Product bundling
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Competition law |
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Basic concepts |
Anti-competitive practices |
Enforcement authorities and organizations |
In
A bundle of products may be called a package deal; in
.Product bundling is most suitable for high volume and high margin (i.e., low marginal cost) products. Research by
Most firms are multi-product or multi-service companies faced with the decision whether to sell products or services separately at individual prices or whether combinations of products should be marketed in the form of "bundles" for which a "bundle price" is asked. Price bundling plays an increasingly important role in many industries (e.g. banking, insurance, software, automotive) and some companies even build their business strategies on bundling. In bundle pricing, companies sell a package or set of goods or services for a lower price than they would charge if the customer bought all of them separately. Pursuing a bundle pricing strategy allows a business to increase its profit by using a discount to induce customers to buy more than they otherwise would have.
Rationale
Bundling is most successful when:
- There are economies of scale in production.
- There are consumer electronics bundles where a big box electronics store offers all of the components for a home theatresetup (DVD player, flatscreen TV, surround sound speakers, receiver, subwoofer) for a lower price than if each component were to be purchased separately. The big box electronics store can exploit its economies of scope, as they distribute and sell a huge range of home theatre products.
- The Marginal costs of bundling are low.
- Production set-up costs are high.
- Customer acquisition costs are high.
- Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product or service. This is particularly the case when a non-specialist consumer has Home Theatre in a Box, a consumer can feel confident that all of the included speakers are of the correct impedance and power rating and that all of the included cables are the correct models.
While many well-known examples of bundling are all products or services from the same store or provider, such as the
Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated. For example, assume consumer A values a word processor software at $100 and spreadsheet processor at $60, while consumer B values a word processor at $60 and spreadsheet at $100. Seller can generate maximum revenue of only $240 by setting $60 price for each product—both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, one of the consumers will refuse to buy it. With bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160. Thus, bundling can be considered a form of price discrimination.[4]
Venkatesh and Mahajan reviewed the research on bundle design and pricing in 2009.[5] A 1997 study by Mercer Management Consulting, in Massachusetts stated that good bundles have five elements: (1) the package is worth more than the "sum of its parts" for the consumer; (2) the bundle brings order and simplicity to a set of confusing or tedious choices; (3) the bundle solves a problem for the consumer; (4) the bundle is focused and lean in an effort to avoid carrying or including options, goods or services the consumer has no use for; and (5) the bundle generates interest or even controversy.[6] Number 1 can be read as simply that a bundle should cost less than buying each item separately; however, even if the bundle were to cost the same in dollars, a bundle may still be an appealing value proposition for a consumer, as they do not have to hand-pick each accessory and add-on item (this is the 2nd and 3rd point).
Bundling is often thought of mainly as a value pricing strategy, in that product bundles often cost less than if each item were purchased separately. However, bundling can also have other strategic advantages. For example, when a grocery store is making up a gift basket, they can use the design of the basket item list as a way to promote new products or brands that a customer may not know or as a way to liquidate merchandise that is not selling well. As well, even though many bundles are less expensive than all of the items if purchased separately, in some cases the bundle costs more than if each item was purchased separately; this tactic is particularly effective in high-end retailing where conspicuous consumption and prestige pricing elements come into play. A well-off home theatre enthusiast with a very high budget may find a $10,000 home theatre package attractive, even if it costs a bit more than buying each item separately, because this is an impressive total cost.[citation needed]
Varieties
- Pure bundling occurs when a consumer can only purchase the entire bundle or nothing
- Joint bundling is a subcategory of pure bundling in which the two products are offered together for one bundled price
- Leader bundling is a subcategory of pure bundling in which a leader product is offered for discount if purchased with a non-leader product, accessory or other item.
- Mixed-leader bundling is a variant of leader bundling with the added possibility of buying the leader product on its own.
- Mixed bundling occurs when consumers are offered a choice between purchasing the entire bundle or one of the separate parts of the bundle.
Advantages and disadvantages
Advantages:
- Help the company sell some unpopular products and speed up inventory clearance.[7] Product bundling combines the best-selling products and unpopular products with less inventory by setting reasonable prices to increase the attractiveness, so that consumers can buy combination products to help the company reduce inventory.
- Help the company generate more sales and maximize profits.[8] Product bundling can maximize consumer surplus so that consumers feel that they have obtained additional items, so customers are more likely to spend a total of one time to purchase multiple products. This can help the company increase total sales revenue by increasing the average order value, average transaction value, and the amount of each transaction, because multiple products are more expensive than a single product.
- Enable the company to promote more differentiated products with lower marketing costs.[9] The company can spend the same energy and cost to promote two or more products at the same time.
- Help consumers reduce decision-making pressure. Merchants use matching algorithms to set up bundled products that meet the needs of consumers, thereby guiding customers to choose options that meet their needs and reducing their decision fatigue. Bundles have the effect of reducing search costs.[10]
Disadvantages to the consumer:
- Decreases competition.[11]
- Reduces barrier to market entry.
- Can drive up consumer costs.[11]
- A method of price discrimination.[4]
Disadvantages to the seller:
- Product bundling may lead to the cannibalization of branded products. These products can be purchased outside of the bundled sales package. For example, if a company sells bundled products and individual products at the same time, then the bundled products will get more sales, which will reduce the profit of the individual products.[12]
- When consumers cannot buy certain products individually, they may not buy them because they feel that the bundled sales package forces them to buy more products.[13]
Software
In the computer industry, bundled software is distributed with another product such as a piece of
Early microcomputer companies varied in their decision to bundle software.
Home theatre in a box
In the 1990s and in the 2000s (decade) and 2010s, many
The most serious home theatre enthusiasts do not typically buy HTIB bundles, as they are a more sophisticated target market. As such, the most serious home cinema-philes typically purchase each component (power amplifiers, speakers, subwoofer cabinet, speaker cables) separately, so that they can choose which items meet their specific movie-watching goals. For example, a serious home theatre enthusiast may wish to have a large cabinet subwoofer enclosure with heavy bracing, a type and size of subwoofer cabinet that would not be found in any HTIB bundle due to its large size and high cost. As well, a serious home theatre enthusiast may wish to have a powered subwoofer with a user-adjustable crossover, a "subsonic" filter and other higher-cost advanced features.
Market power and competitiveness
In
United States v. Microsoft
TV programing bundles by cable and satellite providers
The examples and perspective in this article may not represent a worldwide view of the subject. (August 2022) |
A 2018 consumer report shows many subscribers are dissatisfied with cable TV, mainly over prices, which has led to many complaints.
The high price of current complete bundling, upwards of $180–200, along with poor customer service, surprise bills, and technical difficulties, resulted in
Alternative
See also
- Breakage
- Competition law
- Compilation album
- Enterprise engagement
- Freebie marketing
- History of IBM § 1969: Antitrust, the Unbundling of software and services
- Local loop unbundling
- Marketing co-operation
- Multicart
- Package holiday
- Price discrimination
- Product lining
- Product management
- Shovelware
- Software bloat
- Tying (commerce)
References
- JSTOR 1886045.
- JSTOR 2634781.
- JSTOR 193259.
- ^ a b "Second-degree price discrimination".
- ISBN 9781848447448. Archived from the original(PDF) on 2012-03-23. Retrieved 2012-12-10.
- ^ "BUNDLED GOODS AND SERVICES". www.referenceforbusiness.com. Reference for Business. Retrieved 9 January 2017.
- S2CID 125857534.
- S2CID 167045671.
- JSTOR 4135230.
- S2CID 167928144.
- ^ a b c Jonathan, Leibowitz. "Re: Potentially Exclusionary Bundled Discounts for Pediatric Vaccines" (PDF). The American Antitrust Institute. Retrieved 23 May 2012.
- ISSN 0033-5533.
- S2CID 154884072.
- ^ McMahon, Steve (May 1984). "The Kaypro 10". BYTE. pp. 206–224. Retrieved 10 September 2016.
- ^ Ahl, David H. (December 1984). "Top 12 computers of 1984". Creative Computing. Retrieved 2019-03-16.
- ^ Zientara, Marguerite (1984-04-02). "Q&A: H.L. Sparks". InfoWorld. pp. 84–85. Retrieved 10 February 2015.
- ^ McNeill, Dan (December 1987). "Macintosh: The Word Explosion". Compute!'s Apple Applications. pp. 54–60. Retrieved 14 September 2016.
- ^ Weksler, Mike (June 1994). "CDs On A ROMpage". Computer Gaming World. pp. 36–40.
- ^ NY Post: Cable prices have been too damn high for nearly 20 years: (By Chris Mills, BGR; posted April 30, 2018)- Retrieved 2018-08-26
- ^ Average Monthly Cable TV Subscription Bills May Top $200 by 2020: The NPD Group press release (April 10, 2012)- Retrieved 2018-08-26
- ^ TV rate hikes: Why cable bills are rising again and what can you do: The Associated Press Published January 5, 2018
- ^ The Digital Revolution is Disrupting the TV Industry: The Boston Consulting Group (BCG) Posted- March 21, 2016- Retrieved 2018-08-26
- ^ Consumer report: People Still Don't Like Their Cable Companies, CR's Latest Telecom Survey Finds (By James K. Willcox August 08, 2018)- Retrieved 2018-08-26
- ^ Why Cable, Internet and TV Customer Service Sucks- Retrieved 2018-08-27-06
- ^ Perez, Sarah. "YouTube TV and Hulu Live TV now have hundreds of thousands of subscribers, says report". TechCrunch. Retrieved August 11, 2022.
- ^ Littleton, Cynthia (August 6, 2019). "Disney to Offer Streaming Bundle of Disney Plus, ESPN Plus and Hulu for $12.99". Variety. Archived from the original on August 6, 2019. Retrieved August 11, 2022.
Further reading
- "Bundle Up, Electric Providers". Public Utilities Fortnightly 137, no. 2 (1999): 62.
- "Bundling Survey Assesses Consumers' Interests". Security Distributing and Marketing 29, no. 1 (1999): 30.
- "Business Unbundled: Microsoft". The Economist 374, 8407 (2005): 48.
- Fuerderer, R., A. Herrmann, and G. Wuebker, eds. Optimal Bundling: Marketing Strategies for Improving Economic Performance. New York: Springer, 1999.
- Janiszewski, C., and M. Chuha, Jr. "The Influence of Price Discount Framing on the Evaluation of a Product Bundle". Journal of Consumer Research 30, no. 4 (2004): 534–547.
- Mannes, G. "The Urge to Unbundle". Fast Company 91 (2005): 23–24.
- Ovans, Andrea. "Make a Bundle Bundling". Harvard Business Review 75, no. 6 (1997): 18–20. 1999, S4–S11.
- Salinger, Michael A. "A Graphical Analysis of Bundling". Journal of Business 68, no. 1 (1995): 85–98.
- Solomon, Howard. "Corel Inks Office Suite Bundling Deal with PC Chips". Computing Canada 25, no. 15 (1999): 15–17.
- "Utilities Pose Threat to Bundling". Utility Business, 28 February 1999, 72.