Bundling Examples

Bundling In marketing, product bundling offers several products for sale as one combined product. This is common in the software business (for example: bundle a word processor, a spreadsheet, and a database into a single office suite), in the cable television industry (for example, basic cable in the United States generally offers many channels at one price), and in the fast food industry in which multiple items are combined into a complete meal.

Office suite example 1 Willingness to pay User Type No. of users Word processor spreadsheet A 40 $50 $30 B

Questions based on example 1 Assume that the production costs are zero What is the revenue maximizing price if you can only sell word processor and spreadsheet separately? What is the corresponding revenue? What is the revenue maximizing price if you can sell a bundle of word processor and spreadsheet? What is the corresponding revenue?

Office suite example 2 Willingness to pay User Type No. of users Word processor spreadsheet A 40 $50 B $30

Questions based on example 2 What is the revenue maximizing price if you can only sell word processor and spreadsheet separately? What is the corresponding revenue? What is the revenue maximizing price if you can sell a bundle of word processor and spreadsheet? What is the corresponding revenue? Under what circumstances, would bundling work?

Office suite example 3 Willingness to pay User Type No. of users Word processor spreadsheet A 40 $50 $30 B C $60 $13

Questions based on example 3 What is the revenue maximizing price if you can only sell word processor and spreadsheet separately? What is the revenue maximizing price if you can sell a bundle of word processor and spreadsheet? What is the revenue maximizing price if mixed-bundling is available?

Bundling The key advantage of bundling is to remove the downward sloping feature of the demand curve, so that you don’t have to lower the price to sell more. But bundling works for this purpose only if different types of consumers’ willingness-to-pay are negatively correlated across products (e.g., type A people value word processor much higher than spreadsheet, but type B people value spreadsheet much higher than word processor.)