Page 2
7.1 The introduction to price bundling
• For multi-product companies, bundling is the core of some
business strategies. (profit and sales, position)
Page 8
The forms of price bundling
• Tie-in sales: the buyer of the main product (tying good ，主 打产品）agrees to buy one or several complementary goods (tied goods，附加产品), which are necessary to use the tying good, exclusively from the same supplier. (usually tying good is durable---machine, copier, computer, while the tied goods are nondurables like toner（调色剂）, paper, Xray film). (e.g., mobile phone companies, if buying a service for a minimal time period at least, supplying a low-priced phone and a small activation fee ).
products are offered for sale. (e.g., Microsoft’ Office bundle). Another form is “ mixed-leader bundling”,（混合主导产品捆 绑）a discount is given for the second product if the full price is paid for the first (the “leader product” is usually innovative and priced high; The second, mature and priced low )
When should one bundle or unbundle ? Which information is required ?
An example of pure bundle
• A number of value-added services including voice mail and a hot line provided by a mobile- phone company. • A market study revealed that some customers valued the two services together at less than DM 5 per month. These customers were considered not worth pursuing and were excluded from further analysis. • The remaining four customer groups differed in valuation of the two services. The maximum prices that these four groups are willing to pay are given in the table below.
• Most of the cases concern complementary products ( products
that are somehow used or consumed together). While
complementarity certainly fosters price bundling, it is not a necessary precondition for the application of the strategy.
The forms of price bundling
• Sales rebates:
Some enterprises frequently offer a year-end rebate on total annual sales across all the company’s products in order to increase customer loyalty.
• Publishing companies sell so-called “ title combination” （刊物 版面捆绑）to their advertising customers. The same is true for TV companies. • Predatory binding.
Explanation:
• Customer group 1 was attracted to voice mail but valued the hot line little, whereas for group 4 it was just the other way around. Groups 2 and 3 were intermediate cases. • The four groups were of about equal size. • The willingness to pay for both services was calculated by summing up the two maximum prices. • The optimal prices for the individual services , DM 8 per month for voice mail, DM 8.5 per month for hot line. The profit is DM 16 for Groups 1 and 2, DM 17 for groups 3 and 4 .if priced separately, the optimal prices yield DM 33 per month.
The forms of price bundling
• Cross couponing: consumer-goods manufactures frequently
use coupons to promote other products from their assortment.
This manner is often used to introduce new products and /or increase the sales of weak products by linking them with established products in the firm’ product line.
• Cross-border bundling of different ownership.
Page 6
Several examples:
• “ Block booking” （批量订购）in the film industry. The film distributor provide “block” or bundle of more and less attractive films to the movie-house operators.
• Mobile phone companies offer phone sets at low prices provided
the buyer signs a contract to buy phone services for a certain
period.
Page 7
ቤተ መጻሕፍቲ ባይዱ
7.2 The forms of bundling.
Page 4
Several examples:
• Very popular in the software industry, where it is known as suite selling(套装销售）. Microsoft’s “Office” bundle contains three programs, Word 6.0 for Windows, Excel 5.0, and powerpoint, which purchased individually cost DM 829 each. The suite of the three costs DM 1,269, a discount of 49% relative to the sum of the individual prices • Holiday packages: air travel + hotel + meals. • In 1996 BMW started to include antitheft and hijacking insurance in the price of new models in South Africa.
• Pure price bundling: only the bundle is offered. The
products cannot be bought individually. (e.g., Block booking).
• Mixed price bundling: both the bundle and individual
Chapter 7:
Price Bundling
Some slides from Robert L. Phillips
Roadmap:
• The introduction to price bundling.