Bundles = discount? Revisiting complex theories of bundle effects

Abstract

Purpose -The paper seeks to propose and test a theory of the psychological impact of price bundling that is derived from bundling's economic impact. It is called the inferred bundle saving hypothesis. In the absence of explicit information about bundle savings, consumers infer a bundle saving when presented with a bundle offer. It is suggested that inferred bundle saving provides a simple, parsimonious explanation for pre-and post-purchase bundle effects. Design/methodology/approach -The theory is tested in two laboratory studies that employ partial replications of two prior price bundle studies. Findings -The results show that the inferred bundle saving effect is robust in both product and service contexts, and can potentially explain the bundle effects found in these two studies.Research limitations/implications -Additional experimental studies are recommended to further test the proposed theory. Practical implications -First, contrary to convention, it is not always optimal for firms to integrate price information in a single bundle price. Second, firms may sometimes use the price-bundling format to signal a bundle saving without actually offering one. Third, firms can manage consumption and expected refund of bundles by manipulating consumer perception of bundle saving. Originality/value -It is intuitive that consumers expect a bundle saving. However, this paper is the first to establish empirically the existence of this inferred bundle saving and demonstrate its potential as a theoretical explanation for various bundle effects. The research challenges the extant view that price bundling per se always enhances consumer pre-purchase evaluation. Moreover, it connects economic and psychological research, as well as pre-and post-purchase analysis, of bundle effects.

Bundling of telecom offerings: An Empirical Investigation in the Turkish market

“…It is also interesting that telecom operators can use bundling even if an actual discount is not offered, suggesting that consumers tend to infer savings with bundled options (Heeler et al, 2007). Since consumers perceive bundles as discounted even when the bundle does not imply explicit information about any savings, service providers can avoid unnecessary discounts at their bundles.…”

“…However, consumers generally perceive the bundle as discounted even though explicit information about a discount is not claimed (Heeler, Nguyen, & Buff, 2007). For marketing strategy, the issue of how to create and communicate bundle incentives that minimize cost to the company and maximize customer value is critical.…”

Pricing Models in a Captive Market: A Case Study of LCC Dormitories

“…Furthermore, the study suggests that the inferred bundle effect is a better theory than mental accounting and framing effects found in the study by Johnson (1999). Inferred bundle saving effect implies that customers have a reference point (anchoring effect), which was not present in the study conducted by Johnson et al (1999), where "the bundled and unbundled prices were treated as losses regardless of whether inferred bundle discount exists" (Heeler et al, 2007). The study by Heeler et al (2007), provides further evidence that "the inferred bundle saving effect is real, and is a probable explanation of pre-and post-purchase bundle effects."…”

“…Inferred bundle saving effect implies that customers have a reference point (anchoring effect), which was not present in the study conducted by Johnson et al (1999), where "the bundled and unbundled prices were treated as losses regardless of whether inferred bundle discount exists" (Heeler et al, 2007). The study by Heeler et al (2007), provides further evidence that "the inferred bundle saving effect is real, and is a probable explanation of pre-and post-purchase bundle effects." Another study suggests that the complexity of the pricing strategy cannot explain the customer's' evaluation of the offer.…”

“…Another reason consumers prefer price bundling over price partitioning is that most of the time, people estimate that the bundle is cheaper than the actual price. A study by Heeler et al (2007) finds the existence of an "inferred bundle saving effect," that assumes that generally, consumers believe that bundles involve a discount. Furthermore, the study suggests that the inferred bundle effect is a better theory than mental accounting and framing effects found in the study by Johnson (1999).…”