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

    Authors

    S. Balachander; B. Ghosh;A. Stock

    Comments

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    Abbreviated Journal Title

    Mark. Sci.

    Keywords

    bundling; competitive marketing strategy; game theory; price promotions; brand loyalty; STRATEGIES; SALES; OLIGOPOLY; PRODUCTS; MONOPOLY; MARKETS; LOYALTY; GOODS; MODEL; Business

    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.

    Journal Title

    Marketing Science

    Volume

    29

    Issue/Number

    4

    Publication Date

    1-1-2010

    Document Type

    Article

    Language

    English

    First Page

    624

    Last Page

    638

    WOS Identifier

    WOS:000280810300003

    ISSN

    0732-2399

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