Bundling Definition

Cite this article as:"Bundling Definition," in The Business Professor, updated February 26, 2019, last accessed August 11, 2020, https://thebusinessprofessor.com/lesson/bundling-definition/.

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Bundling (Marketing Strategy) Definition

Bundling as a marketing strategy is the combination of products or services into a single unique product or service and selling them as new ones. Bundling works well to both similar products and differentiated products and services that attract preference from a particular group of customers.

A Little More on What is Bundling in Marketing

Multi-product and or multi-service companies are mostly faced with production dilemma of whether to sell a single product at a unit price or in bundles at the latter price. Price bundling continues performing a pivot role in numerous economic sectors including automotive, insurance, banking and software and others. Some companies based on bundling have developed new marketing strategies. Companies price their bundles at a relatively lower in Bundle pricing than would be if the products and services were singly sold. This provides discounts on all products and services to customers resulting in higher volumes of purchases and consequently to increased profit to companies. This also counters the opportunity loss in unit profit margin.

It is advisable for customers to check the availability of bundling as some of the providers will highlight such. It is cost saving for consumers purchasing bundled services. For instance, even though home and auto are two insurance policies, it is probable for a customer to bundle the two policies together from a single company which is cheaper, in besides being more convenient means of bills payments in disregards to cost saving.

Why Bundling is a Consumer-Friendly Practice

Bundling benefits consumers always even though most consumers primarily of young ages find it difficult taking the benefits of these bundle policies because their purchases is affected by their needs and will do so once the need arises. For example, most of the new car owners find their insurance policies from their parents’ agents, and it will take them long before changing. With time, when they buy and move to their new residence, the urge to change to a closer agent within their reach comes. This has cost many consumers even though many insurance provider companies are numerous encouragements to provide policies to each client. It is so because acquiring new customers is so expensive, more than six times than keeping the current ones. Consequently, Insurance companies invest in stronger incentives in selling new policies such as home and car insurance policies to their other existing policy holders.

References for Bundling

Academic Research on Bundling

  • Strategic bundling of products and prices: A new synthesis for marketing, Stremersch, S., & Tellis, G. J. (2002). Journal of Marketing, 66(1), 55-72.  Bundling cuts across the entire market nowadays. Although bundling literature have some functional differences in the use of terms and ambiguity regarding the basic phenomenal principles. There is also the insufficient embracing classification of various strategies, clear evaluation rules for individual strategy and combining framework for the optimum indicator. In regards to marketing, economics and law literature review, this paper produces another bundling aspect with three significant benefits. Beginning with, this paper defines bundling terms clearly and consistently. It also identifies two essential dimensions allowing classification of all-inclusive bundling strategies. Secondly, bundling formulates clearly, the rules for legal, strategic evaluation. Finally, it proposes a twelve proposition framework suggesting optimal contexts in various strategies. The synthesis enriches managers with a framework to rely upon when understanding and making choices on the bundling strategies. Also, Bundling furnishes researchers with promising opportunities for more research.
  • Transaction decoupling: How price bundling affects the decision to consume, Soman, D., & Gourville, J. T. (2001). Journal of marketing research, 38(1), 30-44.  In the current marketplace, price bundling is very common and cuts across as retailers and manufacturers provide numerous products as a bundle with the bundle price. In this paper, the author is based on the sunk cost and forecasts that price bundling results to disassociation of transaction benefits and costs and this leads to the reduction of attention to sunk cost and consumer’s probability to use for service. Author outlines in two lab studies the reduction of a person’s likelihood of skiing on the last day of four-day ski vacation as a result of having a bundled four-day ski pass as opposed to four-one-day ski tickets.
  • The price bundling of services: A normative framework, Guiltinan, J. P. (1987). The Journal of Marketing, 74-85. Many industries including service companies have widened the range of their product lines and have led to the used of mixed price bundling. Mixed price bundling involves issuing of choices to customers to either buy individual products or services or as a bundle of at least two at a particular discount — the Author discuses normative framework for sorting appropriate categories of services for different Mixed-bundling discounts plans. The discussion extends to economic theory which applies for explicit consideration of complementarity association and marketing strategic objectives.
  • Bundling information goods of decreasing value, Geng, X., Stinchcombe, M. B., & Whinston, A. B. (2005). Management science, 51(4), 662-667.  The author talks of the decrease in marginal satisfaction that a consumer of information, websites, news, and weather forecasts gets as more is consumed. The paper enumerates simple guidelines strategies for optimal bundling marketing strategies. If consumers marginal propensity reduces slowly, then bundling is almost optimum and vice versa.
  • Bundling as a strategy for new product introduction: Effects on consumers’ reservation prices for the bundle, the new product, and its tie-in, Simonin, B. L., & Ruth, J. A. (1995). Journal of business research, 33(3), 219-230. The study was carried out on the impacts of bundling on the consumers ordering prices of both bundle and its component. The study involved personal care products mixed-product bundles and examined the effects of product joining, bundle form, and the perception regarding the brand.  Concussion stated that priority attitudes directed to the component brands greatly impacted the evaluation of bundle after which it mediates the results of customers’ prior attitudes on reservation prices for the bundle and the individual products component including the new one.
  • Bundling and Competition on the Internet, Koukova, N. T., Kannan, P. K., & Ratchford, B. T. (2008). Journal of Retailing, 84(2), 181-194. The author looks at how marginal cost of production and distribution of digital information goods have been significantly reduced by the use of the internet and by an introduction of new and competitive marketing strategies such as bundling. The writer shows that economies of aggregation for information goods if their marginal cost is minimum can be created by bundling in Bakos-Brynjolfsson bundling model, where other different competition types both vertical and horizontal were studied. The Authors major summary was based on bundling predicted value as it is easier for the sellers to forecast the customer’s consumption of a bundle of goods to others. By selling a product in a bundle, the seller can gather more details about a product than when it is singly sold. Large aggregators are considered for major potential profits as a result of bundling predictive value.
  • Bundling and retail agglomeration effects on shopping behaviour, Oppewal, H., & Holyoake, B. (2004). Journal of Retailing and Consumer Services, 11(2), 61-74. The author researched the effects that retail agglomeration and bundling have on shopping model more so in-store purchases occurrences and arrangement of shopping activities. The writer argued that both bundling and retail agglomeration produce similar benefits to consumers. The paper outlines the tests and hypotheses from experiment choices where respondents were to buy a beach holiday. It was concluded that it is more probable for consumers to either purchase bundles where there is a lot of competition than when fewer competitors exist or avoiding buying.
  • Consumer preference for product bundles: The role of reduced search costs, Harris, J., & Blair, E. A. (2006). Journal of the Academy of Marketing Science, 34(4), 506-513. Whereas other earlier research mostly focused on bundling from the consumer perspective, this paper addresses the potential reduction of search and assembly costs. By exploratory interviews, and additional two experiments, the author indicates that a bundles’ preference is more web bundle choice reduces search effort than when it is not more so in consumers who are little motivated in information processing.
  • Measuring heterogeneous reservation prices for product bundles, Jedidi, K., Jagpal, S., & Manchanda, P. (2003). Marketing Science, 22(1), 107-130.  In this paper, the author developed a model to capture the successive heterogeneity in the combined distribution of products and bundles reservation prices. It is based on utility theory of subject variability. It also provides dollarmetric reservation prices and each level approximation allowing firms to focus on customers and produce personalised and non-linear pricing policies. The study portrayed that, the model captures heterogeneity and predicts well whether products are durable or not. This methodology is robust and customized reservation prices do not have some information content that is present in the basic model. Direct elicitation method is biased as it fails to correctly state variation in price reservation and this results to suboptimal product line product policy which depends on the degree of heterogeneity in reservation prices of bundles and individual products.
  • Product bundling or reserved product pricing? Price discrimination with myopic and strategic consumers, Prasad, A., Venkatesh, R., & Mahajan, V. (2015). International Journal of Research in Marketing, 32(1), 1-8.  In the study of mixed bundling as second-degree price discrimination, the research examines the extent of comparison between mixed bundling and its reserved components product pricing. Reserved product pricing entails a company issuing a single product following by enticement of the buyers with a discount on the subsequent product. The monopolistic model offers double price models of strategic consumers and myopic strategies. A conclusion is made that as reserved product pricing is of more profit than mixed bundling provided market has a modest faction of myopic and consumers.
  • Retailer-driven product bundling in a distribution channel, Bhargava, H. K. (2012). Marketing Science, 31(6), 1014-1021. The author based the study on bundling in a distribution channel involving downstream retailer combining components products by different manufacturers producing separately. In addition to the deep insights offered by earlier bundling literature, this paper exposes the channel disputes weakening the bundling case. The author continues to argue that even though for integrated companies bundling is better, it never existing for centralised channel. The competitive play between firms involving retailers and many manufactures lowers the profit.
  • The effect of price bundling on consumer perceptions of value, Naylor, G., & Frank, K. E. (2001). Journal of Services Marketing, 15(4), 270-281. This longitudinal study examines the activities of both price and costs expectation with a price bundle on the important perception of new and frequent guest at a resort or a spa. The data founded agree that more benefits are put into considerations by consumers besides price when evaluating value. Providing an all-inclusive package price ultimately increases the value perception for new customers.

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