Marketing Science 2009

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

Subramanian Balachander¹; Bikram Ghosh²; Axel Stock^3,4

¹ Purdue University West Lafayette · ² University of South Carolina · ³ University of Central Florida · ⁴ College of Business Administration

Abstract

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.

DOI

10.1287/mksc.1090.0540

Sources

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APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓