Consumer evaluation and choice of product bundles: an empirical study on the effects of price and non-price incentives and the moderating influence of consumers' goal orientation

Abstract

Price bundling, the practice of selling two or more separate products in a single package at a price discount, is a tool for cross selling a given product A to customers who only buy product B and vice versa. Cross selling works by transference of consumer surplus from the higher to the lower valued product in the bundle. The mechanism of transfer of consumer surplus assumes independence of demand of the bundled products. Studies have, however, highlighted the strategic importance of relaxing the independence assumption, by considering various types of complementary relations between components of bundles [which do not necessitate the transfer of consumer surplus]. It is suggested that this strategy incentivizes the customer vis-H-vis a price discount by raising their reservation price for the bundle. Value is created through integration of the bundle components. This strategy of integrating the bundle components is known as product bundling (Stremersch and Tellis, 2002). Empirical research on the efficacy of product bundles vis-H-vis price bundles is, however, scant. In this study we investigate how consumers choose and evaluate product bundles vis-H-vis comparable price bundles by considering the image enhancement and the product enhancement product bundling strategies as proposed by Guiltinan (1987). The choice between a product bundle and an equivalent price bundle is framed as (i) a loss in utility, and (ii) an economic loss. Subsequently we investigate how the choice and evaluation of the product bundle vary across the aforementioned frames. Further, we study how individual differences in consumers chronic goal orientation [promotion focus and prevention focus] (Higgins, 1997, 1998) affect choice and evaluation of the product vis-H-vis price bundles, thereby contributing to the highly scarce literature on process oriented studies in bundling. Consideration of consumers goal orientation also serves to link the scarce process oriented studies and the popular outcome oriented ones. Finally, effects of price presentation format [consolidated or partitioned] on consumers choice and evaluation of product versus price bundles was investigated. In this research, two full factorial between subjects experiments were conducted for each of the product bundling strategies mentioned above. The sample sizes for the experiments corresponding to the Image Enhancement and the Product Enhancement product bundling strategies were 128 and 120 respectively. Respondents were gathered from around Ahmedabad and Calcutta. Consistent with the extant theoretical tenets in framing [Prospect Theory: reference dependence and the endowment effect], results from two experiments suggest: while forgoing the enhancement [utility loss] is perceived as a loss, forgoing the price discount is not perceived as a loss as much. Specifically for the image enhancement product bundling strategy it was found that prevention oriented consumers, who are more sensitive to losses as compared to the promotion oriented consumers, value the enhancement more in the fit condition [prevention orientation and utility loss] as compared to the non-fit condition [promotion orientation and economic loss]. Given the weaker effect of loss framing in the economic loss frame, we did not find any significant differences in choice and evaluation of the product bundle across prevention and promotion focused consumers. Thus the moderating effect of consumers goal orientation was established. For the product enhancement bundling strategy, goal orientation moderated the effect of price structure on consumers choice and evaluation of the product bundle. Our research directly compares the efficacy of the two fundamentally different product bundling strategies and paves the way for an integrated theory in bundling. We also contribute to the literature on process oriented research in bundling by considering the effects of consumers goal orientation. The significant interactions between consumers goal orientation and the price structure and framing manipulation establish a link between the process oriented theories on consumers goal orientation, and the outcome oriented Prospect Theory (Kahneman and Tversky, 1979). With the product bundle as the point of reference for choice and evaluation, firms can make the same look relatively more attractive with respect to a comparable price bundle and thus sell a bundle at a higher price. Price partitioning emerges as the strategy of choice for prevention oriented consumers in the Utility Loss frame and promotion oriented consumers in the Economic Loss frame.