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Bundling as a Strategy for New Product Introduction Effects on Consumers' Reservation Prices for the Bundle, the New Product, and Its Tie-in Bernard L. Simonin Julie A. Ruth UNIVERSITY OF WASHINGTON

This research investigates the e~ects of bundling on consumers' reservation prices for the bundle and its components including a new product (i.e., the primary product) and a tie-in product, Based on a quasi-experimental procedure (n = 180) involving mixed-product bundles of personal care prodacts, the study examines the effect of the product combination, the form of the bundle (whether a within- or between-brand bundle), and attitudes toward the brand(s) as important determinants of consumers' evaluation oJthe bundle itself. The results show that prior attitudes toward the component brands significantly affect the evaluation of the bundle, which, in turn, mediates the influence of these prior attitudes on consumer reservation prices for the bundle itself and, subsequently, for both the new product and the tie-in individually, j BUSNRES 1995. 33.219-230

he increasingly pervasive practice of product and service bundling in today's markets mandates a careful and systematic examination of consumer price judgments of bundles and subsequent pricing effects on individual products. Although researchers have long been interested in issues of how consumers are affected by price information, very limited attention has been directed to the study of how bundling actually influences consumers' price judgments including reservation prices for bundles. Whereas most of the earlier research on bundling, especially in the economic literature (e.g., Adams and Yellen, 1976; Schmalensee, 1982), focuses on providing reasons and appropriate contexts as well as on evaluating various approaches for bundling given consumers' valuations or reservation prices of the components, this article and a number of more recent articles on marketing (e.g., Gaeth et al., 1990;

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Address correspondence to: Bernard L. Simonin, Department of Marketing and International Business, School of Business Administration, DJ-10, University of Washington, Seattle, WA 98195. Journal of Business Research 33, 219-230 (1995) © 1995 Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010

Yadav and Monroe, 1993) examine bundling from the opposite side by studying consumers' judgments such as perceived savings, perceived quality, and willingness to pay for various types of product bundles. This latter stream of research on bundling rep resents a pertinent area of investigation with great potential to complement the former stream of research in the development of optimal bundling strategies. The question of bundling becomes even more important in the context of new products and their pricing. Although a manufacturer may decide to introduce a new product on its own, it also may opt to promote this new product through bundling with an existing product that carries either the same brand name or a different brand name. For example, a new product such as a Crest toothbrush could be launched in a bundle with the parent brand (Crest toothpaste) or in partnership with a brand which is not the parent brand (e.g., with Gleem toothpaste, also a Procter and Gamble brand). However, consumers may not respond equally favorably to these two different bundles which contain the new product. In fact, consumers may be willing to pay less for one bundle compared to another. Consistent with this example, our study manipulates a bundle which consists of a new product introduction (e.g., Crest toothbrush, Crest mouthwash, or Crest shaving cream) coupled with toothpaste that may or may not be the same brand as the new product. In line with Gaeth et al. (1990), a distinction is made between the new product being introduced via a bundle (i.e., the primary brand) and the existing brand that is used as a tie-in in the b u n d l e - t h e toothpaste in this study. It is the aim of this research to investigate the important role of new product bundling on consumer price perceptions. In particular, we will examine how bundles affect reservation prices (i.e., the maximum price a consumer would be willing to pay

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for an offering; Guiltinan, 1987; Kohli and Mahajan, 1991). Our goal is to examine the circumstances under which consumers will have a relatively higher reservation price for the bundle, the new product, or the tie-in. Such a research focus on reservation prices is echoed by legitimate business concerns. A relatively high reservation price is important for the long-term success of a new product because it suggests that consumers place a relatively high value on the product and that manufacturers and/or retailers can sustain higher profits from the bundle and/or the new product component itself. Reservation prices not only reflect the value customers place on the bundle itself (Kohli and Mahajan, 1991) but also influence actual purchase (c.f., Venkatesh and Mahajan, 1993). Beyond examining the development of bundle reservation prices, we will also investigate how bundling impacts the determination of reservation prices for the individual brands represented in the bundle. Next, both the literature on bundle pricing and the literature on consumer price perceptions will be examined as the theoretical foundation for developing the hypotheses for this study.

Bundling and Bundle Pricing Bundling, the strategy of marketing two or more products and/or services as a "package" at a special price (Guiltinan, 1987; Venkatesh and Mahajan, 1993), has increasingly drawn attention from various research perspectives. Combined software applications, option packages for cars, menu combinations at restaurants, season tickets for sports or art performances represent various examples of this common business practice. These products or services that are bundled are not necessarily similar. Such a distinction has been acknowledged by Gaeth et al. (1990) under the terminology "product tie-ins" or "multiproduct bundling," defined as the association, in one purchase, of multiple products satisfying different needs (e.g., Hasbro PlayDoh paired with General Mills' Lucky Charm cereals). Often, the products of a bundle are complementary in nature (e.g., a toothbrush and a tube of toothpaste). As mapped by Varadarajan (1985, 1986), complementarity in joint sales promotions as well as bundles can be based on various dimensions including complementary usage (Campbell's soup and Nabisco saltine crackers), timing, occasions, images (Tab lowcalorie soft drink and Dannon low-fat yogurt), distribution, derived demand (Mattel toys and Duracell batteries), target markets, and thematic or event tie-ins. Whereas many bundles are promotional in spirit and design, somewhat ad hoc and short-lived, others translate into the development of more sustainable, "real," new products comprised of the integration of existing products (e.g., Friendly's ice cream with York Peppermint Patty or Skor candies). In terms of integration of the various components of a bundle, cobranding or ingredient branding strategies (Norris, 1992) have emerged as a strong expression of bundling. For example, AT&T, GE, and GM MasterCards or, in the food industry, Kellogg's Pop-Tarts with Smucker's fruit filling represent instances of co-branded, integrated product bundles. At the other extreme,

B.L. Simonin and J. A. Ruth

bundles may exist even without the composing products or services physically present or joined together, as evidenced by Mulhem and Leone's (1991) modeling of implicit price bundling of retail products (e.g., deal prices for cake mixes affect sales of frosting). Figure 1 encapsulates a typology of bundling that organizes the preceding discussion along two dimensions revealed by both research and business practice: degree of product integration and degree of recognizability. The degree of product integration points to the propensity for the various items or components of a bundle to be unified as one product form. At one end of the spectrum, co-branded products, such as a Cutex nail polish remover featuring Knox gelatin to strengthen nails, or single-product bundles, such as a three-pack bundle of Chicken of the Sea tuna, are physically one product. In contrast, multiproduct bundles or implicit bundles retain the characteristics of their separate, original product components. The latter dimension, degree of recognizability of the bundle and its components by consumers, distinguishes more tangible from more latent or virtual forms of bundling. Whereas single- and multiple-product bundles have long been recognized as bundles per se, implicit bundles are not clearly identifiable because the bundle only exists due to a derived demand relationship between the products (Mulhern and Leone, 1991). In the case of fully integrated or co-branded products, the consumer is likely to perceive the "joint product" as one product and not as a product or service bundle because it cannot be decomposed into its original components. From a research point of view, most of the work, particularly related to pricing, has been directed to highly recognizable instances of bundling (single- and multi-product bundles) including this current project. Among the multiple objectives and rationales for bundling products and services, Drumwright (1992) points to the inducement of customers to buy more than usual. With their implicit and extended view of bundling, Mulhern and Leone (1991) propose a multi-product conceptualization of retail pricing under which multi-product pricing may lead to a situation where the pricing of one item affects the sales of an item in a different product line. Through a substitution effect, lowering the pricing of one item may decrease the sales of another item in the same product line. At the same time, the lower price of that particular item may also increase sales of complementary products. As documented by Hanson and Martin (1990) and Venkatesh and Mahajan (1993), numerous other rationales for bundling have been suggested in the literature: price segmentation (Dansby and Conrad, 1987), price discrimination (Paroush and Peles, 1981), component complementarity (Telser, 1979), product range restriction (Eppen, Hanson, and Martin, 1991), reduction of uncertainty and classification or processing costs (Keeney and Klein, 1983), economies of scope (Baumol, Panzar, and Willing, 1982), economies in consumers' search (Adams and Yellen, 1976) and risk reduction (Hayes, 1987). From a seller's point of view, three basic strategies have been

Bundling--A New Product Introduction Strategy

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DEGREE OF PRODUCT INTEGRATION Low Low

High

Implicit Bundles

Integrated Product Bundles / Cobranding

Multi-Product Bundles

Single-Product Bundles

DEGREE OF RECOGNIZABILITY High

Figure 1. A typology of bundling.

identified that have fueled most of the research efforts on pricing bundles (Adams and Yetlen, 1976; Schmalensee, 1984; Venkatesh and Mahajan, 1993; Yadav and Monroe, 1993): (1) pure bundling, for which the component products/services are priced and sold only as a bundle and not separately: (2) mixed bundling, for which the component products/services are priced and sold both as a bundle and separately; and (3) pure components, for which the component products/services are priced and sold separately whereas the bundle is not offered. Besides the pricing issues, bundles have also been examined from a more strategic orientation. Eppen, Hanson, and Martin (1991), for instance, have argued the benefits of treating bundles as new products as opposed to simple, marketing gimmicks. As pointed out by Tellis (1986) in his thorough review of the field of pricing strategy, price bundling constitutes a price strategy, whose adequate presentation and treatment in the marketing literature has lagged behind the early interest in and understanding of its economics, going back to the original work of Stigler (1968) and his followers (Adams and Yellen, 1976; Telser, 1979; Spence, 1980; Paroush and Peles, 1981; Schmalensee, 1982, 1984). In contrast to this historically dominant stream of research focusing on sellers' incentives, consumer welfare, and effect on competition, the limited number of applications in marketing has been explained by the inadequate attention to the study of consumers' preferences (Goldberg, Green, and Wind, 1984) as well as individual buyer behavior (Yadav and Monroe, 1993) with respect to bundles. These shortcomings have only been addressed sporadically in the literature. For instance, when focusing on the derivation of optimal levels of bundle pricing given consumers' reservation prices, Venkatesh and Mahajan (1993) selected time availability as another consumer criterion beyond reservation price. Still, one of the most promising areas in the marketing literature on bundling has emerged from the recent impetus associated with researchers interested in the effects of various forms of bundles on consumers' overall judgments. In this vein, Yadav and Monroe (1993) examined buyers' perceptions of savings in a bundle offering in comparison to savings for the component items. Before them, Gaeth et al. (1990), examined how

the overall evaluation of a bundle in terms of perceived quality, usefulness, and willingness to pay is impacted by its component items. In line with these more recent, consumer-focused attempts to capture the complexity of the bundling decision and its pricing/profitability implications, we explore the effect of bundling on consumers' reservation prices. In particular, our investigation is stimulated by the following questions: when exposed to a bundle comprised of a new product and a tie-in product, what factors will influence consumer judgments of the bundle? What factors will influence consumers' reservation price for the bundle? Will the reservation prices for the individual components be affected by the bundle? Drawing on the literature on brand extensions as a form of new product introduction (Aaker and Keller, 1990; Aaker, 1991), bundling (Gaeth et al., 1990) and pricing judgments (Rajendran and Tellis, 1994), we identify attitudes towards the brand(s) contained in the bundle, the products, and the form of the bundle itself (within- or between-brand bundles) as key variables for understanding consumers' resen,ation price (Guiltinan, 1987; Kohli and Mahajan, 1991) for the bundle and its components.

Bundling and Consumer Price Judgments The Role o f Attitudes Introducing new products via bundles, with at least one existing brand-name product, has an important potential marketing advantage. A bundle containing at least one existing brandname product has, as a foundation for consumer judgments, the consumer preferences and attitudes toward this existing brand. Rather than introducing a new product alone, a bundle with an existing brand-name product may be more likely to gain consumer attention and provide a reassurance of quality and other image-based associations (Aaker, 1991) based on consumer familiarity and liking of the existing brand. Of course, if the existing tie-in brand has a bad image or a low level of perceived quality, such advantages are jeopardized.

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Research on brand extensions has used a similar rationale for why brand extensions may reduce risk. With brand extensions, a parent brand name is leveraged by using consumers' familiarity and knowledge of the established brand name (Aaker and Keller, 1990) in order to facilitate acceptance of the new product. A positive effect of prior brand attitudes has been observed on consumer acceptance of brand extensions, where prior brand attitude toward the family brand was positively associated with attitude toward the extension (Aaker and Keller, 1990). Similarly, Park, Milberg, and Lawson (1991) controlled for prior brand attitudes in their study of acceptance of brand extensions because of this expected effect. These results provide theoretical support for bundling as a mechanism whereby the link between an existing brand name and a new product can be made directly. This type of offering links explicitly the new product with the valuable qualities of the tie-in brand including, for example, brand name awareness, perceptions of quality, and other brand associations (Eppen, Hanson, and Martin, 1987; Aaker, 1991). Presentation of the two brands, through the bundle, will evoke the evaluative affect associated with each brand in memory (Gaeth et al., 1990). Therefore, attitudes toward the brands contained in the bundle are expected to be important in understanding evaluative and price judgments for the bundle. Consumers' prior brand attitudes toward the brands in the bundle are expected to directly influence attitudes toward the bundle and reservation price for the bundle, consistent with past research that has shown that price judgments are affected by attitudes (brand preference strength; Rajendran and Tellis, 1994)• Thus, it is predicted that both prior attitudes toward the new product brand and prior attitudes toward the tie-in will significantly affect evaluations and reservation price of the bundle. These effects are expected to be positive such that more favorable prior brand attitudes will yield relatively more favorable attitudes toward the bundle and a higher reservation price for the bundle. In terms of the role of these prior brand attitudes, this effect is supported by past research that investigated the appropriateness of the averaging process (Anderson, 1981) as a model for evaluation of multi-product bundles (Gaeth et al., 1990). Our study goes beyond the evaluation of the bundle and of its reservation price to also capture the spillover effects of bundling on the reservation price of the individual components. Here, we expect that prior attitudes toward each brand will also affect reservation prices for each component. The effect of the bundle itself on the reservation price of each component will be described in H4. HI: Prior attitudes toward the brand(s) will have a positive

effect on: (a) attitudes toward the bundle, (b) the reservation price for the bundle, (c) the reservation prices for the new product and the tie-in components. Of complementary interest, the issue of the relative effects of attitudes toward each component on attitude toward the bundle, constitutes a major research question that deserves more attention. In their study, Gaeth et al. (1990) concluded that


evaluations of the primary product and evaluations of the tie-in product are balanced in forming an overall impression of the product bundle• Thus, the relative importance or weight of these two evaluations is an especially critical factor. Our data suggest that the two are given near-equal weight." The current study, although not centered on this issue, will allow for a further test of the validity of"equal contribution" in a different bundling situation involving a new product. Gaeth's et al. basic conclusion of equal contribution by the primary and tie-in components will serve as the null hypothesis. •

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Products in the Bundle Consumers' perceptions of the degree to which the products in the bundle "fit" together are expected to play a key role in the evaluation of the bundle and its effects on price judgments. Several distinct research streams, including those on bundling, joint sales promotions, and acceptance of brand extensions, suggest this result, even though the literature is not necessarily in agreement on what constitutes complementarity or "fit." As Guiltinan (1987) describes in his framework of pricing bundled services, a key to effective bundling is the degree of complementarity among services or products in the bundle. Consumers may perceive a high degree of complementarity based on economies of time and effort in purchasing the bundled items together, improved satisfaction because of the bundle, and/or improved image of the bundle because, for example, one product lends credibility to the other product in the bundle. Similarly, as discussed earlier. Varadarajan (1986) proposes that joint sales promotions are more likely to be successful when they involve complementary usage situations, cooccurrence in timing of consumption and usage occasions, and other bases of perceptions of complementarity. Mulhern and Leone (1991) also observed such complementary effects in their investigation of implicit bundles where promotional prices for cake mixes influenced sales of frosting, a related and complementary product. Research from the literature on brand extensions also suggests an important role of product complementarity. Aaker and Keller (1991) observe a relatively high degree of perceived fit between the original brand and an extension when there is relatively high complementarity, defined as the extent to which the extensions and existing products are similar in usage occasions and context. In their study, brand extensions were preferred (i.e., Crest mouthwash was preferred over Crest shaving cream) when the brand was perceived as high quality and consumers perceived the new product to be relatively similar to and more related to the family brand (i.e., Crest toothpaste). Gaeth et al. (1990) also observe a similar interaction of product quality and product fit. Judgments ofa bundle's product complementarity, then, are expected to play a role in how consumers respond to a bundle. Complementary product bundles, those where consumers perceive the fit of products to be relatively high, with favorably evaluated brands will be preferred. It is expected that:


H2: Prior attitudes toward the new product brand and prod-

uct fit will interact such that product fit enhances the impact of prior attitudes on: (a) attitudes toward the bundle, (b) the reservation price for the bundle.

Form of the Bundle: Within- or Between-Brand Bundles Further, we propose that within-brand bundles will be evaluated more favorably than between-brand bundles. In addition to the product fit effect described above, both Wakers (1991) and Mulhern and Leone (1991) observe stronger price promotion effects on those products that have the same brand name (i.e., Betty Crocker cake mix and Betty Crocker frosting vs. Betty Crocker cake mix and Duncan Hines frosting), even though these products were not explicitly bundled together. In our setting, the new product is introduced with its parent brand of toothpaste or a different brand of toothpaste. Because consumers show preference for implicit bundles consisting of same-brand products (Mulhern and Leone, 1991), we expect a positive effect of within-brand bundles in explicit cases of such partnerships. However, attitudes toward the new product brand are expected to moderate this effect. An interaction is expected such that the positive effect of within-brand bundles will be enhanced when prior attitudes toward the primary brand are relatively favorable. Within-brand bundles, where prior attitudes toward the primary brand are relatively favorable, will yield relatively favorable attitudes toward the bundle itself and a relatively high reservation price for the bundle. H3: Form and prior attitudes toward the new product brand

will result in a significant interaction effect on: (a) attitudes toward the bundle, (b) the reservation price for the bundle.

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ative attractiveness of an object is likely to be reflected in her or his reservation prices. Thus, consumers' evaluations of bundle are expected to influence the value placed on the bundle including its reservation price. That is, the more consumers like the bundle, the higher their reservation price for it. It is also expected that attitudes toward the bundle, in addition to prior attitudes toward each brand (as described in Hlc), will influence the reservation price for each component separately. This effect of attitudes toward the bundle is expected because evaluation of the bundle de facto incorporates evaluations of the components. In fact, lacking any other prior evaluation other than the association with the brand name itself, the bundle is the first mechanism for evaluating, in particular, the new product. Because the bundle represents new, evaluative information that will be associated with each component, we expect direct effects of prior attitudes toward each brand along with attitudes toward the bundle to influence the reservation price of each component. Attitudes are expected to mediate effects on reservation prices because attitudes toward the bundle represent the "generative mechanism" through which the exogenous variables are able to influence the dependent variable of interest (Baron and Kenny, 1986), namely, reservation prices. That is, we expect the characteristics of the bundle are transformed and directed to reservation prices through an overall evaluation of the bundle rather than through direct effects of these characteristics (i.e., form of the bundle) on reservation prices. H4: Attitudes toward the bundle will mediate consumers' reservation prices for: (a) the bundle, (b) its new product component, (c) its tie-in component.

Method Mediation of Attitudes Toward the Bundle on Reservation P r i c e s Although past research has observed a direct relationship of certain variables (e.g., advertising claims of product quality and image) on the price consumers are willing to pay (c.f., Snyder and DeBono, 1985), we propose that a more appropriate representation of effects on reservation prices includes the function played by attitudes in influencing intentions and actual behaviors (Ajzen and Fishbein, 1980). Here, we expect attitudes toward the bundle to mediate the effects described previously on reservation prices for the bundle and for each component separately. As demonstrated by Dodds, Monroe, and Grewal (1991), when perceptions of the brand are more favorable, ceteris paribus, perceptions of value are higher and willingness to buy is greater. Similarly, Guiltinan (1987) points out, with respect to bundles, that reservation prices reflect the value customers place on the bundle itself. In developing a probabilistic model of optimal pricing of bundles, Venkatesh and Mahajan (1993) make the assumption that an individual's perception of the tel-

In order to test these hypotheses, a quasi-experimental procedure was developed whereby product bundles were presented to respondents via a print advertisement. The ad showed a bundle consisting of a tube of toothpaste and a toothbrush, mouthwash or shaving cream. Consistent with the style of many sales promotions, the headline stated "$1.00 offwhen you buy (brand) toothpaste and (brand) toothbrush/mouthwash/shaving cream." The body copy described that the offering was available now at local drugstores. The lower portion of the ad was consistent with the typical sales promotional vehicle, indicating the expiration date, limitations of use, and how the retailer should process the coupon. These aspects of the ad were included to add realism to the scenario. However, it is important to recognize that the discount offered through the coupon was not manipulated. Thus, the manipulations consisted of the brands and products represented in the bundle but not the discount provided by the coupon.

The Procedure Graduate and undergraduate students in = 180) from all dis-

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ciplines at a west coast university participated in the study. Respondents were told that they would be "given marketing materials to review and respond to." Respondents first answered a series of questions regarding their prior attitudes toward a variety of brands including the brands represented in the bundle. Following filler material, respondents were presented with the target advertisement for the bundle. Respondents were randomly assigned to one of the 12 bundle conditions (See Table 1). The target advertisement varied the form of the bundle (within- versus between-brand bundle), the productcombination (where a bundle was comprised of a tube of toothpaste and either a toothbrush, a bottle of mouthwash, or a container of shaving cream). The tie-in brand of toothpaste was either Crest or Gleem, two Procter and Gamble brands. The new product brand was either Crest, Gleem, or Magna, a fictitious brand. Gleem was selected because it is also a Procter and Gamble brand that has not been extended, a criterion used by Aaker and Keller (1991) in identifying brands for their study. These products were selected due to their established range of complementarity. Past research on joint promotions has pointed to toothbrush and toothpaste as being perfectly complementary in use (Varadarajan, 1986). Similarly, research on acceptance of brand extensions indicated that respondents perceived mouthwash, as compared to shaving cream, as a better fitting brand extension for Crest toothpaste (Aaker and Keller, 1991). Respondents viewed an ad depicting one of the bundle offerings described previously and then responded to questions regarding their attitudes toward the bundle, perceptions of product fit, and how much they would be willing to pay for such an offering. Respondents then viewed and responded to additional filler material. However, at the end of the session and just prior to exiting the study, the respondents were asked how much they would be willing to pay for the primary product (i.e., the new product) and the tie-in product (i.e., the toothpaste) separately. After the completion of the study, respondents were thanked and paid for their participation.

Table 1. Bundled Product Combinations a New Product

Tie-In Toothpaste

Crest toothbrush Crest mouthwash Crest shaving cream

Crest Crest Crest

Gleem toothbrush Gleem mouthwash Gleem shaving cream

Crest Crest Crest

Gleem toothbrush Gleem mouthwash Gleem shaving cream

Gleem Gleem Gleem

Magna toothbrush Magna mouthwash Magna shaving cream

Crest Crest Crest

" Due to sample size constraints all possible product/brand combinations were not represented in the stud),

Manipulations For the manipulation of product categories, respondents were shown a bundle offering of a tube of toothpaste combined with either a toothbrush, mouthwash or shaving cream. These conditions were coded as 1,0, and -1 respectively in order to coincide with our predictions that a toothbrush would be perceived to be a "better" bundle combination with toothpaste than mouthwash than shaving cream. As a manipulation check, a one-way ANOVA with the three levels of product (toothbrush, mouthwash, and shaving cream) was conducted. The means for the variable "fit" on a seven-point scale (good-bad product combination; logical-not logical product combination) were: 6.43 (bundles with a toothbrush), 6.09 (bundles with mouthwash), 5.46 (bundles with shaving cream). The ANOVA showed a significant difference in perceptions of product fit across these three bundle combinations (F2,179 df = 15.939, p < .001), confirming our ordering of product combination preferences. The form of the product bundle was either a within- or betweenbrand bundle, coded as 1 or 0 respectively.

Measures ATTITUDES. Attitudes toward a number of objects were as-

sessed including prior attitudes toward each brand represented in the bundle and attitudes toward the bundle itself. For reasons of consistency, all attitudes were assessed via four sevenpoint bipolar semantic differential scales where respondents indicated the degree to which their attitude was positive/negative, unfavorable/favorable, good/bad, and superior/inferior (Osgood, Suci, and Tannenbaum, 1957). The items were summed to create a scaled measure for each relevant attitude. The Cronbach alphas for the various attitude constructs range from 0.86 to 0.97, indicating a high degree of internal consistency and reliability. RESERVATION PRICE. Respondents were asked to indicate the price they would be willing to pay for the bundle itself and, later in the session and just prior to exit, the price they would be willing to pay for each brand separately. Because each individual may have a different internal reference price (Jacobson and Obermiller, 1989), we elected to include a standard reference price (i.e., an average market price based on a market survey of prices for each of the products) in order to calibrate the responses. In the questionnaire itself (not the ad), we provided information regarding the average market price for the bundle offering (i.e., "The average price for such an offering is $4.20") and asked respondents how much they would be willing to pay for the offering they had just seen. The average market prices were: $4.40, $4.20 and $3.30 for the bundles consisting of toothpaste and a toothbrush, a small container of mouthwash, or a small container of shaving cream, respectively. The average market prices for a small tube of toothpaste, a toothbrush, mouthwash, and shaving cream were $1.90, $2.50, $2.30, and $1.40, respectively. When asked to indicate how much they would be willing to pay for each product separately, respondents also were provided with the market


price for the individual products. Because the reference prices varied by bundle and by individual product, we calculated for each subject a percentage deviation from the reference price as the dependent variable for analysis (c.f., Helgeson and Beatty, 1987). That is, a reservation price deviation ratio (RPDR) was calculated as follows: reservation price deviation ratio (RPDR) = reservation price - average market reference price average market reference price

Data Analysis A series of regression models was developed to test the hypotheses. The regression analyses included the following variables: prior attitudes toward the new product brand, prior attitudes toward the tie-in (when the two brands were different), the form of the bundle (within-brand or between-brand bundle), the product combination, the interaction between form and attitudes toward the new product brand, the interaction between product type and attitudes toward the new product brand, and the interaction between form and product combination.

Results The discussion of our results is articulated along two levels of analysis: (1) the bundle itself and (2) the new product and tiein components separately. A collinearity analysis was performed on all the reported regression models via the examination of both the variance inflation factors (VIFs) that reflect the degree to which multicollinearity increases the instability of the coefficient estimates and the condition indexes (CIs). For our data, the highest VIF is 2.2, far below the cut-off of 10 suggested by Meyer (1986) as a limit beyond which data should be further examined for multicollinearity. Similarly, all our CIs are well below the acknowledged "danger" level of 20 to 30 (Kalwani, et al., 1990). Therefore, multicollinearity does not seem to be a problem in our models including those with attitudes toward the bundle as a mediating variable.

Effects on the Bundle Our first analysis is centered on the bundle itself. It is concerned with the effects of the bundling mix on consumer evaluations of the bundle (see Table 2). Here, the results pertaining to attitudes toward the bundle (Model III) show a positive effect of prior attitudes towards the new product brand (b = .405, t = 2.533, p < .012) and suggest a positive effect of attitudes toward the tie-in (b = .207, t = 1.750,/) < .082). The interaction (A x D) of the product combination and attitudes toward the new product brand (b = .176, t = 1.750, p < .083) also suggests that good-fitting combinations with a well-liked brand will result in favorable attitudes toward the bundle. These results are consistent with H la, where it was hypothesized that prior attitudes toward the brand(s) represented in the bundle would exert a positive influence on attitudes toward

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the bundle itself. Of further interest, it is possible to determine if both the new product and tie-in components contribute equally to this evaluation process. Whereas Gaeth et al. (1990) findings provided support for an equal weight averaging model, addressing the same issue here requires the testing of the null hypothesis of equality of regression coefficients between A (new product brand attitudes) and B (tie-in product brand attitudes) in Model III regression. To that end, a typical test for difference between partial regression coefficients from a same sample (see Cohen and Cohen, 1983) was performed. The corresponding t-test of difference in regression coefficients (t = 3.99, p < .001) indicates that the null hypothesis that the two regression coefficients are equal must be rejected. That is, unlike the results reported by Gaeth et al. (1990), the effect of the new product brand attitudes on attitudes toward the bundle is greater than the effect of the tie-in product brand attitudes. H2a hypothesized an interaction effect of good- fitting products by well-liked new product brand. The results of Model III are consistent with this postulated relationship (b = .176, t = 1.750, p < .083) and suggest that the effect of product will be enhanced by a new product brand which is welt-liked. On the other hand, H3a, which postulated an interaction effect of the form of the bundle with attitudes toward the new product brand, is not supported. That is, the effect of a well-liked brand for the new product was not enhanced by a within-brand bundle. A closer look at the table reveals that, although not significant at the p < . 10 level (borderline), the main effect of the form of the bundle (b = 1.598, t = 1.628, p < .105) is consistent with favorable evaluations of within-brand as compared to between-brand bundles. In a similar way, Model I is concerned with the regression of the RPDR of the bundle on the same set of explanatory variables as previously introduced under Model III. The only difference between the two models is the dependent variable: attitudes toward the bundle under Model III and RPDR of the bundle under Model I. Focusing on the results for the latter model, it is clear that, like Hla, H l b is also supported. There is a positive effect of prior attitudes towards the new product brand (b = .046, t = 1.664, p < .098) and a significant, positive effect of attitudes toward the tie-in (b = .042, t = 2.044, p < .042) on consumers' willingness to pay for the bundle. No significant interaction effect can be observed, leading to the rejection of H2b and H3b. Thus, unlike Model III. there is no evidence of an interaction effect between attitude toward the new product brand and the product type. One main goal was to understand the mediating effects of attitudes toward the bundle itself on consumers' reservation price for various bundle types. It was postulated, under H4a, that attitudes toward the bundle would mediate, at least partially, the effects of the pertinent characteristics of the bundle on the consumers' RPDR for the bundle. In order to test this mediation hypothesis (Baron and Kenny, 1986), we first observed the effects of the independent variables on attitudes toward the bundle itself (Table 2, Model III). Then, we observed

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Table 2. Regression Results for the Reservation Price Deviation Ratio (RPDR) of the Bundle: Mediating Effect of Consumers' Attitudes Toward the Bundle Regression Model

RPDR for the Bundle 1. Without mediating variable~

11. With mediating variablea

Variable

B

t

Significance b

A. New product brand attitudes B. "Tie-in" product brand attitudes C. Form of Bundle D Product type A x C A × D C x D R2 = 0.092

0.046 0.042 0.223 -0.087 -0.044 0.014 -0021

1.664 2.044 1.313 -1.193 -1.235 0790 -0.486

0.098 0.042 NS NS NS NS NS

A. New product brand attitudes B. "Tie-in" product brand attitudes C. Form of bundle D. Product type A x C A x D C x D

0.022 0.030 0.129 -0.068 -0027 0.004 -0.014 0.059

0.841 1.526 0.796 -0.983 -0.801 0.214 -0351 4.697

NS NS NS NS NS NS NS 0000

0.405 0.207 1.598 -0.330 -0.283 0.176 -0.114

2.533 1.750 1.628 -0.787 -1.392 1.750 -0.461

0.012 0.082 NS NS NS 0.083 NS

Attitudes toward the bundle R2 = 0.196 Consumers' attitudes toward the bundle III. Mediating variable as dependent~

A. New product brand attitudes B. "Tie-in" product brand attitudes C. Form of bundle D. Product type A x C A x D C x D R2 = 0.197

.' Mediatingvariable is attitudestoward the bundle All p < .10 are shown; NS is nonsignificant the effects of the i n d e p e n d e n t variables on the RPDR w h e n attitudes toward the b u n d l e were not included (Model I), and then these same effects w h e n attitudes toward the b u n d l e were included (Model II). The results indicate that, as predicted, attitudes toward the b u n d l e itself fully mediate the effects of the i n d e p e n d e n t variables on the b u n d l e RPDR. That is, positive evaluations of the b u n d l e were associated with relatively more favorable (higher) reservation prices, and n o other significant effects were present w h e n attitudes toward the b u n d l e were included in the regression model (Model II). This is an indication of full mediation, as hypothesized.

Effects on the New Product and Tie-In Components Although a n e w p r o d u c t may be i n t r o d u c e d via bundling, often these n e w products will go on to be offered separately. One of the goals of this research was to determine the effects of b u n dling on reservation prices for the new p r o d u c t w h e n considered separately. Table 3 (Model I) reports that, as hypothesized in H l c , attitudes toward the n e w p r o d u c t b r a n d , prior to exposure to the bundle, are positively related to the RPDR (b = .102, t = 2.854, p < .005). The results show some s u p p o r t for the notion that w i t h i n - b r a n d bundles are preferred (b = .405,

t = 1.843, p < .067), except w h e n prior attitudes toward the n e w p r o d u c t b r a n d are relatively unfavorable to begin with (form by attitude interaction where b = - . 0 8 5 , t = -1.859, p < .065). W h e n attitudes toward the b u n d l e are included in the regressions as a mediating variable (Model II), only two variables are significantly related to reservation prices. That is, attitudes toward the b u n d l e itself (b = .060, t = 3.639, p < .000) and prior attitudes toward the n e w p r o d u c t b r a n d (b = .077, t = 2.204, p < .029) are positively a n d significantly related to the price consumers are willing to pay for the new product alone. This result u n d e r l i n e s the importance of b u n d l i n g in introducing n e w products. Likewise, the tie-in product may also be affected by exposure to the bundle. As Table 3 suggests (Model I), only prior attitudes toward the tie-in p r o d u c t are predictive of consumers' RPDR (b = .078, t = 3.351, p < .001). W h e n attitudes toward the b u n d l e itself are included in the regression analysis, the results indicate that attitudes toward the bundle partially mediate the b u n d l e characteristics' effects on reservation prices (b = .037, t = 2.523, p < .013). Full mediation would be observed if the effects of prior attitudes toward the tie-in b r a n d were no longer significant when attitudes toward the bundle are included. Partial mediation is to be expected in these conditions, because of the strength and stability of prior attitudes (Ajzen and Fish-

0.077 -0.001 0.302 -0.058 -0.066 -0.009 0.047 0.060

A. New product brand attitudes B. "Tie-in" product brand attitudes C. Form of bundle D. Product type A x C A × D C x D Attitudes toward the bundle R2 = 0.169

a Mediating variable is attitudes t o w a r d the b u n d l e . b All p < .10 are s h o w n ; NS is n o n s i g n i f i c a n t .

I1. With mediating variable ~

B 0.102 0.013 0.405 -0.078 -0.085 0.002 0.040

Variable

New product brand attitudes "Tie-in" product brand attitudes Form of bundle Product type x C x D x D R2 = 0.103

I. Without mediating variablea A. B. C. D. A A C

Regression Model

2.204 -0.027 1.411 -0.636 -1.503 -0.416 0.840 3.639

2.854 0.476 1.843 -0.832 -1.859 0.068 0.728

RPDR for the N e w Product

Mediating Effect of Consumers' Attitudes toward the Bundle

-0.037 0.078 0.074 0.020 -0.009 0.013 -0.060 -0.052 0.070 0.012 0.032 0.002 0.007 -0.056 0.037

New product brand attitudes "Tie-in" product brand attitudes Form of bundle Product type × C x D × D R2 = 0.151

A. New product brand attitudes B. "Tie-in" product brand attitudes C. Form of bundle D. Product type A x C A x D C x D Attitudes toward the bundle R2 = 0 . 1 8 1

0.029 NS NS NS NS NS NS 0.000

B

A. B. C. D. A A C

Variable

0.005 NS 0.067 NS 0.065 NS NS

Significance b

t

-1.646 3.024 0.063 0.396 0.039 0.336 -1.165 2.523

-1.167 3.351 0.386 0.238 -0.235 0.668 -1.236

RPDR for the "Tie-in" Product

Table 3. Regression Results for the Reservation Price Deviation Ratio (RPDR) of the Individual New Product and "Tie-in" Product:

NS 0.003 NS NS NS NS NS 0.013

NS 0.001 NS NS NS NS NS

Significance b

kO I bo Co O

ha ha "-4

kaJ :;:la

b5 =

U,1 t,'~

ct . O cg,

¢D

~2 5

O.. e-

e"-

8 O-

Z (D

I >

O..

cla e'-

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bein, 1980). In light of the overwhelming and predictable relationship between attitudes toward the tie-in prior to exposure to the bundle and reservation prices after exposure, these results provide evidence that the bundle represents an opportunity to influence price judgments for the tie-in product as well. These results, then, indicate that bundling has important pricing consequences for both primary and tie-in brands.

Discussion and Managerial Implications Despite limitations, this research provides some initial insights regarding the effects of bundle characteristics on consumers' reservation price for the bundle itself and its components. Because consumers may use price as a means of inferring quality (Gotlieb and Sarel, 1991), the reservation prices developed as a result of exposure to the bundle may be important for future perceptions, including internal reference prices. When marketing strategies and tactics result in higher internal reference prices, any given offering price would appear to be more favorable, thus increasing the perceived value of the offer and consumers' willingness to buy the product (Lichtenstein and Bearden, 1988; Dodds, Monroe, and Grewal, 1991). Although the results of this study have to be taken with caution, especially in terms of their generalizability and relative lack of predictive power, they consistently point to the theoretical significance of the impact of consumers' evaluation of bundles on price judgments. Such evaluations affect not only consumers' willingness to pay for a bundle offering per se, but also their reservation price for the distinct primary and tie-in products. That is, bundling influences the propensity to purchase these respective components separately in the future. In turn, for manufacturers and retailers, bundles represent a key strategic variable that can be manipulated to their advantage. The observed, consistent effect of attitudes toward the bundle in mediating effects on reservation prices for the bundle, the new product and the tie-in, is not inconsistent with an information integration perspective (Anderson, 1981) under which, consumers form an overall impression of the bundle as a unified whole. With respect to how this integration is achieved, our results reflect the presence of an asymmetric contribution between the new product and the tie-in on the evaluation of the bundle. A priori, these results are contrary to those of Gaeth et al. (1990) who have reported parity in the influence of the tie-in and primary products on the perceived quality of the bundle. But, a closer look at the differences in experimental manipulations and setting points to the specificity of some of these findings-the need for study replications and extensions that are expected at this infancy stage of this area of research. Some of the more meaningful differences between the studies include: different products and brands (personal care products versus VCRs with tapes, typewriters with calculators), dift-erent stages of product cycle (new products/product extensions versus mature or unknown products), different mea-


sures (an overall index of attitudes versus a measure of quality), and different bundle designs (true joint promotion versus a product with a freebie). O[ particular interest in attempting to reconcile the findings of these two studies on the issue of equal versus non-equal contribution of the primary and tie-in products, the role of the new products in bundles deserves further attention. One could easily argue that a new product component, due to its relatively novel or intriguing features attracts greater attention and leads to additional scrutiny which, in turn, results in an unbalanced processing of the cues and a primacy effect of the new product in the evaluation of the bundle. Certainly, the relative magnitude of the regression coefficients reported in Table 2 (Model lid for the new product and the tie-in provides directional support for such a rationale. Regardless of the nature of the integration process, equalweight or not, it has been shown that consumers' overall evaluations of a bundle play a significant role in determining reservation price levels for the bundle and its components. Accordingly, managers should consider bundling from a strategic point of view as opposed to on an ad hoc basis. The design of the bundle, physical integration of the components and promotional material must be carefully developed to trigger some initial, positive attitudinal effects on the joint offering. The attributes of the bundle directly relevant to customers must be determined first, before considering an appropriate promotional strategy (Norris, 1992). In particular, the product combination has to be sensible and attractive to consumers in addition to being legal (e.g., some countries impose restrictions on certain promotional bundles based on the relatedness or comparative worth of the components). In line with Eppen's et al. (1991) view of bundles which, like new products, can be instruments for implementing a company strategy, our results support the use of bundling for new product launches and promotions, when a bundle can be engineered with some positive attitudinal spillovers. In the case of between-brand bundles, consumers' reservation prices for the new product could be artificially raised for a not so wellliked brand through a clever association with a well-liked tiein. Our findings provide some empirical support to what has often been speculated by others who have also warned against the potentially damaging effects of a poorly evaluated tie-in product on a highly evaluated primary product. Although the findings pertaining to the form of the bundle (within- versus across-brand), are still tentative and require further research, they tend to suggest that a brand umbrella (within-brand) bundling strategy would enhance consumers' evaluation of the bundle and the new product. Such a practice should be an integral consideration in any coherent product line and brand management strategy. Going beyond the benefits already noted in the literature, such as reduction of the cost of new product introduction (Tauber. 1988) or the degree of consumer uncertainty regarding perceived quality (Sullivan, 1990), umbrella branding represents a potentially attractive option for rejuvenating an older or stagnant brand.


Of course, as an alternate strategy, similar gains could be achieved via between-brand bundling, by joining with another well-liked brand that could contribute to the development of favorable attitudes toward the bundle and, indirectly, toward the new product brand. Firms looking for such beneficial crossassociations can contemplate either an intrafirm or interfirm bundling strategy (Varadarajan, 1986). Although it may be in the best interest of some firms to leverage their existing, multiple brands in such a fashion, this intracompany approach may not always be possible or even desirable. Thus, firms may have to approach other companies to devise a bundling strategy. But, inter firm arrangements are likely to generate additional transaction costs. In particular, the search for a compatible partner and product may be prohibitive, if not futile. Compounding this problem is the fact that some likely and ideal product matches may come from direct competitors. Although competitive risks may be present under this type of bundling practice, new product and business opportunities can also be identified. In fact, many brands, competitors and collaborators alike, are participating in co-branding, dual-signature advertising and the like because of these sorts of strategic marketing benefits (Young and Greyser, 1982, 1983).

Conclusions and Limitations This research has focused on issues related to the effects of bundles on consumers' evaluations and reservation price judgments of the bundle and its components, including a new product. Given the importance of bundling and the variety of situations and products to which bundling can be applied, replicating these results using a variety of product categories and brand, as well as alternative methodologies would be appropriate and welcome. Of particular interest, the use of path analysis or structural equation modeling represents a definite advantage for investigating the mediation effects of consumers' attitude toward the bundle. A specific limitation of this study, one that calls for further research, concerns the method of directly soliciting consumer willingness to pay. Although this approach has been commonly used in past studies, consumer-focused research on bundle pricing would greatly benefit from the adoption of alternative methods (c.f., Cameron and James, 1987; Kohli and Mahajan, 1991). Likewise, the reservation price deviation ratio of the study could be calibrated in a number of different ways that would not require the disclosure of market prices to the subjects (e.g., by allowing the subjects to estimate market prices themselves). Although many bundles are in-store promotional forms aimed at influencing in-store decision processes, the long-term implications of bundling on brand attitudes and associations are important and would be well served by studies that incorporate greater time delays and message repetition. In light of our results and prior, unresolved discussion of the equal weight averaging model observed by Gaeth et al. (1990), it seems that greater research attention could be directed to the pertinent issue of the relative contribution of bundle corn-

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ponents. Perhaps, an even more appropriate way to formulate the problem could be to ask: how do bundle characteristics and conditions relate to the relative effect of components on the overall evaluation of the bundle? In other words, under what conditions will the relative effect of components be or not be equal? Such a broader perspective may help identify general principles about bundling that would account for cases of morethan-two products, cases of more-than-two brands, and the like. After all, a superior bundle and component pricing strategy starts with a clear understanding of the fundamental importance of consumers' attitudes and marketing managers' willingness to treat bundling as a full-fledged strategic activity.

The authors thank the Editor, Abhik Roy,the two anonymousJBR reviewers, the participants of the Symposiumon Pricingand the MarketingMix,and Chuck Weinberg for their helpful comments. The financial support of the Center for International Business Education and Research at the University of Washington is also greatly appreciated.

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