Framing effects in mixed price bundling
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Framing effects in mixed price bundling Timothy J. Gilbride & Joseph P. Guiltinan & Joel E. Urbany
Published online: 18 January 2008 # Springer Science + Business Media, LLC 2007
Abstract In mixed price bundling, the consumer has the choice of buying the individual products separately, as part of a bundle with a discounted price, or not purchasing them at all. Framing effects refer to how the price of the bundle is presented to the consumer. Past studies have focused on perceptual measures and aggregate level results, and have only looked at a subset of different types of price framing in any one study. In this paper we use discrete choice data to investigate whether price framing affects choice in mixed price bundles. We find that the joint, integrated frame results in the highest proportion of respondents choosing the bundle and the fewest choosing “none.” When the prices of items in a bundle are itemized, some consumers are more likely to compare prices separately to their reference prices to evaluate the attractiveness of the deal, but this actually reduces the probability of purchasing the bundle. However, the majority of consumers do not use reference prices and instead follow a simple economic choice model. Keywords Bundling . Pricing . Framing effects . Hierarchical Bayes
1 Introduction Bundling is the business practice of offering two or more products for sale as package. In pure bundling the component products are only sold as a package. In mixed bundling the consumer has the choice of buying two or more products separately, or together in a bundle. When a price discount is part of the bundle offer, T. J. Gilbride (*) : J. P. Guiltinan : J. E. Urbany Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, USA e-mail: [email protected] J. P. Guiltinan e-mail: [email protected] J. E. Urbany e-mail: [email protected]
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Market Lett (2008) 19:125–139
the practice is characterized as “price bundling” (cf. Stremersch and Tellis 2002). Discounted prices are typically framed in one of three ways. – – –
Joint, integrated: “Pay $X when you buy both product A and product B” Joint, segregated: “Pay $Y for A and $Z for B when you buy both” Leader, segregated: “Pay $W for B when you buy A at the regular price”
In the last example, product B is referred to as the “price leader”, and managers must choose which product should be the “leader” if leader pricing is selected. Past academic research on framing price bundles has measured perceptions of different bundles (as opposed to choice), has not compared joint vs. leader framing effects, and has focused on aggregate level effects (cf. Harlem et al. 1995; Kaicker et al. 1995; Yadav 1994, 1995). In contrast, this study investigates choice behavior, assesses the impact of all types of mixed bundling strategies, and tests different information processing models at the individual level. These goals are accomplished by using a discrete choice experimental design and hierarchical Bayes statistical techniques to measure the effect of reference pri
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