Pricing a Bundle of Products or Services: The Case of Nonprofits

Abstract

The authors determine the optimal number of items to be included in a service bundle for a profit-maximizing firm that uses pure components, pure bundling, or mixed bundling strategies. When applied to Venkatesh and Mahajan's (1993) data, the number of events held is shown to have a substantial impact on firm profits. The authors also study the pricing strategies of a nonprofit organization that seeks to maximize usage subject to a nondeficit constraint. Using the same data, the authors show that compared to a profit maximizing firm, a usage-maximizing nonprofit organization (1) charges lower prices, (2) holds more events, and (3) takes fixed costs into account in setting prices. For the distributions considered by Venkatesh and Mahajan (1993), there is a reversal in the order of preferred strategies, with the pure-bundling strategy dominating the single ticket strategy, though mixed bundling is still the most preferred strategy. In addition, the authors find that attendance is nor maximized by offering the greatest possible number of events. The effects of alternative objective functions, such as surplus maximization, and additional bundling policies (adding bundles consisting of only some of the events scheduled) are also examined.