Which of the following is not a condition for profitable bundling of multiple products

Bundling sales are becoming more and more popular in the business market, though the pricing and advertising of these bundles remains an extremely challenging task. Firms need to consider various issues, including segmented customer demand, product-specific costs, and consumers' multiple options. Furthermore, bundling decisions have significant implications for business managers and important influence on firm's marketing strategies as nowadays integrated and unique solutions become more common for firms' central market offering (Stremersch and Tellis, 2002, Venkatesh and Kamakura, 2003). Finally, bundling can also minimize consumer costs, depending on the number of items bundled, the value of those items, and the level of the variations (Estelami, 1999, Arora, 2008).

Because product bundling can offer economies of scale, bundle choices and sizes are significant for both consumers and sellers. Various product bundling strategies have been employed by different firms (Stremersch and Tellis, 2002, Arora, 2008). For example, many actual examples about complementary product bundling exist in the market, such as the bundle of DVD players and disks in BestBuy, the bundle of computer hardware and software in Staples, the bundle of Internet and Phone from Comcast, the bundle of fish pole and reel in Wal-Mart, etc. Furthermore, there are also a large number of examples about identical product bundles in the business market. For example, socks sales in Kohl's, car rent, auto tires, hotel booking, etc.

A related question is that once the decision to use the bundling strategy to sell products is made, what a firm needs to do to ensure that the bundling strategy is beneficial and successful. We show in our research that in order to maximize its profit, the firm needs to engage in an advertising campaign to promote the bundled products while ensuring the success of the bundling strategy (e.g., considering price discount, the degree of product complementarity, etc.) and making the bundling strategy perform more efficiently. The advertising can be defined, in our model, as seller-originated advertising that serves to inform the market of the existence and value of the bundled products. This advertising helps advertise the product quality characteristics, attractive price, discount, coupon and other promotions, in order to attract customers to buy.

Widespread actual examples have prompted various research models (Estelami, 1999, Stremersch and Tellis, 2002, Venkatesh and Kamakura, 2003, Arora, 2008), though none of prior models ever addresses bundling pricing policy and advertising strategy simultaneously for both identical and complementary products. We therefore propose a valuable model to address the optimal bundling price and advertising strategies for both identical and complementary products simultaneously. Furthermore, we also address the impact of the degree of complementarity between the two products on bundling pricing and advertising strategies. The degree of complementarity and the invested advertising should influence the advantages of bundling products and thus the optimum bundling that allows the firm to maximize its profit. Cournot (1938) and Stremersch and Tellis (2002) show if joint consumption is mandatory, firms should set an optimal price based on the value of the joint consumption. The firm's sales therefore depend on the price of the bundle, the degree of product complementary, and the effectiveness of the invested advertising.

Specifically, we utilize a profit maximization model to address the following main research questions: (1) What is the optimal bundling pricing for identical and complementary products, respectively? (2) What is the optimal advertising expenditure when firm invests advertising to promote the bundled products? (3) Is the bundling strategy with advertising always beneficial to firm? If not, under what conditions can firm benefit from such a strategy? (4) How does the invested advertising change as the degree of product complementarity changes? To answer these questions clearly, we consider and analyze three scenarios as follows.

Scenario 1: No bundling—firm sells two products separately.

Scenario 2: Bundling with advertising—firm sells the bundled products and invests advertising to promote the bundled products simultaneously.

Scenario 3: Bundling without advertising—firm sells the bundled products but does not invest advertising to promote the bundled products.

We then compare these scenarios and derive the optimal market strategies for the firm.

In the next section, we summarize relevant literature before we present our model with three different scenarios. The main results pertain to optimal policies and valuable comparisons are summarized in Section 3. The results of numerical examples are presented in Section 4. In Section 5, we end our paper with some conclusions and managerial implications.

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• A study on promotion with strategic two-stage customized bundling

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  In order to enhance both purchase willingness and consumer satisfaction, firms may sell products in a customized bundling way, with which consumers are allowed to select their preferred products to form a bundle. However, such a way needs to be carried out with an efficient strategic tool. This study contributes to the literature by proposing a two-stage customized bundling strategy with the aims of maximizing the firm's profit and satisfying the consumers' demands. The proposed strategy may assist managers in enhancing consumer satisfaction and loyalty under consideration of consumer heterogeneity. Consumers can select one main product with the greatest utility from the main product category at the first stage, and then, at the second, consider the associations between the chosen main and possible add-on products in the add-on product category, and finally select an add-on product to form a customized bundle with the greatest overall utility. Pricing strategies are investigated and compared for the customized and other traditional bundling strategies. The results show that when consumers are highly sensitive in their preferences, the use of a customized bundling strategy would be more profitable. However, in an extreme case when the consumer's perceived value of the add-on product and product association are both high, the traditional individual sales strategy would earn more profits than the customized bundling strategy.

• Perishable product bundling with logistics uncertainty: Solution based on physical internet

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  With the increasing popularity of online grocery shopping platforms, more and more retailers are starting to bundle perishable products for marketing advantages. Accidental shortage of bundled perishable products increases both cost and waste. In this research, we propose a physical Internet-enabled real-time system for a retailer that sells two complementary perishable products. Based on the physical Internet data, we consider both bundling and separate policies with repricing strategies. In various model setups, the analytical results show that the physical Internet offers valuable real-time information that generates insights for the retailer especially when the logistics uncertainty is high. Specifically, a higher bundle discount makes the firm tend to adopt bundling policy to increase the market demand. Whereas serious logistics accident occurs, the retailer would rather quickly switch to separate selling policy and reprice the products. We extend the numerical analysis by comparing the profits with and without information captured via Physical Internet to provide managerial guidance when the retailer evaluates the return on investment of such a system.

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  Airfare subsidies for residents in remote tourism destinations can negatively affect the local tourism industry. In this paper, we study the effects of airfare subsidies on a remote region's tourism sector with a theoretical model of air transport and tourism service transactions involving a remote tourism region, the rest of the country and the rest of the world. We show that firms' widespread packaging strategies in tourism markets, i.e. selling tourism packages composed of air transport and tourism services at a single price, acts as hidden price discrimination, since the packages are cheaper than buying the services separately. Thus, in the presence of higher airfares due to a subsidy, the tourists not entitled to the subsidy have incentives to switch to a cheaper alternative, namely tourism packages. Consequently, a packaging strategy can lessen or even avoid the negative impacts of the subsidy on a region's tourism sector.

• Transportation service bundling – For whose benefit? Consumer valuation of pure bundling in the passenger transportation market

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  Novel approaches to service bundling in the passenger transportation market are enabled by technology driven innovations and give rise to so called Mobility as a Service (MaaS) concepts. These approaches promise to increase the accessibility of existing public transportation services, possibly decrease car ownership rates and lower the environmental burden of the transportation system. However, the potential effects of comprehensive service bundles in the passenger transportation market are still largely unclear.

  In a competitive market, the potential success of MaaS bundles follows consumer valuation of the bundles as compared to valuation of stand-alone services. Thus, the difference between the bundle and sum-of-parts willingness to pay (WTP) is an indicator for the valuation of the bundling itself (which includes service integration valuation) and effects the competitiveness of the service bundles. In this study, several discrete choice experiments were conducted to indirectly estimate consumers' WTP for stand-alone transportation services and service bundles.

  The results indicate that public transportation, car sharing, and park and ride services are valuated significantly higher when offered in a bundle instead of as a stand-alone service. Bicycle-sharing, electrical bicycle (e-bike) sharing and taxi services are valuated lower. Potential consumers also exhibit a high WTP for a smartphone application that integrates the services and manages ticketing and payment.

  Consequently, subscription-based pure bundles for all transportation modes may not be the optimal strategy for mobility providers. Instead, it may be better to bundle public transportation with car sharing and park and ride to exploit the higher WTP and offer (electric) bicycle-sharing and taxi services on a pay-per-use basis. In this way, profitability of a public transportation system could be increased.

• Coordination through cooperative advertising in a two-period consumer electronics supply chain

  2019, Journal of Retailing and Consumer Services

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  Firms in the consumer electronics industry frequently launch new styles of their products, which leads to a “two-period” phenomenon in their product sales. Only a few published articles have considered two-period models in cooperative advertising. This paper investigates co-op advertising strategies in a two-period supply chain consisting of a single manufacturer and a single retailer. Utilizing game theory, we consider two different scenarios: a decentralized scenario with a cooperative advertising program and an integrated scenario. Aside from these scenarios, we propose a supply chain contract to coordinate this supply chain system. This paper has the following conclusions: (i) the manufacturer usually does not provide the same advertising subsidy strategy for the two generation products in the same period; (ii) the manufacturer may provide a low subsidy rate to the retailer if the advertising long-term effect is strong; and (iii) we demonstrate that the two-way subsidy contract can achieve a perfect supply chain coordination if a transfer payment exists.

• Implications of stochastic demand and manufacturers’ operational mode on retailer's mixed bundling strategy and its complexity analysis

  2018, Applied Mathematical Modelling

  Citation Excerpt :

  They also find that the value of bundling price increases with bundling discount price sensitivity and the size of market. Yan et al. [3] analyze the impact of advertising on the bundling strategy of complementary products, demonstrating that advertising can help bundling strategy make a better performance. Taleizadeh and Charmchi [4] develop a research with the consideration of the manufacturers’ decisions and the advertising cost sharing between the manufacturers and retailer.

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  In this paper, we consider a supply chain consisting of two manufacturers and one retailer producing and retailing complementary products facing stochastic demand. We focus on the retailer's bundling strategy and investigate the impact of the stochastic demand and manufacturers’ decisions on the bundling strategy. We find that the manufacturers will make cooperative game to maximize their profits. With manufacturers’ cooperative pricing strategy, the retailer will adopt bundling strategy facing a low level uncertain demand. Under severe uncertainty, the retailer will adopt no-bundling strategy to obtain more profits. We work out the critical condition which determines the retailer's retail strategy. We also analyze the stability of the dynamic game system in which the retailer adopts bundling and no-bundling strategy and find that the system in which the retailer adopts no-bundling strategy has a better performance on keeping stability, although the market is more uncertain. Finally, we provide managerial insights for the manufacturers to keep system stable and control the unstable system.

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