3 min read
Sell separately when demand outstrips supply — bundling makes it worse
New research from Kellogg School shows that once inventory falls below 30–60% of demand, unbundling extracts more revenue than any package deal. Here's why that matters for software products with real capacity constraints.
By intermac
The default advice in SaaS pricing is to bundle. One price, broad appeal, smooth onboarding. That logic is sound — when you have unlimited inventory. The moment capacity becomes real, bundling can actively work against you.
Research from Kellogg School makes the mechanism precise. When demand far outstrips supply, selling items separately captures more revenue than any bundle. Associate professor Tarek Abdallah and NYU's Josh Reed built a model comparing four strategies — component pricing, pure bundling, bundle-size pricing, and mixed bundling — and found a clean reversal under scarcity conditions.
Why bundling works at all
Bundling smooths out the variation in how much different customers value different products. One buyer loves the flight deal but barely cares about the hotel; another is the reverse. Bundle them at an averaged price and you widen your customer base. You give up some ceiling to gain floor, which makes sense when you have more product than buyers.
What scarcity changes
Under scarcity, you no longer need that floor. There are more buyers than units. The goal shifts from widening the base to maximizing what each unit extracts. Bundling's averaging effect — which was the asset — becomes the liability: it caps how high you can push the bundle price, because the top bidder for item A may barely value item B. Price each item separately, and the top bidder for each competes on its own terms.
Abdallah and Reed found that selling separately can overtake pure bundling once your inventory-to-market ratio drops below roughly 30 to 60 percent, depending on the setting. That is a practical threshold, not a theoretical curiosity. It gives you something to watch rather than something to intuit.
Where this hits software products
Most pure SaaS products sit at the Netflix end of the spectrum — digital goods with near-infinite supply. The bundle model is rational there. But software products increasingly include genuinely finite things: compute-heavy AI inference, human review time, limited beta seats, live cohort spots, professional services hours.
When you attach a constrained resource to a bundle, you inherit the scarcity problem. The research notes that startups copying Netflix's bundling model "have to be extremely careful" once limited inventory enters the picture. We'd move that caution earlier — to the product design stage, before you've already shipped the pricing page.
The practical discipline: track utilization on every component of your bundle. When one starts running constrained — waitlists form, capacity alerts fire — pull it out and price it separately as a premium add-on. You will capture more from the buyers who value it most and stop subsidizing buyers who don't.
Bundling is not a neutral default. It is a bet that your supply can meet your demand. Make that bet consciously, and revisit it whenever the ratio shifts.
Sources
- When Bundling Hurts the Bottom Line (original)
- Found via the TLDR newsletter