BUNDLE COMPOSITION In this section we investigate bundle components, types of bundles and product complementarity, whereas last has not received proper attention in existing academic literature, but may have major impact on bundle promotion 2.1. Bundle terminology and definitions 13 According to Stremersch and Tellis (2002) there is no consistent, universally accepted definition of bundling due to lack of consensus in literature and proper use of terms, as well as vague distinction between important formulations and ambiguous domain of application. Adams and Yellen (1976) define product bundling as selling goods packages. Guiltinan’s (1987) definition considers bundling as a practice of marketing two or more products and/or services in a package for a special price. Recent literature still sticks to Yadav and Monroe (1993) definition, similar to the previous one, and sees bundling as a selling of two or more products in a package, at a special price. In this paper, we use the latter definition. Yet, due to a lack of literature consensus a precise definition, practical implications of product bundling are still imprecise as well. Some of the basic terms that are present in literature are described below. Bundling. Bundling is the sale of two or more separate products in one package. The term “products” refers to both goods and services. If there are separate markets, or at least some customers want to buy products separately, we can legitimate the term “separate products” (Stremersch and Tellis, 2002). Bundling focus. There is a significant difference between product bundling and price bundling, though sometimes literature lacks clear distinction between the two. Price bundling is the offer of a package of two or more separate products at a discount. Since products not otherwise integrated, bundling itself does not create added value. There are many examples for this, for instance: McDonald’s Big Mac meal. Product bundling integrates two or more independent products at any price. This generally brings significant added value to customers, think of convergence (mobile phone and TV), convenience (cable TV, internet and landline), performance (proteins plus personal fitness plan), and reduced risk (car insurance and life insurance). It is important to differentiate price and product bundling, whereas price bundling is a pricing and promotional tool, while added value provides more strategic dimension to product bundling. Price bundling can be used on short notice, while product bundling demands long-term planning (Ulrich and Eppinger, 1995) Bundling form. Bundling may occur in one of following forms: pure or mixed. Pure bundling offers only bundled products for sale while mixed bundling is a strategy where firms offer both the bundle and each individual product separately. Pure bundling is preferred whereas pure bundling and mixed bundling are proportionally profitable (Hui et al., 2012). 2.2. Complementary and non-complementary bundles In this study, we focus on functional complementarity, where bundle components are dependent or functionally related (Ahluwalia, 2008). This concept is based on a wide scope of relations between bundled products: target audience overlap, convenience and usage situation, functional similarity, timing, image, occasions, seasonality, distribution, promotion, demand (Varadarajan, 1986). Guiltinan (1987) states that the degree of product complementarity is a crucial factor to the success of bundling strategy Complementary bundles are those in which individual products are functionally related (Sheng et al., 2007) and can be used together as a system in order to perform certain activity (for example: hotel and rent-a-car, razor and blade). In a perfect setting, one of the products creates the need for consumption of its complement – for example, demand for cheeseburger creates parallel demand for soda, ketchup, mustard etc. It is widely accepted that level of complementarity affects and enhances consumer perception of bundle components (Meyers-Levy at al., 1994). Complementarity of the bundle can offer economies of scale, and demand for one product creates a demand for its complement. Firms can thus gain more marketing effects through bundling, and moreover, profit – since consumers are more likely to purchase both products if the price is reasonable (Yan and Bandyopadhyay, 2011). Non-complementary bundles are composed of products that are not functionally related to one another, have weak associations and are less likely to be used in common usage situations (for example: washing machine and make-up, mobile phone and sunscreen). With lower degree of complementarity, there is asymmetrical equilibrium, and majority of consumers opt for the dominant product (in terms of brand, price or demand) while fewer consumers decide to buy both (Yan and Bandyopadhyay, 2011). Although complementary bundle seems like a reasonable, obvious and somewhat logical choice, there is an increased number of non-complementary bundles on the market, and in the next chapters of this paper we will try to find a reason why firms are doing so. 3. RESEARCH METHODOLOGY AND RESULTS Our study employed examples of real brands in the marketplace in order to ensure the relevancy for managerial implications. Methodology used for illustrating the practice of bundling products is a case study analysis. We employed qualitative analysis of both secondary and primary data, gathered from campaigns in which one of the authors was engaged as account director for the projects presented as a case. Campaigns refer to bundled offerings of electronics and were executed on Serbian market, from February 2014 till February 2015. We examined bundles containing pairs of products of same quality, as we identified it as natural scenario (Brito and Vasconcelos, 2014). We considered two broad groups of products: consumer electronics and personal care. Samsung was chosen as a focal brand, while Sephora, Nivea and Braun were chosen as non-complementary brands. Bundles were assembled the following way: one consumer electronics product and one personal care product, as shown in table below: Table 1: Product bundles used in desktop research Bundle Focal Brand Washing machine and make-up Samsung Black lady” WM Mobile phone and sunscreen Samsung Galaxy S5 Microwave and razor Samsung MWO Non-complementary brand Sephora make-up Nivea Sun Protect 50 Braun shaver All three bundles were launched on the market during 2014, and to make things more interesting all three bundles were used to support product launches of respective products. We explored communication of all three bundles using secondary data sources that include retailers’ and manufacturers’ websites, social network channels and available web archives. Furthermore, we used primary data gathered from the campaigns (web banners, social media posts, web site, OOH, leaflets, wobblers, window graphics), as one of the authors works at advertising agency Leo Burnett and was engaged as account director for the projects presented in the paper. These examples are published in consideration of both the agency and the retailers (Homecenter, Positive line) who launched the aforementioned bundles, with the acknowledgment of Samsung.
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