Consumer processing of bundled prices: when do discounts matter?

Abstract

PurposeThe purpose of this paper is to examine how factors that affect the processing of bundled price information moderate consumer response to a price discount on the bundle. Literature on categorical vs piecemeal processing of information predicts that consumers will be inclined to process a bundled price categorically unless circumstances encourage a piecemeal processing approach. Marketing relevant variables that foster piecemeal processing should result in stronger effects for discount size on bundle choice.Design/methodology/approachThis paper reports two experiments that demonstrate that the effect of discount size on bundle choice is moderated by increased salience of price information and lower familiarity with the purchase situation, both of which increase item price processing.FindingsWhen the presentation format encouraged item price processing with more salient item prices or a less familiar purchase situation, a discount on the bundle significantly increased the likelihood of bundle choice. When circumstances did not encourage item price processing, discounts on the bundle relative to the item prices had little effect on choice.Research limitations/implicationsAdditional research is recommended to test boundary conditions, the effects of additional presentational/situational factors and explicit consumer welfare implications.Practical implicationsResults indicate that a price discount on a bundle is only effective/necessary when the purchase situation motivates and enables consumers to engage in piecemeal processing of item price information. When large price discounts are offered on the bundle, marketers should create a situation that encourages item price processing, in order to maximize the effect.Originality/valueThis paper adds to a relatively new perspective in the bundling literature which has not fully examined if and when consumers process item price information. It is found that responsiveness to price discounts is enhanced by managerially relevant variables that increase the likelihood of item price processing.