Saturday, October 05, 2013

Should Companies Rethink the Practice of Offering Product Bundles?

You've all seen plenty of promotions that offer two or more products for one bundled price.  Think of a combo meal at McDonald's, an offer for an airline ticket and hotel reservation, or a special for a blazer and pair of slacks.  Does offering these bundles make sense?   New research by Aaron Brough and Alexander Chernev suggests that companies should proceed with caution.    Chernev explains that, " When we show people a burger and ask them how many calories it has, they might say 500. For a side salad, they might say 100. But if you pair the same burger with the side salad, people will often think that the whole meal has fewer calories—say 400—than the burger alone. That seems counterintuitive, as if the salad somehow has ‘negative’ calories.”  The scholars document a similar effect on consumer willingness to pay.  They conducted experiments in which they paired expensive items with an inexpensive item in a bundle (example: a home gym and a fitness DVD).  They found that bundling decreased customers’ willingness to pay substantially.  In fact, consumers sometimes end up valuing the bundle less than the expensive item on its own!  

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