Consumption Effects of Bundling: Consumer Perceptions, Firm Actions, and Public Policy Implications

Abstract

The authors investigate consumer, firm, and policy implications of the fast-food marketing practice of bundling a soft drink and French fries with an entrée (i.e., “the combo meal”) and then offering these three items at a discount. The authors first demonstrate that this practice increases the customer's perceived value of the bundled items. In addition to the traditional economic rationale for consumer purchases of bundles, the authors find that consumers view the bundle as having value beyond the notion of a discount or the perception of the items as complements. The authors attribute this increased value to both the reduction in ordering costs and the promotional effects associated with purchasing the bundle. They also find that consumers become more price sensitive to all goods offered when bundled goods are offered. The authors use this knowledge to determine the impact of several public policy strategies that are focused on reducing consumers' caloric intake. They demonstrate that proposed taxation on soft drinks has little effect on reducing overall caloric consumption when a bundle is present. They also show that it is possible to maintain profits while reducing caloric consumption by at least 10% if the industry as a whole reduces the portion sizes of drinks and fries associated with the combo meals.