Shopper Response to Bundle Promotions for Packaged Goods

Abstract

Bundle promotions—the practice of granting consumers a discount when they buy a certain number of units from a designated range of stockkeeping units—have gained popularity among manufacturers and retailers. In this research, the authors investigate the purchase effects of bundle promotions for a category of packaged goods. Contrary to intuition, they find that promotional bundles are far more effective at inducing switching than at boosting category sales. The strong switching effects result from two mechanisms: (1) Stockkeeping units that are part of a bundle promotion appear to reinforce each other's choice probability, and (2) the bundle discount tends to attract consumers even if they do not buy enough to qualify for the price reduction. The weak category effects follow from the notion that the purchase quantity requirement is often too stringent to make consumers buy earlier and/or more in the category. The authors develop incidence, quantity, and choice models that incorporate the intricate bundle mechanisms, and they use simulations to contrast the sales impact of bundle and traditional per-unit promotions. On the basis of the model estimates, they present managerial implications and tentative guidelines for optimal bundle design.