The Role of Selling Price Essays

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E LSEVIER

C omponent versus Bundle Pricing
The Role of Selling Price Deviations from Price Expectations
A jit Kaicker
PATHFINDERS,INC., NEW

DELHI, INDIA

William O. Bearden
UNIVERSITY OF SOUTH CAROLINA

Kenneth C. Manning
GONZAGA UNIVERSITY

The objective of this article was to investigate the effects of discrepancies between price expectations and selling prices on consumer preference for purchasing products priced separately or together. Five gain~loss conditions
(i.e., multiple gains, mixed gains, mixed losses-net loss low, mixed lossesnet loss high, and multiple losses), in which prices for two complementary products were presented using component and bundle pricing strategies, were investigated. Predictions regarding consumers' pricing strategy preferences werederived from prospect theory. Findings suggested that study participants derived greater valuefrom component pricing than bundle pricing when confronted with multiple gain and mixed losses-net loss high outcomes.
In contrast, mixed gains and mixed losses-net loss low conditions resulted in a preference for bundled pricing over component pricing. Contrary to predictions, subjects preferred component pricing when faced with multiple losses, j BUSHeES 1995. 33.231-239

u ndling occurs when two or more products or services a re sold together as a single package for a single selling price. Examples of bundling include: furniture sets, stereo s ystem equipment, season tickets for sporting or cultural events, c omputer hardware and software combinations, multiple services offered by financial institutions for a single fee, and multiple-item dinner "specials" at restaurants (Guiltinan, 1987;
V enkatesh and Mahajan, 1993). Research has only recently b egun to explore the conditions that determine consumer evaluations and reactions to product bundles. Monroe (1990) suggested that having the opportunity to purchase products in a b undle may appeal to consumers by reducing search and acquisition costs, as well as installation costs. In addition, Yadav a nd Monroe (1993) provided evidence that consumers gain transaction utility from discounts associated with the individual items in a bundle plus any discount associated with the bundle.

Addresscorrespondenceto William O. Bearden,Collegeof BusinessAdministration,
University of South Carolina, Columbia, SC 29208.
Journal of BusinessResearch33, 231-239 (1995)
© ElsevierScience Inc., 1995
655 Avenue of the Americas, New York, NY 10010

In a product bundling context, Mazumdar and Jun (1993) e xamined consumer evaluations of multiple versus single price increases and decreases. Subjects indicated their preference bet ween purchasing two complementary products assigned a single overall price and priced individually. The bundle price was set at a level equivalent to the sum of the individually priced p roducts. When the selling price(s) were higher than expected, subjects preferred the bundle pricing scenario (i.e., single price i ncrease) over the individually priced products (i.e., multiple p rice increase). On the other hand, when selling prices were l ower than expected, the individually priced alternative was p referred over the bundle.
T he objective of the present research was to replicate and e xtend Mazumdar and Jun (1993). By way of replication, we r eexamined Mazumdar andJun's multiple loss and gain predictions embodied in their study of price increases and decreases.
W e extended their research in two important ways. First, we e mployed alternative experimental procedures (i.e., measurem ent of consumer evaluations using both perceived value and relative preference measures, use of different products, and changes in the magnitude of price discrepancies). Second, we investigated mixed gain and mixed loss situations, in which c onsumers encounter one product priced higher than expected a nd the second lower than expected (Thaler, 1985). The article…