Food For Life makes health foods for active, outdoor people. Their three basic p
ID: 1198892 • Letter: F
Question
Food For Life makes health foods for active, outdoor people. Their three basic products are whey powder, a high protein strength bar, and a meal additive that has the taste and consistency of sawdust. Research shows that consumers fall into two types (A and B), and these are described in the table below by their reservation prices for the products. Each consumer will demand no more than one unit of any product at their reservation price. The consumers will value a bundle of the products at the sum of the constituent reservation prices. Each product costs 3 to produce. A bundle of all three products costs 9 to produce. Food for Life does not price discriminate. Please include setup for Best Seperate Price Strategy, pure bundling and mixed bundling.
Explanation / Answer
Bundling is a marketing practice that involves offering several different products for sale as one combined product. Examples would include things like "combos" or value meals at fast food restaurants (where a combination might include a burger, a drink and a beverage) or the concession stand at a movie theater (where it might include popcorn, soda and candy). Bundles are also common from cable companies (their bundles include the basic service, hardware like the cable box, access to specific features like packages of movies, sports and other specialty programming, etc). It is a popular practice that can increase revenue for the seller (by increasing sales) and provide increased satisfaction for the customer (who enjoy any savings and the convenience that comes with having to evaluate a single price).
Pure Bundling is a type of bundling where the individual components that make up the bundle are only available when purchased as a bundle – they are not available for purchase separately. One example would be the cable company – you can choose different bundles of services and channels, but you can't select the individual channels that make up those bundles. Pure bundling is sometimes favored because it is seen as a way to increase sales – to get the channel you really want you also have to pay for a lot of channels you really don't care about. Because pure bundling also limits the choices available to the consumer it can come under scrutiny and even be subject to litigation.
Mixed Bundling is an approach to bundling where the individual components that make up the bundle are also available for purchase individually. Movie theater snacks and fast food combos are examples of mixed bundling – you can purchase each item individually, or together as part of the combo for a single price.
Individual price should be $ 3 for each, pure bundling price should be $9 and mixed strategy should be as per combination as per $ 3 per product.