Why Bundle Discounts Can Be a Profitable Alternative to Competing on Price Promotions

Price promotions and bundling have been two of the most widely used marketing tools in industry practice. Past literature has assumed that firms respond to price promotions by promoting a product in the same category. In this paper, we extend this literature as well as the bundling literature by con...

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Bibliographic Details
Published in:	Marketing science (Providence, R.I.) R.I.), 2010-07, Vol.29 (4), p.624-638
Main Authors:	Balachander, Subramanian, Ghosh, Bikram, Stock, Axel
Format:	Article
Language:	eng
Subjects:	Analysis Brand loyalty Bundling Competition Competition (Economics) competitive marketing strategy Consumer behaviour Customers Discounts Economic competition Economic profit Equilibrium Game theory Management science Market prices Market strategy Marketing Mixed strategy Operations research Price planning price promotions Prices Pricing Product development Profitability Profits Stock prices Studies Turnover
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Summary:	Price promotions and bundling have been two of the most widely used marketing tools in industry practice. Past literature has assumed that firms respond to price promotions by promoting a product in the same category. In this paper, we extend this literature as well as the bundling literature by considering the possibility that a firm may respond to a competitor's price promotions by also offering a cross-buying or bundling discount. Using a game-theoretic model, we show that bundle discounts can help increase profits in a competitive market by creating endogenous loyalty, thereby reducing the intensity of promotional competition. We also find that bundle discounts can be used as an effective defensive marketing tool to prevent customer defection to the competition.
ISSN:	0732-2399 1526-548X