Product Line Bundling: Why Airlines Bundle High-End While Hotels Bundle Low-End

Steven M. Shugan (), Jihwan Moon (), JQiaoni Shi () and Nanda S. Kumar ()
Additional contact information
Steven M. Shugan: Warrington College of Business, University of Florida, Gainesville, Florida 32611
Jihwan Moon: Warrington College of Business, University of Florida, Gainesville, Florida 32611
JQiaoni Shi: Warrington College of Business, University of Florida, Gainesville, Florida 32611
Nanda S. Kumar: Warrington College of Business, University of Florida, Gainesville, Florida 32611

Marketing Science, 2017, vol. 36, issue 1, 124-139

Abstract: Product lines are ubiquitous. For example, Marriott International manages high-end ultra-luxury hotels (e.g., Ritz-Carlton) and low-end economy hotels (e.g., Fairfield Inn). Firms often bundle core products with ancillary services (or add-ons). Interestingly, empirical observations reveal that industries with ostensibly similar characteristics (e.g., customer types, costs, competition, distribution channels, etc.) employ different bundling strategies. For example, airlines bundle high-end first class with ancillary services (e.g., breakfast, entertainment) while hotel chains bundle ancillary services (e.g., breakfast, entertainment) at the low-end. We observe, unlike hotel lines that are highly differentiated at different geographic locations, airlines suffer low core differentiation because all passengers (first-class and economy) are at the same location (i.e., same plane, weather, delays, cancellations, etc.). In general, we find product lines with low core differentiation (e.g., airlines, amusement parks) routinely bundle high-end while product lines with highly differentiated cores (e.g., hotels, restaurants) routinely bundle low-end. High-end bundling makes the high-end more attractive, increasing line differentiation (less intraline competition) while low-end bundling decreases line differentiation. Therefore, bundling allows optimal differentiation given a differentiation constraint (complex costs). Last, firms may use strategic bundling for targeting in their core products; e.g., low-end hotels bundle targeted add-ons unattractive to high-end consumers such as lower-quality breakfasts and slower Internet.

Keywords: product line; strategic bundling; analytic model; pricing; targeted add-ons; ancillary services; fees (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://doi.org/10.1287/mksc.2016.1004 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:36:y:2017:i:1:p:124-139

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().