The Design and Pricing of Bundles: A Review of Normative Guidelines and Practical Approaches

Bundling, the strategy of marketing products in particular combinations, is growing in significance given the boom in high technology and eCommerce. The seller in these instances typically has to decide which form of bundling to pursue and how to price the bundle and the individual products. We have written this chapter with two main objectives. First, we have sought to draw a set of key guidelines for bundling and pricing from a large body of “traditional” literature rooted in stylized economic models. Here we have considered factors such as the nature of heterogeneity in consumers’ reservation prices, the extent of the underlying correlation in reservation prices, the degree of complementarity or substitutability, and the nature of competition. The key conclusion is that no one form of bundling is always the best. Second, we have attempted to showcase the extant methodologies for bundle design and pricing. The studies that we have considered here have an empirical character and pertain to issues of a “marketing” nature. In the concluding section, we suggest other avenues for expanding this work. (