IDEAS home Printed from https://ideas.repec.org/a/eee/joreco/v21y2014i1p48-53.html
   My bibliography  Save this article

Bundling products to success: The influence of complementarity and advertising

Author

Listed:
  • Yan, Ruiliang
  • Myers, Chris
  • Wang, John
  • Ghose, Sanjoy

Abstract

This study investigates the strategic influence of product complementarity and advertising on the success of bundling products. We use a profit maximization model to show that when a firm sells bundled products, both the product complementarity and advertising significantly impact the performance of bundled products. The bundling strategy with advertising can help firm achieve higher performance than the bundling strategy without advertising. However, the price discount to the identical products must be attractive to customers and the degree of product complementarity to the complementary products must be large enough, and then the bundling strategy with advertising can obtain a success in the market. Furthermore, our results also show that when the degree of the complementarity between two products increases, firm should invest less on advertising to promote the bundled products. Based on our results, we propose optimal marketing strategies for firms to adopt. Firm managers can utilize our findings to plan their bundling strategies wisely.

Suggested Citation

  • Yan, Ruiliang & Myers, Chris & Wang, John & Ghose, Sanjoy, 2014. "Bundling products to success: The influence of complementarity and advertising," Journal of Retailing and Consumer Services, Elsevier, vol. 21(1), pages 48-53.
    • Handle: RePEc:eee:joreco:v:21:y:2014:i:1:p:48-53
    DOI: 10.1016/j.jretconser.2013.07.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969698913000878
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretconser.2013.07.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. Ward Hanson & R. Kipp Martin, 1990. "Optimal Bundle Pricing," Management Science, INFORMS, vol. 36(2), pages 155-174, February.
    3. Kenney, Roy W & Klein, Benjamin, 1983. "The Economics of Block Booking," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 497-540, October.
    4. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    5. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
    6. Yan, Ruiliang & Bandyopadhyay, Subir, 2011. "The profit benefits of bundle pricing of complementary products," Journal of Retailing and Consumer Services, Elsevier, vol. 18(4), pages 355-361.
    7. Yadav, Manjit S, 1994. "How Buyers Evaluate Product Bundles: A Model of Anchoring and Adjustment," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 21(2), pages 342-353, September.
    8. Sudheer Gupta & Richard Loulou, 1998. "Process Innovation, Product Differentiation, and Channel Structure: Strategic Incentives in a Duopoly," Marketing Science, INFORMS, vol. 17(4), pages 301-316.
    9. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
    10. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 371-383.
    11. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ata Allah Taleizadeh & Masoumeh Sadat Babaei & Seyed Taghi Akhavan Niaki & Mahsa Noori-daryan, 2020. "Bundle pricing and inventory decisions on complementary products," Operational Research, Springer, vol. 20(2), pages 517-541, June.
    2. à lvarez-Albelo, Carmen D. & Hernández-Martín, Raúl & Padrón-Fumero, Noemi, 2020. "The effects on tourism of airfare subsidies for residents: The key role of packaging strategies," Journal of Air Transport Management, Elsevier, vol. 84(C).
    3. Pan, Fei & Pan, Shenle & Zhou, Wei & Fan, Tijun, 2022. "Perishable product bundling with logistics uncertainty: Solution based on physical internet," International Journal of Production Economics, Elsevier, vol. 244(C).
    4. Doha, Ahmed & Ghasemaghaei, Maryam & Hassanein, Khaled, 2017. "Social bundling: A novel method to enhance consumers’ intention to purchase online bundles," Journal of Retailing and Consumer Services, Elsevier, vol. 35(C), pages 106-117.
    5. Li, Wenjing & Hardesty, David M. & Craig, Adam W., 2018. "The impact of dynamic bundling on price fairness perceptions," Journal of Retailing and Consumer Services, Elsevier, vol. 40(C), pages 204-212.
    6. Dominique-Ferreira, Sérgio, 2017. "How important is the strategic order of product attribute presentation in the non-life insurance market?," Journal of Retailing and Consumer Services, Elsevier, vol. 34(C), pages 138-144.
    7. He, Yi & Wang, Hang & Guo, Qiang & Xu, Qingyun, 2019. "Coordination through cooperative advertising in a two-period consumer electronics supply chain," Journal of Retailing and Consumer Services, Elsevier, vol. 50(C), pages 179-188.
    8. Guidon, Sergio & Wicki, Michael & Bernauer, Thomas & Axhausen, Kay, 2020. "Transportation service bundling – For whose benefit? Consumer valuation of pure bundling in the passenger transportation market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 131(C), pages 91-106.
    9. Carmen D. Ã lvarez-Albelo, 2020. "The role of complementarity of goods in a mixed bundling strategy," Economics and Business Letters, Oviedo University Press, vol. 9(1), pages 31-40.
    10. Raghu Nandan Giri & Shyamal Kumar Mondal & Manoranjan Maiti, 2020. "Bundle pricing strategies for two complementary products with different channel powers," Annals of Operations Research, Springer, vol. 287(2), pages 701-725, April.
    11. Sarat Kumar Jena & Abhijeet Ghadge, 2022. "Product bundling and advertising strategy for a duopoly supply chain: a power-balance perspective," Annals of Operations Research, Springer, vol. 315(2), pages 1729-1753, August.
    12. Ilona Bondos & Marcin Lipowski, 2016. "Service Packages – Attractiveness Has Many Faces," Eurasian Journal of Business and Management, Eurasian Publications, vol. 4(1), pages 1-10.
    13. Huang, Yeu-Shiang & Ho, Jyh-Wen & Wu, Guan-Jin, 2022. "A study on promotion with strategic two-stage customized bundling," Journal of Retailing and Consumer Services, Elsevier, vol. 68(C).
    14. Wen-wen Ren & Yong Liu & Qi Zhang & Xiao-ying Wang, 2022. "Sales strategies considering consumer purchasing preferences for imperfect complementary products," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(2), pages 164-182, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yan, Ruiliang & Bandyopadhyay, Subir, 2011. "The profit benefits of bundle pricing of complementary products," Journal of Retailing and Consumer Services, Elsevier, vol. 18(4), pages 355-361.
    2. Ritwik Raj & Mark H. Karwan & Chase Murray & Lei Sun, 2022. "Itemized pricing in B2B bundles with diminishing reservation prices and loss averse customers," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(4), pages 375-392, August.
    3. Carmen D. Ã lvarez-Albelo, 2020. "The role of complementarity of goods in a mixed bundling strategy," Economics and Business Letters, Oviedo University Press, vol. 9(1), pages 31-40.
    4. Vithala R. Rao & Gary J. Russell & Hemant Bhargava & Alan Cooke & Tim Derdenger & Hwang Kim & Nanda Kumar & Irwin Levin & Yu Ma & Nitin Mehta & John Pracejus & R. Venkatesh, 2018. "Emerging Trends in Product Bundling: Investigating Consumer Choice and Firm Behavior," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 5(1), pages 107-120, March.
    5. Kopczewski, Tomasz & Sobolewski, Maciej & Miernik, Ireneusz, 2018. "Bundling or unbundling? Integrated simulation model of optimal pricing strategies," International Journal of Production Economics, Elsevier, vol. 204(C), pages 328-345.
    6. Kamel Jedidi & Sharan Jagpal & Puneet Manchanda, 2003. "Measuring Heterogeneous Reservation Prices for Product Bundles," Marketing Science, INFORMS, vol. 22(1), pages 107-130, July.
    7. Mayer, Stefan & Klein, Robert & Seiermann, Stephanie, 2013. "A simulation-based approach to price optimisation of the mixed bundling problem with capacity constraints," International Journal of Production Economics, Elsevier, vol. 145(2), pages 584-598.
    8. Girju, Marina & Prasad, Ashutosh & Ratchford, Brian T., 2013. "Pure Components versus Pure Bundling in a Marketing Channel," Journal of Retailing, Elsevier, vol. 89(4), pages 423-437.
    9. Shin-yi Wu & Lorin M. Hitt & Pei-yu Chen & G. Anandalingam, 2008. "Customized Bundle Pricing for Information Goods: A Nonlinear Mixed-Integer Programming Approach," Management Science, INFORMS, vol. 54(3), pages 608-622, March.
    10. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.
    11. Hemant K. Bhargava, 2013. "Mixed Bundling of Two Independently Valued Goods," Management Science, INFORMS, vol. 59(9), pages 2170-2185, September.
    12. Chakravarty, A. & Mild, A. & Taudes, A., 2013. "Bundling decisions in supply chains," European Journal of Operational Research, Elsevier, vol. 231(3), pages 617-630.
    13. Lorin M. Hitt & Pei-yu Chen, 2005. "Bundling with Customer Self-Selection: A Simple Approach to Bundling Low-Marginal-Cost Goods," Management Science, INFORMS, vol. 51(10), pages 1481-1493, October.
    14. Koukova, Nevena T. & Kannan, P.K. & Ratchford, Brian T., 2008. "Product form bundling: Implications for marketing digital products," Journal of Retailing, Elsevier, vol. 84(2), pages 181-194.
    15. Simonin, Bernard L. & Ruth, Julie A., 1995. "Bundling as a strategy for new product introduction: Effects on consumers' reservation prices for the bundle, the new product, and its tie-in," Journal of Business Research, Elsevier, vol. 33(3), pages 219-230, July.
    16. Banciu, M. & Ødegaard, F., 2016. "Optimal product bundling with dependent valuations: The price of independence," European Journal of Operational Research, Elsevier, vol. 255(2), pages 481-495.
    17. Qianbo Yin & Kwei‐Long Huang & Chia‐Wei Kuo & Sean X. Zhou, 2021. "Add‐On Pricing in a Distribution Channel," Production and Operations Management, Production and Operations Management Society, vol. 30(11), pages 4069-4088, November.
    18. Cao, Qingning & Tang, Yuanzhao & Perera, Sandun & Zhang, Jianqiang, 2022. "Manufacturer- versus retailer-initiated bundling: Implications for the supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    19. Bulut, Zümbül & Gürler, Ülkü & Sen, Alper, 2009. "Bundle pricing of inventories with stochastic demand," European Journal of Operational Research, Elsevier, vol. 197(3), pages 897-911, September.
    20. Christine Lambey-Checchin, 2013. "Le mixed price bundling, une stratégie marketing alternative ? Le cas bancaire des « offres jeunes »," Post-Print hal-01507451, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:joreco:v:21:y:2014:i:1:p:48-53. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing-and-consumer-services .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.