An interesting, asymmetrical psychology exists behind the “bundling” of products, commonly encountered while online shopping.
If you shopped online throughout the holiday season, you may have noticed a “frequently bought together” section featured on the websites you visited. For example, if you were hoping to buy your mom a suitcase from Amazon, you might have scrolled down the site to read that most people who purchased that particular suitcase also bought a matching carry-on and toiletries bag. Although these three items were sold separately, they appeared as a “bundle” for online shoppers to obtain as a whole set.
University of Chicago Booth School of Business Professor Ayelet Fishbach and Chicago Booth Ph.D. candidate Franklin Shaddy explore this technique, called bundling, in their new study Seller Beware: How Bundling Affects Valuation. In this study, to be published in Journal of Marketing Research, Fishbach and Shaddy define bundling as the sale of two or more individual products together, in one seemingly “whole” package.
Fishbach and Shaddy conducted six experiments that examined what they refer to as “the asymmetric effect of bundling on valuation.” They created the perception of a bundle in different ways: by physically binding items together, by placing items in a container labeled as a bundle, by displaying items in close proximity, and by simply referring to objects as a bundle. In each experiment, the authors manipulated whether consumers evaluated bundles or the same products offered separately.
Fishbach and Shaddy used a variety of consumer products: Clif bars, chocolate truffles, holiday cards, sets of travel bags and baseball card collections. They recruited students and adults to participate in each experiment.
They found that there is an “asymmetry” that applies to the valuation of items offered as a bundle: “consumers will demand more compensation for and experience greater dissatisfaction from the loss of items from bundles, compared to the loss of the same items in isolation.” In other words, if only two of the three pieces of luggage that you ordered arrived in time for Christmas, you would feel particularly dissatisfied. Although you only wanted one suitcase when you originally logged on to Amazon, the bundled set of products became one “whole” product in your mind. Therefore, in losing one of these products, the Christmas gift feels incomplete.
“Yet,” Fishbach continues, “consumers will offer lower willingness-to-pay for and experience less satisfaction from items added to bundles, compared to the same items purchased separately.” This illustrates the asymmetric effect of bundling on valuation: despite demanding more for losses from a bundle, consumers are not willing to pay more for additional items added to bundles. Likewise, adding an item to a bundle does not excite consumers as much as losing an item from a bundle frustrates them.
This creates an interesting predicament for marketers. While the bundling concept is popular because it encourages buyers to purchase more products, it also makes the consumer demand more service.
“For bundles, consumers both pay less, yet demand more,” said Fishbach.
This disparity could change the way marketers approach bundling products and services for consumer purchase. Fishbach and Shaddy suggest that retailers should take this study into consideration when making pricing decisions. They emphasize that while bundling is used to earn companies more money, the payoff might come with a cost.
“To the extent that bundles are offered because marketers wish to entice consumers with discounts, firms should be aware that when a component of a bundle fails or is unavailable, consumers can become more dissatisfied and demand more compensation than those who experience identical losses for non-bundled products or services,” said Fishbach.