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Do Consumers Pay More for Separate Products Than Combinations?

Putting expensive items with cheap ones seems like an easy way to make money. According to a new study, however, most consumers in this situation are not willing to pay as much for “combinations” as they would for two separate items.

“Consumers often encounter product combinations, many of which include both expensive and inexpensive items,” write authors Aaron R. Brough (Pepperdine University) and Alexander Chernev (Northwestern University). “Logically, people should be willing to pay more for options that they like. Adding an attractive option to an existing offering might be expected to increase the offering’s value and consumers’ willingness to pay.”

But consumers don’t always follow that logic. For example, consumers who were willing to pay $2000 for a flat-screen TV and $10 for a video cable when they considered them separately were only willing to pay $1950 when the two were combined. Likewise, pairing an inexpensive tote bag with a higher-priced suitcase decreased consumers’ willingness to pay. …

Consumers tend to think in categorical terms, according to the authors. For example, when items classified as expensive or inexpensive are combined, consumers perceive the combination to be “moderately expensive.” “The problem is consumers forget that they are purchasing multiple items. As a result of the erroneous perception that a combination of expensive and inexpensive items is less valuable than a single expensive item, consumers are willing to pay less for the combination than for a single item that they perceive as ‘purely expensive.'”

The authors found that the number of consumers who chose an expensive product declined by approximately 15 percent when an inexpensive item was added to it. They also found that across six different product categories (scooters, grills, phones, jackets, backpacks, and TVs) participants were willing to pay, on average, 25 percent less for a combination of an expensive and inexpensive item.

Because including an inexpensive item in a bundle can decrease consumers’ willingness to pay, managers may be better off selling items from different price tiers separately,” the authors conclude.

Source

Still curious? Check out Manufactured Uncertainty: What the Airlines Learned From Mobile Phone Companies.

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