A new perspective on de-bundling strategies.

• Author: Siems, Florian
• Position: Report

1. BUNDLING AND DE-BUNDLING AS MARKETING PHENOMENA

   In business, bundling is understood as the concept of offering services combined with other services or service components as a single package at one total price (for a background see Guiltinan 1987; Stremersch/Tellis 2002, 55; Venkatesh/Mahajan 2009; for current literature, see e.g. Ghosh/Balachander 2007; Elbersee 2010; Hamilton/Srivastava/Abraham 2010).

   Bundling has received significant attention in both research and everyday business:

   Research categorizes it together with the marketing instruments of product and pricing policy (Homburg/Kuester/Krohmer 2009, 184; also see Stremersch/Tellis 2002, 56). The literature has discussed it with relative intensity now for several years (see e.g. Hanna/Dodge 1995, 152; Monroe 2003, 409; Siems 2009, 211; Venkatesh/Mahajan 2009, 232).

   Everyday business sees bundling applied in just about every industry (Lovelock/Wirtz 2004, 175; Bruhn/Georgi 2006, 213; Siems 2009, 218) with B2C consumer goods such as different automotive accessory packages (sport, comfort, luxury, etc.); in the B2B realm e.g. with different media packages for advertisers (Koschat/Putsis 2002); services in the form of package vacations (flight and hotel all included in the price); with non-profit organizations such as museums (one ticket good for admission to two exhibitions) or season tickets (Adams/Yellen 1976, 475); and in retail with skin and body care product sets (one box contains deodorant, aftershave, and shower gel).

   At the same time, recent years (see e.g. Venkatesh/Chatterjee 2006, Rennhoff/Serfes 2009; Elbersee 2010; Hamilton/Srivastava/Abraham 2010) have seen individual discussions on bundling done in exactly the opposite direction, i.e. a de-bundling of services. One example is de- bundling in the computer realm (hardware/software/services see e.g. Grad 2002). Another example is the discussion on the increasing sales of individual songs over the Internet instead of "classically" purchasing entire albums on CD (see e.g. Elbersee 2010; also see Buhse 2004, 83; Clement/Papies/Schusser 2008, 5). As opposed to bundling which--according to a statement by Rennhof/Serfes (2009, 551)--has found extensive attention in research, de-bundling has so far not been extensively discussed scientifically. In some cases, instead of providing a real explanation of the phenomenon, de- bundling is instead seen as a contradiction to actual bundling theory. The benefits of bundling even lead some to confusion about how this phenomenon can even occur, while others go so far as to search everyday business for case-based instances of de-bundling with the aim of identifying explanations as to why it occurs at all (Simon 1992, 457; also see Siems 2009, 219). As far as the author knows, no real explanation for de-bundling currently exists.

   The following paper will aim to fill this research gap. Its goal is to present an explanation that until now has only been presented in German (Siems 2009, pp. 219), expand upon it, and for the first time provide it to the international community for discussion. The hope is to achieve an approach that can allow for the explanation of the de-bundling phenomenon by incorporating a new perspective of bundling/de-bundling that sees them as one single entity. Because this thinking experiences bundling as a positive phenomenon, we will first discuss some of its central elements (the term itself and its forms, Sections 2.1 and 2.2) as well as its benefits (benefits and goals, Sections 2.3 and 2.4). Following this, we will present a simple but (hopefully) plausible description showing how de- bundling can be explained (Section 3). The paper concludes with limitations and an outlook for future research in Section 4.

2. THEORETICAL FOUNDATION OF BUNDLING

   2.1 The challenges of how to understand the terminology

   As mentioned above, bundling is understood as services, or service components (products/services) offered as a single overall service (bundle) at one total price.

   With complementary products in particular, creating delineation between the terms "product" and "bundle" is a matter of debate (Stremersch/Tellis 2002, 56, also see Siems 2009, 212/213). For instance, there has been discussion on whether a pair of shoes (one left, one right) (Salinger 1995), or a car (motor, steering wheel, tires, etc.) can really be understood as bundles (Telser 1979; also see Roth 2006, 48). From the most radical perspective, every product can be seen as a bundle of complementary services and products. And for this reason, Stremersch/Tellis (2002, 56) explicitly define bundling as the "sale of two or more separate products in one package," where "separate products" are defined as "products for which separate markets exist."

   To be sure, even this delineation is not without its problems, as seen in the work by Roth (2006) who correctly notes that a hamburger in a fast food restaurant is comprised of individual parts (pickle, roll, meat, etc.). Although these are in and of themselves "marketable," the restaurant sees this differently, because it does not view the sale e.g. of individual pickles as its business (Roth 2006, 47).

   Because of these nuances--and because this viewpoint might be too narrow, or even upon further discussion explains why de-bundling exists--Section 3 and the conclusion in Section 4 will both take a closer look at the topic of "de-bundling."

   2.2 Bundling forms

   Research today typically discusses three forms of bundling (Adams/Yellen 1976, 482; Gultinan 1987, 75; Venkatesh/Mahajan 1993; Salinger 1995, 86; Olderog/Skiera 2000, pp. 140; Koschat/Putsis 2002, 262; Stremersch/Tellis 2002, 58; Homburg/Krohmer 2006, 730; Bruhn 2007, 174; Bruhn/Hadwich 2006, 179; Subramaniam/Venkatesh 2009, 264; Venkatesh/Mahajan 2009, 232):

   * "Pure components": A seller offers only individual products and/or services.

   * "Pure bundling": Sometimes also referred to as "block bundling." A seller offers products and/or services only as a bundle at one total price.

   * "Mixed bundling": A seller offers the customer the choice of buying products and/or services individually or in bundles.

   In some cases, additional sub-forms of mixed bundling are also discussed (Guiltinan 1987; Roth 2006, 42; Monroe 2003, 410):

   * Mixed leader bundling: When one product is purchased, the customer is offered the opportunity to buy another product at a reduced price.

   * Mixed joint bundling: When two products are purchased together, the customer receives a price that is lower than the total of the individual prices.

   Applying pure or mixed price bundling to achieve successful bundling can be done in a number of ways (Priemer 1999, also see Siems 2009, 211). A bundle can be created in its production (e.g. a car with special edition features); by using one common packaging (e.g. pasta that includes sauce); in a joint presentation of products where they are sold (e.g. a TV and DVD player); or even simply on paper (e.g. a flyer advertising a discount at the register with the purchase of two particular items).

   2.3 Benefits and goals of bundling

   Scientific research presents on the one hand the product benefits of bundling (for an overview, see e.g. Siems 2009, 211), which include the creation of added value for the customer by e.g.

   * reducing the complexity of the customer's decision to buy (Bruhn/Hadwich 2006, 263; Hamilton/Srivastava /Abraham 2010, 61),

   * creating "new," "more valuable" products with bundling (Priemer 1999, 3; e.g. "a basket full of Christmas goodies"),

   * optimizing the compatibility for a common use of individual components (e.g. a shaver with different kinds of replacement blades),

   * reducing the hassle for the customer of assembling individual components (e.g. a PC with pre-installed software),

   * decreasing the acquisition costs for the customer (here, Lovelock/Wirtz (2004, 243) discuss "lower transaction costs" for the customers).

   The creation of added value for the customer can in some cases even permit a price to be charged for the total bundle that is higher than the sum of the individual prices of the components within it ("package markup", Simon 1992, 443). This is often referred to as "premium bundling" or "superadditive bundling." On the other hand, a bundle price that is equal to the sum of the individual prices is called "additive bundling," and a bundling that is less than the sum of the individual prices is called "sub-additive bundling" (Cready 1991; Diller 2008; 240; for more, also see Siems 2009, 214).

   Along with the creation of added value itself, a bundling can also simplify the communication of added value to the customer (Siems 2009, pp. 211). This can be seen when functional elements of a product are combined into a bundle and then promoted as a kind of "exclusive offer," e.g. a "sport package" on a car that includes aluminum wheels, a sport-type steering wheel, a more aggressive spoiler, and more sporty-looking bucket seats. The literature sometimes uses the term "solution-based pricing" instead of "bundling" to refer to this (Ferrell/Hartline 2008, 243; Siems 2009, 212).

   Furthermore, bundling is an instrument of market segmentation. In some cases, individual bundles can be created for certain target groups and correspondingly marketed. This includes certain vacation packages for groups, and others for individual travelers; or computer offers aimed specifically at those with more advanced computer knowledge, and different offers for computer laypeople (Priemer 1999, 3, also see Siems 2009, 213).

   Another benefit of bundling can also include increased sales of one or more products while at the same time promoting the sales of other, perhaps new products that might not yet be selling well ("cross selling," see e.g. Bruhn/Hadwich 2006, 263; Siems 2009, 213). To achieve this goal, products that have no functional relation are in some instances combined, e.g. a keychain is sold together with a case of beer (Bruhn/Hadwich 2006, 263); a main product is...