There are advantages to both options, depending on the circumstances. Before you make a decision, here are some things to consider.
An add-on is when we create a new product capability and sell it as an option to another product. An advantage of add-ons is that they are often “Will I?” products; they have no direct competition because they are options to our products. This generally implies we can charge more money for add-ons.
Another advantage of add-ons is that they present an opportunity to segment the market. Those who want the new capability will pay more for it, and those who don’t want it won’t pay.
When there are too many options, however, buyers become confused. They don’t buy because they are afraid of making a mistake. The main advantage of bundling is that it simplifies product offerings.
Competition is another reason to bundle. If your competition includes a capability that your product doesn’t, you could be at a competitive disadvantage, particularly with buyers who want the new feature. Buying a complete product is always easier than buying a base product and then choosing the options that are best for you. Also, pay attention to whether the price of your base product plus the option is competitive with the price of your competitor’s bundled product. If it’s not, be sure that your sales team is prepared to explain the associated value.
If you are creating a new capability for a single product, consider a hybrid of the two techniques. Instead of selling the new capability as an add-on, create two product versions: one with the new feature and one without. You now have good and better products (and of course, the intention to create a best version in the future).
Alternately, if you have a product or even a product line in which only a small number of customers will want the new capability but those customers find it very valuable, it probably makes more sense to sell it as an add-on.
Other characteristics also help drive this decision. For example, how different is the new capability? How big is the segment that wants it? What is the distribution of willingness to pay for that option?
There are a lot of nuances to consider before choosing between product add-ons and bundling. It’s not an easy choice to make; consider your options and your goals carefully.