What is the Synergistic Effect?

Definition: A Synergistic effect appears when the combination of two variables produces a better result than the one obtained by employing both variables individually. It is a situation where a better outcome is achieved by merging elements.

What Does Synergistic Effect Mean?

Synergy is a concept that describes how the interaction of two or more variables at a time can produce a better result than its added individual outcomes. This concept can be applied to many different areas of life and business but it is most frequently used in medical contexts and business transactions. From the standpoint of medicine, a synergistic effect is achieved when the combination of two treatments applied simultaneously achieve a better outcome than applying each of them individually.

On the other hand, in business, a synergistic effect can be evidenced in mergers or takeover’s situations where the combination of two companies can produce a best overall competitive position and greater financial results than the sum of its individual results. It can also be applied to the combination of products, as in a bundle or promotion, where greater sales figures can be obtained by adding both products together in a single sale transaction, in comparison to selling them individually.

Example

Mr. Wagner is a sales manager at Glasses Co. a company that manufactures glass cups for fancy restaurants. The company produces many different types of trendy cups to fulfill the needs of high-end restaurants. Recently, Mr. Wagner discovered a correlation in the sales figures of two models, the crystal crown model and the regular wine cup.

He found out that many restaurants bought both of them together to have a diversified cup selection for both VIP and regular customers. He combined both models into a sales promotion where 2 boxes of the regular wine cup came with a discount in 1 box of the crystal crown model.

The price for this bundle will be $150. Individually, each box of regular cups cost $30 and each box of the crown model cost $100. By reducing the combined price of these 3 boxes in $10, sales increased by 20% more than what these models were selling individually. This result reflected that there was a synergistic effect between these 2 products.