Page 367 - Marketing Management

344 PART 5 SHAPING THE MARKET OFFERINGS

through product development and acquisition, the renamed CSR has become one of the top
10 companies in Australia selling building and construction materials.

PRODUCT-BUNDLING PRICING Sellers often bundle products and features. Pure
bundling occurs when a firm offers its products only as a bundle. A talent agency might insist that
a “hot” actor can be signed to a film only if the film company also accepts other talents the agency
represented (directors, writers). This is a form of tied-in sales.
In mixed bundling, the seller offers goods both individually and in bundles, normally charging
less for the bundle than if the items were purchased separately. An auto manufacturer might offer
an option package at less than the cost of buying all the options separately. A theater will price a
season subscription lower than the cost of buying all the performances separately. Customers may
not have planned to buy all the components, so savings on the price bundle must be enough to in-
duce them to buy it. 44
45
Some customers want less than the whole bundle in exchange for a lower price. These customers
ask the seller to “unbundle”or “rebundle”its offer. If a supplier saves $100 by not supplying unwanted
delivery and reduces the customer’s price by $80, it has kept the customer happy while increasing its
profit by $20.“Marketing Memo: Product-Bundle Pricing Considerations” offers a few tips.

Co-Branding and Ingredient Branding

CO-BRANDING Marketers often combine their products with products from other companies
in various ways. In co-branding—also called dual branding or brand bundling—two or more well-
known brands are combined into a joint product or marketed together in some fashion. 46
One form of co-branding is same-company co-branding, as when General Mills advertises Trix
cereal and Yoplait yogurt. Another form is joint-venture co-branding, such as General Electric
and Hitachi lightbulbs in Japan, and the Citibank AAdvantage credit card. There is multiple-sponsor
co-branding, such as Taligent, a one-time technological alliance of Apple, IBM, and Motorola. 47
Finally, there is retail co-branding in which two retail establishments use the same location to
optimize space and profits, such as jointly owned Pizza Hut, KFC, and Taco Bell restaurants.

marketing
Memo Product-Bundle Pricing Considerations

As promotional activity increases on individual items in the bundle, buyers price of individual products as an external reference for the bundle,
perceive less savings on the bundle and are less apt to pay for it. Research which then loses value.
suggests the following guidelines for implementing a bundling strategy:
• Consider how experienced and knowledgeable your customer is. More
• Don’t promote individual products in a package as frequently and knowledgeable customers may be less likely to need or want bundled
cheaply as the bundle. The bundle price should be much lower than offerings and prefer the freedom to choose components individually.
the sum of individual products or the consumer will not perceive its • Remember costs play a role. If marginal costs for the products are
attractiveness. low—such as for proprietary software components that can be easily
• Limit promotions to a single item in the mix if you still want to promote copied and distributed—a bundling strategy can be preferable to
individual products. Another option: alternate promotions, one after an- a pure component strategy where each component is purchased
other, to avoid running conflicting promotions. separately.
• If you offer large rebates on individual products, make them the absolute • Firms with single-products bundling products together to compete
exception and do it with discretion. Otherwise, the consumer uses the against a multiproduct firm may not be successful if a price war ensues.

Sources: Amiya Basu and Padmal Vitharana, “Impact of Customer Knowledge Heterogeneity on Bundling Strategy,” Marketing Science 28 (July–August 2009), pp. 792–801;
Bikram Ghosh and Subramanian Balachnadar, “Competitive Bundling and Counterbundling with Generalist and Specialist Firms,” Management Science 53 (January 2007),
pp. 159–68; Loren M. Hitt and Pei-yu Chen, “Bundling with Customer Self-Selection: A Simple Approach to Bundling Low-Marginal-Cost Goods,” Management Science 51
(October 2005), pp. 1481–93; George Wuebker, “Bundles Effectiveness Often Undermined,” Marketing News, March 18, 2002, pp. 9–12; Stefan Stremersch and Gerard J.
Tellis, “Strategic Bundling of Products and Prices,” Journal of Marketing 66 (January 2002), pp. 55–72.