Pricing tactics for digital products: bundling, unbundling, and the art of price discrimination

Digital goods are fundamentally different from physical ones.

They involve high sunk costs, like the time, labor, and opportunity cost of creating information, but have virtually zero marginal costs (i.e., the cost of producing and selling an additional copy). This near-zero marginal cost structure enables immense unit economics scalability, since digital products can be reproduced endlessly without extra expense!

All of this creates a dilemma many content creators face: how should I price my digital product?

With physical goods, cost-plus pricing makes things simpler: you sell at a fixed markup above your production costs. But when marginal costs are nearly zero, you must price based on value, meaning your customer’s maximum willingness to pay. Yet figuring out that willingness is notoriously difficult. In theory, you’d perfectly tailor prices to each buyer. But in practice, that’s rarely possible.

So how should you approach it?

One solution is to find your best price through trial and error. But first, it’s crucial to remember that different customers will have different levels of willingness to pay. Some will buy at nearly any price, while others you’ll lose once you cross certain price thresholds.

That’s why many creators explore price discrimination as a strategy.

Price discrimination

The economist A. C. Pigou first coined the term “price discrimination” in 1920, defining three levels of differential pricing—first, second, and third degree (as discussed in Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal R. Varian).

Personalized pricing (First-degree)

Set a different price for each user. This is hard to execute for scalable digital goods, which usually require a public price. However, you can still personalize pricing indirectly. For example, you can offer tailored coupons. One strategy is to set a high initial price to anchor perceived value in customers’ minds, then offer specific customers a discount via personalized coupons. This can work especially well if you sell coaching services or high-touch digital products.

Versioning (Second-degree)

This approach lets users choose between different versions of the same product, each with distinct features, perks, or levels of service, and thus different prices. It allows you to segment price-averse customers from those willing to pay more for premium options.

Group pricing (Third-degree)

Group pricing offers volume discounts or tailored rates to clusters of similar customers. Examples include student discounts, regional pricing, or team licenses for businesses. While less common in solo digital products, it can be highly effective in certain niches, but it may require extensive negotiations.

Versioning

If you decide to offer multiple versions of the same product, your first question might be: How many versions should I create?

Offering three versions is often considered the gold standard. Typically, the middle version should be priced significantly higher than the most basic one, but only slightly cheaper than the premium option, making it the most attractive choice for many customers.

By creating both low-end and high-end versions of your product, you can serve customers with widely varying willingness to pay. When deciding how to version your product, focus on identifying features that your most demanding customers value highly, but that are less relevant to others.

A practical tip: start by building the highest-quality version of your digital product, then subtract value to create lower tiers.

For instance, if you’re creating a video course, design it to be modular. Keep lessons independent and minimize references between unrelated sections. This way, you can easily sell lessons separately or bundle them into different versions or courses, may you ever change idea in the future.

And if you add new videos, features, or extras later on, make sure they can be toggled on or off, giving you maximum flexibility to decide which version includes which content.

Bundling or not?

There are only two ways to make money in business: one is to bundle; the other is unbundle.

Jim Barksdale, former CEO of Netscape

Instead of offering multiple versions of the same product, or several smaller products you try to cross-sell, it can sometimes be more profitable to sell a single, comprehensive bundle.

The advantages are clear: you gain economies of scale in marketing and promotion, reduce customer confusion, and help smooth out differences in customers’ willingness to pay.

For example, instead of selling two separate courses for $200 each, you might combine them into a single $400 course. Customers with higher willingness to pay are far more likely to buy the comprehensive bundle, while splitting the content risks earning only $200 from them, or losing sales entirely. Bundling also simplifies your marketing, reduces promotional complexity, and avoids overwhelming customers with too many choices.

Let's see an example of a creator choosing to sell two products separately:

Customer Type	Quantity	Purchase Behavior	Price	Revenue
Only Product A	40	Buys A only	$200	$8,000
Only Product B	30	Buys B only	$200	$6,000
Buys Both A and B	10	Buys both A and B	$200 x 2	$4,000
Total Revenue	—		—	$18,000

While here's a scenario where the bundle ends up performing better:

Customer Type	Quantity	Purchase Behavior	Price	Revenue
Buys Bundle	50	Buys full bundle	$400	$20,000
Price-Sensitive Drop	30	Doesn't buy	$0	$0
Total Revenue	—		—	$20,000

Of course, there’s always a tradeoff: bundling at a higher price may deter price-sensitive buyers who might have purchased a smaller standalone product. And the scenarios can easily favor the unbundled products, if you can convince most customers to buy both.

Yet, as mentioned before, bundling can also hugely simplify your life, making your marketing efforts more focused and your selling much easier, reducing your costs.

Coupons and temporary promotions

It’s no secret that promotions are a powerful way to attract more customers. Otherwise, none of us would bother scrolling for today’s discounts on our favorite food delivery app. And we certainly wouldn’t all anxiously await Prime Days, Black Fridays, or Cyber Mondays!

There are two common ways to temporarily promote your digital products: coupons and temporary price reductions.

Coupons don’t just boost sales, they’re also a valuable tool for gauging your price-averse customers’ willingness to pay. After all, those who use coupons tend to be the most price-sensitive.

Similarly, temporary price reductions or sales attract price-sensitive customers and help you segment your market. People who buy even at your highest price are, almost by definition, not very price-sensitive. Promotions and sales let you capture additional revenue from those who are.

One useful promotional idea: consider giving away a lesson, an index or other material for free, while selling access to the core material. You could also do it temporarily! This not only acts as a teaser but also signals the value of your premium content.

Conclusion

Pricing digital products is both an art and a science.

Whether you choose bundling, versioning, or creative use of coupons, the key is testing and refining your approach. Understand your audience, segment your market, and remember: your pricing strategy can be as scalable as your digital product.

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