Optimizing E-tailer Profits and Customer Savings: An Online Dynamic Bundle Pricing Model

Online retailing (“e-tailing”) provides an opportunity for new pricing options that are not feasible in traditional retail settings. This paper proposes a dynamic pricing strategy from the perspective of bundling to derive added savings for customers while maximizing profits for etailers. Given product costs, posted prices and customers’ reservation prices, we propose a nonlinear mixed-integer programming model to increase e-tailers’ profits and enhance customers’ savings. We next extend our dynamic bundle pricing model to accommodate (a) customer budget constraints and (b) e-tailers’ coupons. The computational results suggest that the proposed model not only attracts more customers to buy products at the bundled prices, but also increases profits for the e-tailers.