Cellular phones, PDAs, and wireless services – Marketing strategy

For example, a combined offering of a cellular phone, a personal digital assistant (PDA) and wireless service is a bundle because at least some consumers buy cellular phones, PDAs, and wireless services separately. In this paper, bundling is considered as a price-promotional tool (price bundling) and as a marketing strategy (product bundling) for packaging complementary or related products. Therefore, bundling can be defined as the sale of two or more separate products in one package at a discounted price (Stremersch 2002).
Further, the definition above does not by itself presume simultaneity in purchase of the bundle components. For instance, a box of washing powder may contain a coupon that provides a discount on a bottle of fabric softener (“cross-couponing”). This coupon, which can be redeemed at a later purchase occasion, in fact, allows consumers to buy the bundle of detergent and softener at a reduced price. This definition does not impose any restrictions regarding the composition of a bundle. A bundle may thus contain multiple units of the same product.
Consequently, even a six-pack of beer can be considered bundling (be it a non-genuine form). However, essential here is that the special price only applies to integer multiples of a pre-specified quantity of items. Other nonlinear pricing schemes (Dolan 1987) are not termed bundling.

Price Bundling
“Price bundling” has often been used as a synonym for “product bundling”. The term is particularly popular in the psychological marketing literature on bundling. It addresses the effects of the semantic integration of the separate product prices into one single bundle price (Johnson et al.
1999). Yet, presuming that product bundling automatically implies bundling of price information is incorrect. Offering a package of several products at a single price is both product bundling and price bundling. However, a promotion that allows a discount on one product when a second product is bought, is product bundling but no price bundling. Stated differently, product bundling is a necessary but non-sufficient condition for price bundling. Consequently, price bundling is the practice of offering for sale a package of two or more products by explicitly stating a single price.
Pure Bundling, Mixed Bundling and Tying
Two types of product bundling: pure and mixed bundling should be differentiated Adams and Yellen (1976). Pure bundling involves the availability of only the bundle while mixed bundling refers to the availability of the bundle as well as one or more of the separate component products. Microsoft selling its operating system and Internet browser only as a single package is an example of pure bundling. A manufacturer marketing packages of shampoo and conditioner at a discounted price while still selling the shampoo and/or conditioner separately, is an example of mixed bundling.
Tying is the practice whereby customers can only buy a specific product if they also buy (an)other product(s) from the same seller (McDowell 1996). In other words, the availability of one product is made conditional on the purchase of other products (Whinston 1990). For instance, in the 1930’s, IBM forced purchasers of its tabulating machines to purchase all punch-cards, no matter what quantity, from IBM (Phlips 1983, pp. 150-151). Although sometimes used as a synonym for product bundling (Warhit 1980), tying thus clearly differs from bundling.
First, tying does not necessarily involve the sale of a package of fixed size.
Second, it requires that at least one component (the tying product) cannot be purchased separately. As a consequence, a mixed bundling setting in which all component products are separately available, is no tying: in other words, a cosmetics manufacturer’s shampoo-and-conditioner bundle is no tying as long as both products can also be purchased separately. Conversely, a bundling strategy in which as a minimum of one constituent is not sold separately is a so-called package tie-in (Nalebuff 2003).

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