Strategic bundling of information products: Managing consumer group tastes and product versions

Bundling strategies are widely used in the information product market. Unlike physical products, information products typically have limited marginal costs, offer multiple versions, and differ in functionality rather than purely in quality. Motivated by the widespread use of bundling in retail and digital platforms, this study explores how firms can optimize bundling strategies for information products, taking into account varying consumer group tastes and quality differentiation between product versions. We consider a monopolistic firm that produces both a physical product and an information product, deciding on the version to offer as well as its bundling and pricing strategy. In addition to individual-level valuation heterogeneity, we also account for consumers’ group-level tastes toward information products, which influence both individual valuations and the perceived quality of different versions. Our findings reveal that bundling serves not only as a tool for price discrimination but also enables firms to effectively manage heterogeneous group preferences. Specifically, bundling is optimal when shared quality is either very low or very high, and firms may strategically choose between the basic and premium versions depending on consumer heterogeneity. Interestingly, under certain market conditions, bundling can function as a substitute for traditional versioning strategies. Moreover, the taste gap and the quality gap driven by group taste significantly impact a firm’s versioning and bundling strategies. These findings provide managerial insights into how firms can optimize pricing and product offerings in digital markets.