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BUNDLING

	Bundling is the sale of two or more products or services at a single price, a joint pricing of two things .  When two or more services or products are sold together as if they were a package.  Bundling of products is very common in the marketplace, as an example travel packages often include airplane, hotel , and a rental car, another common example are stereo equipments and computer hardware and software.  By buying a bundle consumers reduce search and acquisition costs, and they can even save in installation costs if the service is offered in a bundle, consumers also anjoy consumer surplus when purchasing a bundle.  
	Some bundles are very obvious like razors and blades, that are used together and others that do not have anything in common like a value meal at McDonalls and discount tickets to Fiesta Texas at San Antonio. Customers reservation prices for the component products of the bundles are a key part on the success of a bundling
strategy.  Bundling will be successful  when the price of the bundle is less than the sum of the prices of the individual products.  There is not much information in marketing that deals with bundling eventhough many companies are making use of it  as an optimal strategy.
COMPOSITION
	What kinds of products should be bundle together is a very important issue in its composition.  A bundle can be composed of two or more complementary products or by two or more unrelated products.   Complementary meaning products that relate to each other , that can be used together or that one is used as a consequence of the other, as an example a videoplayer and a videotape or a computer and a printer.  Unrelated products are those that do not  relate at all and that are not used together, as an example a dinner and a pass to a circus, this unrelated products can be substitutes, meaning one product that can be used instead of another serving the same function.
It has been prooved that bundles containing complements are more profitable than those containing unrelated products, because people tend to percieve the complement as something useful and that is going to be used right away with the other product, so it already has a use attached to it. There was also found that the evaluation of each product separetly is averaged by the consumer as an overall evaluation of the bundle.  Price is another component of a bundle .  There are three types of price levels , one is the decrease level , where the price of the bundle is less than the sum of the prices of its components. The same level is when the price of the bundle is the same as the sum of the prices of the components of the bundle .  The third level is the increase level, where the price of the bundle is higher than the sum of the two induvidual prices, this is due to transaction  or information gathering cost savings when purchasing a bundle .  This last level is not recomendable because consumers percieve more a loss of a specified amount than a gain for the same amount , so a bundle with an increased price level is not going to be very profitable. A bundle with a decrease price level is more profitable than the other two.  Another important aspect is the price similarity or difference between the products on the bundle.  If the prices are very different , one much higher than the other , then the bundle may not be seen as a bundle , but as a product that offers another product free, so the price of the second product gets ignored ( a music system and a CD). The recomendation is to offer two products with similar prices, so the bundle can be seen by the consumer as a real one.
INTEGRATION
	The degree of product integration is another important aspect of a bundle.  Product integration is the propensity  for the various items  of the bundle to be unified as one product. Co-branded products are BAD        
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                     the degree of demand relationship between the products, for example cake mixes and frostings. 
PRESENTATION
	The way in which a bundle is presented seems to have affect the behavior of consumers towards the bundle.  The bundle can be presented  using different combinations of regular price, sale price, dollar amount off, and percentage off. The combination of the regular price  with the dollar amount off  isi the most effective combination, because the customer gets aware of the previuos price , and knows how much he or she is saving .  Another popular combination is the buy one get  another at __ price, or get two for the price of one, this is because the costumer again knows for a fact how much is he gaining in the purchase of the bundle.
	The most common bundle presentations are the one called together, that consists of  offering the products together at a settled price, for example an apple computer and a set of discks for  $ 1,500; when the bundle is priced as ¨decrease¨ as mentioned earlier this type of presentation is preferred.  The one called separate in which the products are priced separetly but sold together, for example , buy an apple computer for $1,585 and the set of discks for $15, when the bundle is priced as the ¨same¨ this type of presentation is preferred.  The one called freebie , in which one of the products goes free with the purchase of the other, for example buy the apple computer for $1,500 get the set of disks free.   So, we can conclude that the framing of the price of the bundle will have a significan effect on the customer purchasing decision, also that the effect of the price deal  has to be consisten with the price of the product, for example the Save $___ frame is much more effective on high price products than in low price products.
FAMILIARITY
	The familiarity, knowledge or expertise that the costumer has with the products or product offered in the bundle plays an important role on his purchase intention. If the costumer is already familiar with the products, he knows the price of them, and will have more caution with the price offered to them.  Unfamiliar consumers are the ones that do not know the product or that are not aware of the regular price of the product.  Familiar costumers may be more sensitive to the price of the bundle than unfamiliar ones. So increases and decreases on the price of the bundle will have a greater impact on familiar costumers, than on unfamiliar ones.  Familiar consumers are not going to buy an increase bundle price because thay know they can get it for a lower price, and unfamiliar costumers are indifferent to increase and decrease bundle pricing because they do not know if they are paying less or they are paying more for the products.
PROSPECT  THEORY
	Prospect theory was developed by Kahneman and Tversky in 1979.  This theory examines consumer choice behavior when presented with different scenarios of bundle pricing.  Prospect theory proposes a ¨value function¨.  This value function shows that consumers are more concerned with percieved changes than in absolute changes. This means that consumers are based on how much they gain or they lose in each particular product to make their decision of whether buy the individual products or buy the bundle.  The value function is concave for gains and convex for losses.  This suggests that consumers prefer a sure gain than to take the risk of recieving a higher gain, this means that consumers are risk averse when faced with gains.  When consumers face losses the opposite occcurs, consumers are willing to take the risk of receiving a lower loss, than to take a sure loss, this means that consumers are risk seeking when faced with losses.  The value function is steeper for losses than for gains, this means that consumers will be more affected by a loss than they will be pleased with a gain of the same amount.
The value function has an ¨S¨ shape , and is based on four combinations : 
Multiple gains-  In this approach the two products are priced below the expected price of the consumer, so the consumer is going to experiment gains in the two products. In this case the the value function is concave, so consumers prefer to buy the products separetly , so that each products yields a gain.
Mixed gains-  In this approach one product is priced below expectation prices and the other is priced higher than expectation prices, but the gain is more than the loss.  In this case the consumer prefers to purchase the products in a budle, so that losses can be offset by the gains.
Mixed losses-  This approach is similar than the one above but, in this case the loss is greater than the gain.  This approach is divided into two categories, a Low net loss, where eventhough the loss is greater than the gain, it is not a very high difference. The other is High net loss where the difference between loss and gain is very high.  Consumers tend to buy the bundle when faced with low net loss, since they can offset at least a part of the loss with the gain.  In the High net loss consumers tend to purchase the product individually.
Multiple losses-  In this approach , both products are priced higher than expected. In this case the consumer tends to purchase the bundle , because they prefer to incurr one loss rather than two.

THE FOLLOWING FIGURE REPRESENTS THE VALUE FUNCTION ILLUSTRATING THE GAIN AND LOSS ASSUMPTIONS , IN THIS FIGURE  (X,Y) ARE CONSIDERED THE COMPUND OUTCOMES, RELATED TO THE FOUR COMBINATIONS PRESENTED BEFORE.




















	A study was done with 42 undergraduate business students at a state university to proove the five combinations. In this study the two selected components were a stereo amplifier and a compact disk player.  The results of the study provided support for four of the five combinations. The exeption was the one of Multiple losses. An explanation to this result is that consumers may be that they prefer to separate losses, that is to have two small losses than one large one produced when the two losses are combined in the bundle.  So,  consumers are likely to purchase individual products or bundle products according to which prices are more appealing to them.
NEW PRODUCT INTRODUCTION
	A new product can be introduced  and promoted through bundling.  This strategy consists of bundling the new product with an existing one, this product can either be the same brand name or a different brand name.  An example of bundling with the same brand name  is Vaseline intensive care lotion and Vaseline intensive care moisturizing body wash, in this case the body wash is the new product and it is being bundled with its parent brand, this is known as within brand bundles and have a more positive effect than  between brand bundles.  Between brand bundles happens with products that do not have the same parent brand, as an example Ponds body lotion and Vaseline intensive care body wash.   A marketing advantage can be reached  when introducing a new product with at leas one existing brand name product, by this way marketers gain consumer attention and a reassurance of the product quality  is provided.  Marketers must be very careful with the percieved image of the existing brand name product, because if it has  a bad image or a low quality perception, the consumer wil atribute the same characteristics to the nwe product.  Attitudes toward the brands of the bundle will affect attitudes towards the bundle and also towards the bundle price.  If the consumer has a positive image about the brand of the bundle they are wiling to pay more than if they have a negative image about the brand.  Reservation prices reflect the value  customers place on the bundle itself.  Another important aspect about new product introduction with an existing brand is that they fit together, that is if they are complements, ot if they relate to eachother, this is important because one item gives credibility to the other item.  
	In conclusion, given the importance of bundling as an efficient marketing strategy, marketers must be very careful in selecting the appropiate bundle composition, presentation, integration, familiarity and pricing, whether it is a new product introduction, or two already known products.  As we can see bundling can be applied in a variety of situations and products.  We have seen the different consumer behavior and attitudes towards the multiple uses and combinaltions of bundles.  Marketers must be aware of these, and make the best decision about their products. 









BIBLIOGRAPHY

	Harlam, A. Bari, et al. Impact of bundle Type, Price framing and Familiarity on Purchase Intention for the Bundle. Journal of Business Research . 33 (1995): 57-66.

	Simonin, L. Bernard and Julie A. Ruth. Bundling as a Strategy for New Product Introduction: Effects on consumers reservation prices for the bundle. Journal of Business research. 33 (1995): 219-230.

	Kaiker, Ajit , William O. Bearden, Kenneth C. Manning. Component versus Bundle Pricing.  Journal of Business Research.33 (1995): 231- 239.