Multicategory Design of Bundled Products for Retail Channels Under Uncertainty and Competition

Abstract

One prevalent approach to increase both retailer and manufacturer revenues are to improve the attractiveness of a product offering by bundling related product categories together for one price. To be most effective, bundled products should be developed with an integrated design approach that seeks to achieve utility for the end customer. We propose a bundled product design approach that endogenizes demand dependencies between the product categories and thus determines the impact of the bundle and cross-category competition on proposed engineering designs. Additionally, the approach simultaneously considers uncertainty in engineering design, competing manufacturer product attributes, and customer preferences to ensure acceptable product profitability and market share under interval uncertainty. We find after optimizing manufacturer profit and market share that considering demand dependencies can lead to optimal bundle and individual product designs that increase profits for both retailer and manufacturer.