Strategic Bundling of Products and Prices: A New Synthesis for Marketing

Abstract

Bundling is pervasive in today's markets. However, the bundling literature contains inconsistencies in the use of temis and ambiguity about basic principles underlying the phenomenon. The literature aiso iacits an encompassing dassification of the various strategies, dear ruies to evaiuate the legaiity of each strategy, and a unifying framework to indicate when each is optimal. Based on a review of the marketing, economics, and iaw iiterature, this artide deveiops a new synthesis of the fieki of bundiing, which provides three important benefits. First, the articie clearly and consistentiy defines bundiing terms and identifies two key dimensions that enabie a comprehensive ciassification of bundiing strategies. Second, it fbrmuiates ciear ruies for evaiuating the legaiity of each of these strategies. Third, it proposes a framework of 12 propositions that suggest whk:h bundiing strategy is optimai in various contexts. The synthesis provides managers with a framework with which to understand and choose bundiing strategies, it aiso provides researchers with promising avenues for further research.

Managing relationship gaps: A practitioner perspective

“…Unbundling (Stremersch and Tellis, 2002) and customization (Gilmore and Pine, 1997) of offerings, as well as organizational arrangements that facilitate "skunk works" (Gwynne, 1997), are concrete examples of adaptive behaviors. The potential benefits of adaptation include positive influences on revenue, cost savings, and customer retention (Möller andWilson, 1995, Schmidt et al, 2007), along with increased trust (Hallén et al, 1991) and strengthened bonds between parties involved (Johanson and Mattsson, 1987).…”

The risks of providing services

“…According to Stremersch and Tellis (2002), bundling strategies yield higher profit margins than unbundled offerings because customers are willing to pay for perceived higher value. Three bundling strategies were identified by Adams and Yellen (1976): (i) 'pure component strategy' (offering all goods and service components separately); (ii) 'pure bundling strategy' (offering the components only in bundled packages); and (iii) 'mixed bundling strategy' (offering the components both separately and in bundles).…”

“…Moreover, as Wilson et al (1990) have argued, the perceived value of bundled systems (such as the convenience of 'one-stop shopping') decreases for customers as they become more knowledgeable. To mitigate such strategic risks, suppliers can combine bundles and components in a 'mixed bundling' strategy (Stremersch and Tellis, 2002), which allows customers greater scope in choosing ingredients that are appropriate for them, thus decreasing the strategic risk for the provider. It can thus be proposed that: * Proposition 2b: While a pure bundling strategy carries a higher strategic risk for the provider than a pure component strategy, a mixed bundling strategy means a lower strategic risk than both a pure component strategy and a pure bundling strategy.…”

Bundle pricing of inventories with stochastic demand

“…Although not directly related to our study, see also Ansari et al (1996) for the determination of the optimal number of items to be included in a service bundle, Ben-Akiva and Gershenfeld (1998) for customer choice behavior for bundles with correlated demand, Carbajo et al (1990) for incentives for bundling under imperfect competition, Hanson and Martin (1990) for the calculation of optimal bundle prices in a deterministic setting, using mixed integer linear programming, Ernst and Kouvelis (1999) for the effect of selling product bundles (as opposed to price bundles in our case) on inventory decisions, and Stremersch and Tellis (2002) for a clear discussion of bundling terms which are used in marketing, economics and law literature in a somewhat unclear way. Finally, we note the growing literature on bundling of information goods (see, for example, Bakos and Brynjolfsson (1999)).…”