Optimal Bundling and Pricing of Multi-Service Bundles from a Value-based Perspective A Software-as-a-Service case

Software vendors are increasingly adopting Software-as-a-Service (SaaS) pricing model, whereby software is offered as a web-based service in exchange for a subscription fee. In addition, software vendors become increasingly interested in using bundling of services to maximize their market penetration, revenue and, or profits. The objective of this paper is aimed at presenting and demonstrating a method that can be used to estimate consumer-level reservation prices for a set of SaaS offerings, to show how the method can be used to categorize different services based on the heterogeneity of reservation prices, and thirdly, to determine the optimality of different bundling strategies. A conjoint analysis study is used to determine the reservation prices of the services and to assess what price-bundle combinations are most attractive. Next a simulation model is used to show that the optimality of different bundling strategies. The results underline the importance of a value-based perspective on SaaS pricing models in pursuing different objectives of software vendors. To achieve profit maximization, software vendors should consider mixed price-bundling strategies in which bundles are offered at a discount. In case SaaS offerings complement a core service as well as entail high contribution margins (i.e. the services are reinforcing) a pure price-bundling strategy may be considered to target highly profitable customers. To achieve revenue maximization, mixed price-bundling should be considered for SaaS offerings with competing characteristics. In case the SaaS offerings are reinforcing, an unbundled strategy should be considered.