Study On Bundling Strategies In Supply Chain Context

Bundling is the practice of selling two products in a package at a discounted price,which is less than the sum of their respective prices.As an effective marketing tool,bundling is widely used by retailer in various industries,such as fast food industry,tourism and super market and so on.By combing and classifying the bundling,this paper mainly studies the following three bundling strategies:mixed bundling,partial mixed bundling and mixed leader bundling.Although abundant achievements have been done by researchers on bundling,some problems reflected in the practice of bundling have not received the scholars’attention.For example,empirical research revealed that the bundled discount would bring valuation discount with respect to bundled product to consumers.However,the finding is not received much attention,and many papers stills figure out that the bundling is most profitable selling strategy.By establishing an optimization model,we first discuss how consumer valuation discount affects a retailer’s bundling decision optimization.Furthermore,we investigate the effects of valuation discount in a supply chain setting.In addition,there exists the interrelatedness between the bundled products,complementarity or substitutability.However,previous studies on bundling are generally assuming that the two products are independently valued,ignoring the interrelatedness between two products.This paper examines the effect of product interrelatedness on supply chain members’ decision optimization.The main research contents of this paper consists three parts.First,taking the consumers valuation into consideration,this paper finds that when the market has a great potential demand for the two products,the retailer should sell the products separately.When the valuation discount is large,and one product’s potential demand is much huger than the other,it is optimal for the retailer to employ the mixed leader bundling.Specifically,when both the products have limited potential consumers,and the valuation discount is negligible,it is profitable for the retailer to adopt the mixed bundling.Second,based on the Stackelberg game,we investigate the influence of valuation discount on the optimal decision of manufacturer and retailer in the context of supply chain.It is found that the valuation discount plays an important role in both manufacturer’s and retailer’s bundling decision.Once bundling is adopted,the manufacture’s and retailer’s profit will decrease with increasing valuation discount.For the retailer,when the valuation discount is negligible,and consumers have weak valuation differentiation for one component,the mixed bundling outperforms the pure components.On the contrary,the pure components strategy will perform better than the mixed bundling.For the manufacturer,when valuationdiscount is small,and low type consumers value one component highly,the mixed bundling is more profitable than the pure components.Otherwise,the pure components strategy is better.Third,we study how the product interrelatedness affects the supply chain members’ decision optimization.Based on the Stackelberg game,we obtain the optimal pricing solution of manufacturer and retailer,as well as their optimal bundling decisions.It is found that when the complementarity is high,the retailer can benefit from the partial mixed bundling.In contrast,the pure components strategy is more profitable.Moreover,when the retailer sells substitutes,and the substitutability is sufficient high,the partial mixed bundling performs better than mixed bundling and pure components.When the substitutability between products is moderate to high,full mixed bundling is more advantageous than partial mixed bundling and pure components.Otherwise,the pure components will dominate.For manufacturer,the partial mixed bundling is optimal when the substitutability or complementarity is high.The innovations of this paper are summarized in the following.First,we investigate how the consumer valuation discount influences the retailer’s decision optimization by developing an optimization model.Second,we extend the research into the supply chain context considering the influence of valuation discount.According to Stackelberg game,this paper discusses how valuation discount affects the supply chain members’ decision optimization.Third,we investigate how the product interrelatedness affects the manufacturer’s and retailer’s optimal pricing behavior,and how the supply chain members optimize their selling decision.Fourth,we indicate that both mixed leader bundling as well as partial mixed bundling are not special cases of mixed bundling,since the two bundling strategies are more profitable than mixed bundling under some conditions.