Wednesday, September 17, 2008

Partioned Pricing Is Not Unbundled Pricing

In their paper titled Bundling of Products and Prices published in Journal of Marketing 2002, Stremersch and Tellis say this about Partioned pricing
Morwitz, Greenleaf, and Johnson (1998) show that partitioned
pricing, in which a firm divides a product’s price into
two mandatory parts, the product and shipping charges, can
increase consumer demand because of lower recalled costs.
 The key word here is "mandatory".  One part cannot function or will be of any use without the other. For example,take the case of  product plus shipping case they quote. When customers buy from an online only seller, there is no avoidance on purchasing the shipping. The customer does not have a choice on whether or not to purchse shipping even though they may have options for multiple classes of shipping.

Partitioned pricing is not same as unbundling. In the Airline that I love talking about, suppose the airline charged a separate fee for your seat cushion and offer you three choices
  1. basic          $8
  2. comfort     $16
  3. super comfort   $20
 This is not unbundling, passengers have to pick an option. Compare this to baggage fee, inflight meals and movies. In all these the customers have the option of not buying.  Unbundling is about giving customers that option and making them self-select on which additional services they want to buy and which they don't.

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