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Comparison of Product Bundling Strategies on Different Online Shopping Behaviors

Comparison of Product Bundling Strategies on Different Online Shopping Behaviors

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Comparison of product bundling strategies on different onlineshopping behaviors
Tzyy-Ching Yang
a
, Hsiangchu Lai
b,*
a
Department of Computer Science and Information Management, Providence University, 200 Chung-Chi Road, Taichung 433, Taiwan
b
Department of Information Management, National Sun Yat-sen University, 70 Lien-Hai Road, Kaohsiung 804, Taiwan
Received 2 May 2005; received in revised form 3 November 2005; accepted 27 April 2006Available online 12 June 2006
Abstract
Bundling is a very popular sales-promotion tool, in which a critical issue is to decide what products should be sold together in order toimprove sales. Traditionally, this decision is based on the order data collected from the points of sale. However, Internet marketing nowallows marketers to efficiently collect not only order data but also browsing and shopping-cart data, which provide marketers with infor-mation on the consumers’ decision-making processes, rather than only the final shopping decisions. The present study aimed to deter-mine the value of this newly available information by comparing the performance of decision-making on product bundling based onthree types of data on online shopping behaviors. The results from a field experiment reveal that significantly better decisions are madeon the bundling of products when browsing and shopping-cart data are integrated than when only order data or browsing data are used.
Ó
2006 Elsevier B.V. All rights reserved.
Keywords:
Online behavior; Product bundling; Shopping cart; Market basket analysis; Association rules
1. Introduction
A better understanding of customers allows better mar-keting strategies to be designed. The Internet provides mar-keters with much more data on customers, andconsequently has brought marketing management into anew age[41]. In addition to collecting order data throughthe point of sale (POS), as in the pre-Internet age, on theInternet the entire shopping procedure of any customercan be recorded, including not only what has been ordered,but also what has been clicked or browsed and what hasbeen moved in or moved out from the shopping cart, andthe timings of all of these processes.Various studies have demonstrated the usefulness of data on shopping processes and outcomes[21,22]. Theessential difference between order data and other data ononline shopping behaviors is that the former indicates thefinal shopping decisions while the latter provides informa-tion on customer behavior whilst making shopping deci-sions. Moreover, a major difference between browsingand shopping-cart data is that the information embeddedin the latter is more closely related to the final shoppingdecision[5]. Data on customer browsing behavior havebeen explored in many studies, such as to find path travelpatterns[6,12], website traffic, the products being browsedthe most, the hot area of a web page, and the customer pro-files based on these browsing data[30,31]. However, veryfew studies have investigated data related to customershopping carts[15,32].The usefulness of data on customer online shoppingbehaviors to learning about customers has resulted in datamining becoming an important and popular technique forexploring customer profiles, shopping behaviors, and otheraspects of online shopping, because the associated data setsare often huge. For example, Chen et al.[11]integratedcustomer behavioral variables, demographic variables,and a transaction database to establish a method for min-ing changes in customer behavior. Jiao and Zhang[25]
1567-4223/$ - see front matter
Ó
2006 Elsevier B.V. All rights reserved.doi:10.1016/j.elerap.2006.04.006
*
Corresponding author. Tel.: +886 7 5254 776; fax: +886 7 5254 799.
E-mail addresses:
tcyang@pu.edu.tw(T.-C. Yang),hclai@mail.nsysu.edu.tw (H. Lai).
www.elsevier.com/locate/ecra
Electronic Commerce Research and Applications 5 (2006) 295–304
 
attempted to develop an explicit decision support toimprove product portfolio identification by applying asso-ciation-rule mining. Further, Rygielski et al.[44]pointedout that organizations must be aware of the trade-offs asso-ciated with choosing suitable data-mining software for usein customer relationship management (CRM).Several sales promotion tools are used in the market-place, such as free samples, coupons, premiums, bundlepricing (bundling), and cross-promotions[45]. Bundling isa very common practice that involves combining two ormore products or services and selling them at a set price[20,47]. Examples of bundles are opera season tickets(e.g., tickets to various events sold together) and Internetservices (e.g., a combination of Web access, e-mail, person-alized content, and an Internet search program)[46]. Thebundled price is almost always lower than the cost of buy-ing all the products separately. Estelami[18]found thatconsumers save an average of about 8% when purchasinga bundle of items relative to buying the items individually.The challenge is how to choose the appropriate products tobe bundled in order to achieve the expected promotion per-formance, such as by creating new markets or increasingcustomer loyalty, sales, or profits[37].Previous research has investigated product bundlingfrom different viewpoints. Determining the products to bebundled so as to maximize performance is the most criticalissue in formulating bundling strategies. Searching forassociations in the market basket has been previously usedto determining appropriate bundles. Further, Munger andGrewal[36]examined the effects of the bundling formatand framing of promotional discounts on perceived qual-ity, price acceptability, perceived value and subsequentpurchase intentions. Chakravarti et al.[10]examined theeffects of the presentation of a multicomponent productbundle on customer evaluation and choices, as well as theunderlying processing effects. Stremersch and Tellis[46]showed that a company that exploits opportunities offeredby bundling will enjoy increased market share and profits.However, none of the previous research studies have con-sidered product bundling based on data on online shoppingbehaviors, which represent newly available data fromwhich customer profiles can be elucidated.The purpose of this study was to assess the value of dataon online shopping behaviors in making decisions on prod-uct bundling by examining the performance of productbundling strategies based on different data sets related toonline shopping behaviors. The remainder of this paper isorganized as follows: Section2surveys the related litera-ture on product bundling, market basket analysis, market-ing implications of data on online shopping behaviors, andassociation rules; Section3proposes three product bun-dling strategies based on different types of data on onlineshopping behaviors; Section4compares the performanceof these three product bundling strategies based on datacollected from a field experiment; and the paper ends withthe conclusions drawn in Section5, which also discussessome of the limitations of the study.
2. Literature review
 2.1. Product bundling 
Product bundling is a pervasive selling strategy in mar-kets, examples of which include sporting and cultural orga-nizations offering season tickets, restaurants providingcomplete dinners, and retail stores offering discounts to acustomer buying more than one product. How to bundleproducts in order to maximize profits under different mar-ket environments has been a popular research issue in theeconomics field[1,14,16,17,34,38]. However, in this studywe focused on the marketing aspects of product bundling.Stremersch and Tellis[46]identified two key dimensions inclassifying bundling strategies: focus and form. The focusof bundling can be either the price or the product, whilethe form of bundling can be none, pure, or mixed. In thepaper, they also provide managers with a framework withwhich to understand and choose bundling strategies.Janiszewski and Cunha[24]indicated that the impact of a price discount on the perceived attractiveness of a bundledepends on the type of product that is being discounted.They also concluded that reference dependence and prod-uct importance independently contribute to the effects of price discounts. Agarwal and Chatterjee[2]examined thedecision difficulties experienced by customers when select-ing from a menu of bundles. They found that larger bun-dles make decisions more difficult; more specializedservices in the competing bundles increases the decision dif-ficulty for small, but not large, bundles; and that the choicedifficulty is greater for bundles that are more similar.
 2.2. Market basket analysis
Market basket analysis refers to investigating the com-position of the basket of products purchased by a house-hold during a single shopping experience[43]. Retailershave long been interested in learning about the cross-cate-gory purchase behavior of their customers[35], since suchinformation makes it easier for the retailer to decidewhether to group products by brand or by product type,for example[9]. The market basket choice refers to thedecision process in which a consumer selects items fromseveral product categories during the same shopping expe-rience[43].Therefore, basket analysis can provide the distributionof shoppers’ purchases based on different viewpoints, suchas the product itself, the product category, the shopper’sbackground, or the average purchases per shopper[26].Such distribution information will aid decisions on aspectssuch as planning and designing advertising, sales promo-tions, store layout, and product placement[8]. In addition,basket data contain important information about the struc-ture of brand preferences both within and across productcategories[42], and hence a richer picture of customerbehavior and better decisions on the bundling of productsmay result from identifying the associations between
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T.-C. Yang, H. Lai / Electronic Commerce Research and Applications 5 (2006) 295–304
 
product purchases at the POS[40]. The other way to findsuch associations is to apply association-rule algorithmsto both browsing and shopping-cart data.
 2.3. Marketing implications of data on online shopping behaviors
Generally, basket analysis is applied to data on the com-position of the basket of purchased products – that is, onthe content of the final order. Advances in informationtechnology have radically changed the methods used to col-lect consumer data[19]. For example, computerized check-outs generate almost immediate feedback about theprofitability of brands, product groups, and the effects of marketing activities such as in-store promotions andweekly advertising[26]. In the Internet age, it is possibleto collect not only order data at the checkout but also dataon the consumer’s entire shopping behavior at a website.Kotler[29]proposed a model of the successive setsinvolved in the consumer decision-making process, whichrevealed that consumersdecision-making processesinvolve five successive sets: total set, awareness set, consid-eration set, choice set, and final decision. As shown inFig. 1, the total set includes all brands available to a con-sumer. However, the customer is likely to be aware of onlya subset of these brands (i.e., the awareness set), with onlysome of these brands (i.e., the consideration set) fulfillingthe consumer’s initial buying criteria. The collection of more information by the customer will result in only afew brands remaining acceptable, which together formthe choice set. Finally, the customer chooses one item fromthe choice set.Through the information search process, the productsforemost in the consumer’s mind will change from the totalset to the awareness set, consideration set, and choice set,with the final decision then being made. Whether a productproceeds through each stage and reaches the final choicedepends on the information available to the customerand his or her thought processes at each stage of thedecision process. If marketers are provided with informa-tion about the thought processes that are important atthe awareness, consideration, and choice sets to the cus-tomersdecision-making processes, they can understandhow the final choice results from the successive sets, whichshould result in better marketing decisions being made.Collecting data on online shopping behaviors is one wayto understand what a customer is interested in at each stepand the possible thoughts underlying this process. Tradi-tionally, the only data collected through the POS is theorder data, which reflects the final shopping decision ratherthan the previous sets as outlined inFig. 1. Althoughknowing what consumers have bought is useful to market-ers, this does not allow them to learn why consumers havemade a particular purchase decision and not bought someother item.In the Internet age, it is relatively easy to collect datarelated to the decision process such as browsing and shop-ping-cart data. The browsing data may provide informa-tion on the thought processes that lead from theawareness set to the consideration set and the choice set,and the shopping-cart data may provide more informationon the thought processes from the consideration set to thechoice set, and then to making the final decision. It shouldbe noted that shopping-cart data may differ from the orderdata, since items in the shopping cart can be changed atany time before the purchase is finalized.Information on the stages closer to the final shoppingdecision are especially valuable to building a more accuratecustomer profile. Whilst shopping-cart data is consideredto provide more reliable information about why the con-sumers buy or do not buy certain products, even the brows-ing data provides useful information on the customersinterest that cannot be found in the shopping-cart or orderdata. For example, the changes that occur from the aware-ness set to the consideration set, and then to the choice setmight be due to the customer’s preferences, budget, avail-able shopping time, and exposure to marketing promotionprograms, for example. In addition, the patterns of the
IBMAppleDellHewlett-PackardToshibaCompaqNECTandy···IBMAppleDellHewlett-PackardToshibaCompaqIBMAppleDellToshibaIBMAppleDellTotalSetAwarenessSetConsiderationSetChoiceSetDecision
 Browsing dataShopping cart order 
 
IBMAppleDellHewlett-PackardToshibaCompaqNECTandy···IBMAppleDellHewlett-PackardToshibaCompaqIBMAppleDellToshibaIBM ?AppleDellTotalSetAwarenessSetConsiderationSetChoiceSetDecision
 Browsing dataShopping cart order 
Decision Process
DecisionResult
Fig. 1. Relations between successive sets involved in consumers’ decision making and their online behavior [modified from[29]].
T.-C. Yang, H. Lai / Electronic Commerce Research and Applications 5 (2006) 295–304
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