuade your consumers to spend more money each time they visit your store:
- Check to see whether you’re packaging anything cheap and unrelated with one of your premium items.
- Similar goods should be grouped. You may also construct a package by recommending goods to your consumers.
- The cost reductions should be visible, increasing the perceived value of the product you’re selling.
- Pay attention to your pricing approach. For example, use anchor pricing and provide bulk discounts.
- Allowing clients to create their bundles will enable you to charge more for your items.
You’ll be able to boost your AOV if you use these tactics.
Frequently Asked Questions
How do you increase the average value of a basket?
A: To increase the average value, you must either decrease your opponent’s score percentage or your own.
How can bundling add value to your customers?
A: Bundling is a marketing strategy that companies use to increase their customer base. With bundling, you’re allowing your customers to purchase multiple items with extra discounts on each item in one transaction. This increases profits for both the company and consumers because they are now getting more value for less money than what would have been spent had they purchased individually.
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