Manual Optimal Bundling: Marketing Strategies for Improving Economic Performance

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Mahajan, M. Herrmann, M. Herrmann, F. Huber, R. Bauer, F. About Ralph Fuerderer Prof. Rating details. Book ratings by Goodreads. Goodreads is the world's largest site for readers with over 50 million reviews. We're featuring millions of their reader ratings on our book pages to help you find your new favourite book. Close X. Learn about new offers and get more deals by joining our newsletter. Sign up now. Symmetrically, we also have pit 5 pil and p jt 5 p jl and therefore pit 5 p jt 5 pil 5 p jl. Rearranging terms in 8. The payoffs for the carriers and the shipper are given by: 3kj 2 3e 2 2ki 2 k j kj 2 e 2 k pi 5 ;p 5 ; CS 5 V 2 kj 2 e 8.

When ki.

For carrier j we observe that payoffs are always below those obtained by selling only the separate components, but above those obtained if only the bundle was sold. These considerations are summarised in Table 8.

Marketing Strategy - To Bundle or Not to Bundle? : MarketingProfs Article

Another way of looking at it is as follows: as the shipper is the one that determines the outcome of the game, and it is indifferent between the bundle and the unbundled components, the payoffs are given by the second row of Table 8. Let us now discuss the case in which kj k. In this case carrier i has the possibility of setting the price of the bundle even above ki and be sure that the shipper will continue buying the bundle.

Let us assume that carrier i sets pir 5 kj 2 e as before. Even with p jt and p jl equal to 0, if carrier i sets pit 5 pil 5 0, the shipper will always purchase the bundle; its payoff cost by doing so will always be less than it would obtain from purchasing the separate components, that is, V 2 k V 2 kj 2 e.

The payoffs for the carriers and the shipper are given by: pi 5 kj 2 e 2 ki ; pj 5 0; 8. In fact, no matter what the price of the bundle now is, and at what level carrier j sets p jt and p jl, carrier i will always set pit and pil high enough to ensure that the shipper buys the bundle. The results of the game are given in Table 8. If the bundles were not available, the shipper would always obtain CS 5 V 2 k and carriers pi 5 pj 5 0. The option of having the bundle may increase shipper payoff as long as kj is lower than k.

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In other words, as long as the less efficient carrier in the industry has the ability to assemble bundles better that its customers that is, at a lower transaction cost. It should be noted that this is not necessarily the case, since some shippers, for example, freight forwarders, may be more efficient in assembling bundles. Each carrier faces competition in the bundle market from two sides: directly from other carriers on the supply side, and from their clients on the demand side.

This assumption is embedded in the model. The results of the model indicate that engaging in bundle provision is more profitable for a carrier that is significantly more efficient in providing bundles than its competitor or its client. If transaction costs are not simul- taneously significantly below those of its client or its competitor, bundling does not seem to be a particularly profitable strategy.

In contrast, when a carrier reaches sufficient levels of efficiency in the provision of the bundle, this grants it the ability to obtain positive results. This is because, in the model, the profitability of the bundling strategy depends on the ability of the shipper to assemble the bundle itself. Similarly, the ability of offering bundles at a low price does not necessarily ensure that the shipper will purchase the bundle. It should be noted that bundling is nonetheless never a worse strategy than selling only separate components, as long as the difference in the costs of assembling the bundles between carriers are small.

Therefore, if the costs of setting up a logistics branch within the company are small enough, the decision to engage in bundle provision is at least as good as the decision not to engage in this practice. In previous research see Tauman et al.

What Is Bundle Pricing?

In the situation outlined in our model we show that differences in the ability to provide the bundle, with respect to the ability of providing the bundle by the demand side, may justify the decision of a company not to provide bundles. If a carrier knows that compared to its competitors, or alternatively to its customers, the costs of providing bundles are substan- tially higher implying that the competitor will provide a cheaper bundle or the customer will be able to assemble the bundle cheaply itself then the best strategy available will be not to provide bundles and focus only on the separate components.

When shippers are substantially more efficient in assembling the bundle, it seems that competitive interaction in the oligopoly is not enough to ensure that welfare is maximised, and society might be penalised. In this case, disallowing bundling might be a better option. The effects on social welfare are also dependent on the difference between carrier and shipper transaction costs.

When carriers are able to assemble bundles at a lower cost than shippers, bundling affords society and consumers better welfare results.

Optimal Bundling : Marketing Strategies for Improving Economic Performance

The interesting feature of bundling, as opposed to the case in which bundling is not permitted, concerns the possibility of carriers passing on efficiency gains to shippers and society. We observe that when a carrier is more efficient than a shipper in assembling the bundle, social welfare is higher.

The effects on consumer surplus depend on the difference between the transaction costs of the less efficient carrier and the shipper. If the transaction costs of the shipper are lower than those of the less efficient carrier, bundling lowers consumer surplus; if they are greater, then bun- dling increases consumer surplus Table 8. The authors summarise the findings of market research among shipping lines and analyse bundling from an industrial organisation perspective. Among the major conclusions of the chapter is that bundling seems in practice to be motivated by: cost advantages; demand drivers; differ- entiation strategy; the possibility of obtaining higher margins by jointly offering ocean and hinterland transportation; and the necessity to better control coordination costs with hinterland connections.

The model adds to the discussion on the strategic dimensions of bun- dling decisions. This is done by evaluating the outcomes of competition in a duopoly where carriers compete on prices; can sell individual components or bundles; and both carriers and the shipper incur a cost in assembling the bundle. The most interesting finding of the chapter is that bundling allows for efficiency gains to be passed on to shippers and society, an eventuality that cannot take place when bundling is forbidden.

This desirable feature of bundling comes at a risk, however, since carri- ers may not necessarily have the highest levels of efficiency in providing the bundle. When this is the case, bundling tends to reduce consumer surplus and can even reduce social welfare. An important issue that remains open for further research is whether carriers are intrinsically better than other parties in the supply chain in providing bundles. If this is the case, competitive forces, even in the restrictive case of duopoly, ensure that this efficiency is passed on to consumers and society.

It should be noted in addition that one of the benefits of mixed bundling is that it increases choice for consumers. Considerations on social welfare should then additionally be weighted against the value of increased choice and variety. Especially in the case of certain supply chains, these benefits can be substantial. The chapter raises a variety of questions and research issues that need to be investigated further. The model presented here may require further testing. The authors are in the process of modifying the underlying assumptions of the model and extending it to the case of oligopoly in industries characterised by increas- ing returns to scale.

This represents an additional research direction that is interesting per se. The understanding of bundling is of great interest to the industry as well. It remains unclear whether the expansion of the scope of liner serv- ices from terminal to terminal to warehouse to warehouse and finally to door to door is the best path to follow for all companies. The questions regarding what are the limits of vertical integration and what are the most profitable ways of going forward are still pertinent.

Further research is also needed to understand the competitive advan- tage that is achieved by the expansion of the scope of the business of car- riers. If bundles are priced at a lower rate than the stand-alone services, this in the end will increase competition both in the shipping and in the logistics markets. In addition, from a purely practical perspective, if ship- ping is still profitable by itself, the question remains why a shipping line should move into a new business that requires specific competences and market knowledge.

Shipping lines are traditionally more concerned with control of costs and equipment, while the extended use of bundling requires a shift of busi- ness approach to a more customer-oriented one. Thus, maximising asset utilisation and at the same time increasing customer satisfaction seems the necessary approach for a successful implementation of bundling, but how to achieve this in practice is still not yet fully understood. Notes 1. Service contracts represent over 80 per cent of the total container transport business.

In industrial organisation literature, a distinction is made between bundling and tie-in sales.

Reality vs Perception

In bundling, the combination of two or more products is sold in fixed propor- tions, while tie-in sales schemes are less restrictive and the mix of goods is not so rigidly prescribed Pepall et al. In what follows, the two terms are used interchangeably, since each bundle is uniquely targeted to one shipper only. This section summarises the preliminary findings of a research project on bundling in the liner and logistics sectors, supported by the NOL Fellowship Research Programme of Erasmus University Rotterdam and Singapore Management University.

References Adams, W. Anderson, S. Burstein, M. Carbajo, J. Cariou, P. Casson, M. Coase, R. Cready, W. Demsetz, H. Economides, E. Farrell, J. Fuerderer, R. Fuerderer, A. Herrmann and G. Franck, B. Haralambides, H. Button and D. Heaver, T.

Amazon FBA Product Research 2019 Bundling Guide - WATCH THIS Before You Bundle Your Product!

Grammenos ed. Bundling transport and logistics services in global supply chains Liao, C. Liao, C. Matutes, C. McAfee, R. Midoro, R. Olivella Puig, R. Paroush, J.

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