Impact Of Bundle Forms On Change In Consumers’ Internal Reference Price (IRP) Of Bundle Components

Abstract

Consumers’ internal reference price (IRP) is an internal standard against which observed prices are compared. Promotions on individual products lead to change (reduction) in consumers’ IRP leading to lower purchase of products at regular price. Bundle offers (sale of two separate products together for a lower price) represent price reductions which are prolonged and therefore shift consumers’ IRP for bundle components downwards, thereby reducing long-term sustainability of bundle components. There is scarcity in literature on impact of different bundle forms which are economically equivalent on change in consumers’ IRP of bundle components. This research addresses this gap through five studies encompassing eight experiments (including one field experiment). The theoretical bases for the research include mental accounting theory; adaptation theory and assimilation-contrast theory; attribution theory; anchoring and adjustment; GLOMO processing model. Study1 demonstrates that consumers distribute promotion in pure bundle among bundle components based on shopping goals. Study2 establishes differential impact of bundle format (pure bundle, mixed-joint bundle & mixed-leader bundle) on change in consumers’ IRP of bundle components and purchase likelihood. Change in consumers’ IRP is lowest (purchase likelihood is highest) for mixed-joint bundle followed by mixed-leader bundle with pure bundle resulting in largest change in IRP and lowest purchase likelihood. Further, change in consumers’ IRP mediates the relationship between bundle form and purchase likelihood. In mixed-leader context, Study3 provides evidence that consumers’ change in IRP is greater (and purchase likelihood for bundle is lower) when discount is offered on tie-in bundle component as compared to when discount is offered on focal bundle component. Study4 demonstrates that change in consumers’ IRP is lower (and purchase likelihood is higher) for bundle components and bundle when bundle components are complementary as compared to when they are non-complementary. Study5 is a field experiment confirming findings of study2 for a bundle component through actual consumer purchase behavior. Findings of this research have significant theoretical and managerial implications.