Price Framing and Choice Order Effects in Bundle Customization Decisions

Abstract

One-to-one marketing has become increasingly popular in the consumer product and service industry. Customization emerged as a marketing trend and allows consumers to proactively participate in the configuration or production process by choosing one or more elements of the marketing mix (Arora et al. 2008). Today, consumers can customize a wide variety of products and services. For example, Dell Computers allows customers to choose the hardware components (e.g., processor, RAM, hard drive) which best fits their needs when buying a new laptop. By offering consumers the opportunity to tailor products and services to their individual preferences, needs, and budgets, firms aim to differentiate themselves from competitors, increase customer satisfaction, and generate loyalty (Arora et al. 2008). During the customization process of a service bundle (e.g., smartphone plan), consumers typically have to make a series of choices, one for each bundle component (e.g., a choice for minutes, SMS, and data). In this research, we will provide evidence that consumers’ satisfaction with the final bundle configuration, bundle price perceptions, and overall spending amounts are determined by (1) whether the choice options for the bundle components are presented all at the same time and decision are made simultaneously versus sequentially (i.e., only the options of one bundle component are presented and choices for each component are made step-by-step) and (2) the price framing used in the configuration process (aggregate bundle price as a running total vs. aggregate bundle price together with the detailed option prices). The results of two online experiments show that consumers are more satisfied with the outcome of the customization process and less price sensitive if only the aggregate bundle price (i.e., the running total) is advertised in simultaneous (vs. sequential) customization processes. In contrast, when decisions for each bundle component were made step-by-step, consumers are more satisfied and less price sensitive if detailed option prices are provided in addition to the aggregate bundle price. Our two studies also shed some light into the psychological process that underlies consumers’ different reactions. Besides contributing to consumer decision-making and behavioral pricing research, our findings have important implications for service providers on how to design a bundle configuration process that increases both customer satisfaction and spending at the same time.References available upon request.