How Bundling Creates Value a Dissertation Submitted To
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THE UNIVERSITY OF CHICAGO GREATER THAN THE SUM OF THE PARTS: HOW BUNDLING CREATES VALUE A DISSERTATION SUBMITTED TO THE FACULTY OF THE UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS IN CANDIDACY FOR THE DEGREE OF DOCTOR OF PHILOSOPHY BY FRANKLIN SHADDY CHICAGO, ILLINOIS JUNE 2018 Copyright © 2018 Franklin Shaddy All rights reserved ii Table of Contents List of Tables............................................................................................................................. v List of Figures............................................................................................................................ vi Acknowledgements.................................................................................................................... viii Overview.................................................................................................................................... 1 Chapter 1. Seller Beware: How Bundling Affects Valuation.................................................... 3 Abstract.......................................................................................................................... 4 Introduction.................................................................................................................... 5 Study 1: Bundling Increases Compensation Demanded For Losses, Yet Decreases Willingness-to-Pay in Acquisition........................................ 14 Study 2: Greater Valuation of an Item Lost From a Bundle, Yet Less Valuation of the Same Item Added to a Bundle.................................... 18 Study 3: Greater Dissatisfaction for a Loss From a Bundle, Yet Less Satisfaction for the Same Item Added to a Bundle................................ 21 Study 4: Moderation by Bundle Composition................................................... 25 Study 5: Mediation by the Need to Restore the “Whole”.................................. 30 Study 6: Set Completion as a Boundary Condition........................................... 34 General Discussion........................................................................................................ 37 Chapter 2. The Preference for Simultaneity: When Different Events Happen to Different People at the Same Time................................................................................................ 42 Abstract.......................................................................................................................... 43 Introduction.................................................................................................................... 44 Study 1: The Preference for Simultaneity.......................................................... 50 iii Study 2: The Preference for Simultaneity Extends to Negative Events............. 54 Study 3: Losses Loom Larger in the Preference for Simultaneity..................... 59 Study 4: Moderation by Desire to Connect........................................................ 62 Study 5: Mediation by Desire to Connect.......................................................... 64 General Discussion........................................................................................................ 67 Chapter 3. Bundles Bundle People............................................................................................ 72 Abstract.......................................................................................................................... 73 Introduction.................................................................................................................... 74 Study 1: The Preference for Bundles................................................................. 79 Study 2: Purchasing Bundles with Others (“The Venmo Effect”) .................... 81 Study 3: Consuming Bundles With Others........................................................ 84 Study 4: Moderating the Preference for Bundles............................................... 86 General Discussion........................................................................................................ 89 Appendix 1: Tables.................................................................................................................... 92 Appendix 2: Figures................................................................................................................... 96 References.................................................................................................................................. 110 iv List of Tables Table 1.1: Mean (SD) and paired t-test results for manipulation checks (items “form a bundle”) and “gestalt” impression (items “belong together” and “go well together”): Studies 1–3, and 5.......................................................................................................... 92 Table 2.1: Study 1: Participants preferred simultaneity (i.e., selecting the “same week” delivery option), even though it required waiting longer overall................................... 93 Table 2.2: Events used in Study 2 (adapted from Linville & Fischer, 1991) ........................... 94 Table 2.3: Study 4: The desire to connect moderates the preference for simultaneity.............. 95 v List of Figures Figure 1.1: Study 1: Offering energy bars as a bundle (vs. separately) increases compensation demanded for losses (WTP), yet decreases purchase prices (WTP)....... 96 Figure 1.2: Study 2: WTA is higher when selling a truffle from a bundle (vs. separately), yet WTP is lower when adding a truffle to a bundle (vs. separately) ................................. 97 Figure 1.3: Study 3: Dissatisfaction is higher when losing a Christmas card from a bundle (vs. separately), yet satisfaction is lower when adding the same Christmas card to a bundle (vs. separately)................................................................................................... 98 Figure 1.4: Study 4: Offering vehicle services as a bundle (vs. separately) increases compensation demanded for losses (WTA), yet decreases purchase prices (WTP), but this pattern is attenuated for undifferentiated products, which do not create a “gestalt” impression....................................................................................................... 99 Figure 1.5: Study 5: Compensation demanded is higher when losing a suitcase from a bundle (vs. separately), yet WTP is lower when adding a suitcase to a bundle (vs. separately)...................................................................................................................... 100 Figure 1.6: Study 6: WTA is higher when selling a baseball card from a bundle (vs. separately), yet WTP is lower when adding a baseball card to a bundle (vs. separately), but this pattern is attenuated when items form a complete set................... 101 Figure 2.1: Study 2: Participants preferred simultaneity (i.e., preferring events to occur on the same day) more for small events than for large events............................................ 102 Figure 2.2: Study 3: The preference for simultaneity decreases as magnitude increases. Moreover, as the magnitude of events increases, the preference for simultaneity disappears sooner (i.e., at lower magnitudes) for negative events than for equivalent vi positive events................................................................................................................ 103 Figure 3.1: Study 1: Pens offered either as a bundle or separately............................................ 104 Figure 3.2: Study 2: Purchasing bundles together causes consumers to feel more connected, compared to purchasing the same items separately....................................................... 105 Figure 3.3: Study 3: Bundled (left) vs. separate (right) product pairs....................................... 106 Figure 3.4: Study 3: Consuming bundles together causes consumers to feel closer, compared to consuming the same items separately........................................................................ 107 Figure 3.5: Study 4: Valentine’s Day imagery.......................................................................... 108 Figure 3.6: Study 4: Candy offered either as a bundle or separately......................................... 109 vii Acknowledgements I am incredibly grateful to my advisor, Ayelet Fishbach (committee chair), for simultaneously serving as a mentor, role model, and friend, for constantly challenging me to ask and answer big questions, and, most importantly, for always believing in me. I am also extremely appreciative of the guidance and support provided by each of my dissertation committee members, Pradeep Chintagunta, Anuj Shah, and Itamar Simonson. viii Overview In my dissertation research, I explore the psychology of bundling. Bundling is defined as the sale of two or more separate products (i.e., goods or services) in a single package, for a single price. Bundles are typically sold at a discount (relative to the same items offered separately) and can serve as a price discrimination mechanism for firms (Adams & Yellen, 1976; Stremersch & Tellis, 2002). To that end, the limited existing work examining the psychology of bundling has largely focused on how consumers are sensitive to the pricing of the various components of bundles (Hamilton & Srivastava, 2008; Janiszewski & Cunha, 2004; Khan & Dhar, 2010). But this literature overlooks how bundling itself might provide utility to consumers beyond just discounts. My dissertation fills this void by suggesting