471 / 2024-04-25 16:11:26

Bundling Conspicuous Goods in a Distribution Channel

supply chain management,bundling strategy,pricing,Reference Group Effect

The reference group effect of conspicuous products is becoming crucial, especially when new technology creates information transparency for both the firm and consumer. Our study explores the role of bundling strategy in balancing a consumer's social influences. We consider the setting of a distribution channel where a retailer sells a conspicuous product and has the option to bundle it with a manufacturer's product. We study the retailer's optimal bundling strategy in the presence of the consumer reference group effect. We find that for affordable conspicuous products, bundling is an effective tool for retailers to charge more and exploit followers' desire to imitate leaders. For luxury products, the bundling strategy helps retailers better serve high-end consumers and distinguish their products from the competition without adding costly features. The manufacturer can also benefit from retailer bundling and the consumer reference group effect under certain conditions, even if its products do not have social attributes. In an extension of the model, we also consider cases in which the reference group has different degrees of influence on snobs and followers and find that when consumer differentials are small, the retailer's bundling price increases in the strength of the follower's reference group effect. However, the snob's desire for uniqueness in the luxury product will reduce the retailer's bundling price.