Consumer Processing of Bundle Prices: When Do Discounts Matter?

Abstract

Although bundles of products or services are typically offered at retail prices that are less than their components, some bundles offer little or no discount. One explanation for why consumers would purchase of such bundles lies in how consumers process item price information. When circumstances favor a piecemeal processing approach – as in previous bundling research – discounts play an important part in the evaluation of bundles. However, when circumstances favor a more holistic processing approach, discounts have little effect. This paper reports the results of an experiment that indicates that the effect of discount size on bundle choice is moderated by the extent of piecemeal processing, which is instantiated by factors that make the item prices easier to process. Specifically, we consider the amount of a price discount and the salience of price information on bundle choice. The findings have theoretical implications in regard to the processing of bundled information and practical implications for retail bundle pricing and consumer welfare.