Weighted-Additive versus Reference-Dependent models of bundle evaluation: Evidence from discount framing on product bundles with surcharges

Abstract

Attractiveness of product bundles largely depends on how prices are framed. There is considerable disagreement among two contemporary models that posit how product bundles with discounts are evaluated. According to the weighted-additive model, discounts on the most important component in a bundle increases attractiveness. However according to the reference-dependent model, discounts on the most negatively valued component make a bundle more attractive. This research evaluated the relative influences of different price formats and discount offers for bundles with a primary product and a secondary surcharge component (shipping charge). Across two studies on a low and a high priced product, discounts on the negatively valued shipping surcharge increased attractiveness of the bundle compared to a similar discount on the product, thus supporting the reference-dependent model. Further, for a low priced product, bundling increased attractiveness while for a high priced product, partitioning was more attractive. Beyond theoretical understandings of price evaluation, these findings also have important practical implications for advertisers.