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On pricing of multiple bundles of products and services

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  • Ferrer, Juan-Carlos
  • Mora, Hugo
  • Olivares, Francisco

Abstract

This paper considers the pricing decision faced by a seller of bundles composed of a service and an associated product offered to customers on a subscription basis using a two-part tariff scheme. An optimal pricing policy that maximizes the profit of a firm is obtained using a dynamic programming approach and it is found that, in the long run, there is an optimal number of customers associated to each bundle. Due to managerial purposes, two suboptimal fixed-price policies are derived and compared to the optimal pricing policy. The conditions under which it is profitable for the firm to expand its offer from one to two bundles is studied. Finally, it is concluded that introducing a fee for subscribed customers to deter the switching from one bundle to the other, increases the profitability of the firm.

Suggested Citation

  • Ferrer, Juan-Carlos & Mora, Hugo & Olivares, Francisco, 2010. "On pricing of multiple bundles of products and services," European Journal of Operational Research, Elsevier, vol. 206(1), pages 197-208, October.
    • Handle: RePEc:eee:ejores:v:206:y:2010:i:1:p:197-208
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    Cited by:

    1. Chen, Ting & Shan, Feifei & Yang, Feng & Xu, Fengmei, 2023. "Online retailer bundling strategy in a dual-channel supply chain," International Journal of Production Economics, Elsevier, vol. 259(C).
    2. Saeed Poormoaied, 2022. "Inventory decision in a periodic review inventory model with two complementary products," Annals of Operations Research, Springer, vol. 315(2), pages 1937-1970, August.
    3. Wang, Xiaolin & Zhao, Xiujie & Liu, Bin, 2020. "Design and pricing of extended warranty menus based on the multinomial logit choice model," European Journal of Operational Research, Elsevier, vol. 287(1), pages 237-250.
    4. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.
    5. Banciu, M. & Ødegaard, F., 2016. "Optimal product bundling with dependent valuations: The price of independence," European Journal of Operational Research, Elsevier, vol. 255(2), pages 481-495.
    6. Ritwik Raj & Mark H. Karwan & Chase Murray & Lei Sun, 2022. "Itemized pricing in B2B bundles with diminishing reservation prices and loss averse customers," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 21(4), pages 375-392, August.
    7. Zhang, Jian & Nault, Barrie R. & Tu, Yiliu, 2015. "A dynamic pricing strategy for a 3PL provider with heterogeneous customers," International Journal of Production Economics, Elsevier, vol. 169(C), pages 31-43.
    8. Feng, Bo & Li, Yanzhi & Shen, Huaxiao, 2015. "Tying mechanism for airlines’ air cargo capacity allocation," European Journal of Operational Research, Elsevier, vol. 244(1), pages 322-330.
    9. Huang, Yeu-Shiang & Ho, Jyh-Wen & Wu, Guan-Jin, 2022. "A study on promotion with strategic two-stage customized bundling," Journal of Retailing and Consumer Services, Elsevier, vol. 68(C).
    10. Oliveira, Fernando S. & Ruiz, Carlos & Conejo, Antonio J., 2013. "Contract design and supply chain coordination in the electricity industry," European Journal of Operational Research, Elsevier, vol. 227(3), pages 527-537.
    11. Ata Allah Taleizadeh & Masoumeh Sadat Babaei & Seyed Taghi Akhavan Niaki & Mahsa Noori-daryan, 2020. "Bundle pricing and inventory decisions on complementary products," Operational Research, Springer, vol. 20(2), pages 517-541, June.
    12. Pan, Fei & Pan, Shenle & Zhou, Wei & Fan, Tijun, 2022. "Perishable product bundling with logistics uncertainty: Solution based on physical internet," International Journal of Production Economics, Elsevier, vol. 244(C).
    13. Zhenhua Gao & Luyao Zhao & Hongjun Wang, 2022. "Supply Chain Coordination of Product and Service Bundling Based on Network Externalities," Sustainability, MDPI, vol. 14(13), pages 1-19, June.
    14. Cataldo, Alejandro & Ferrer, Juan–Carlos, 2017. "Optimal pricing and composition of multiple bundles: A two-step approach," European Journal of Operational Research, Elsevier, vol. 259(2), pages 766-777.
    15. Ilona Bondos & Marcin Lipowski, 2016. "Service Packages – Attractiveness Has Many Faces," Eurasian Journal of Business and Management, Eurasian Publications, vol. 4(1), pages 1-10.
    16. Chen, Yi-Ting & Sun, Edward W. & Lin, Yi-Bing, 2020. "Merging anomalous data usage in wireless mobile telecommunications: Business analytics with a strategy-focused data-driven approach for sustainability," European Journal of Operational Research, Elsevier, vol. 281(3), pages 687-705.
    17. Luo, Zheng & Chen, Xu & Kai, Ming, 2018. "The effect of customer value and power structure on retail supply chain product choice and pricing decisions," Omega, Elsevier, vol. 77(C), pages 115-126.

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