How should you bundle services with products? Insights from the Finnish mobile phone sector

An effective and widespread strategy in many industries is to bundle different products and services together as a package. This study explored how the perceptions and behavior of customers that purchase such bundles differ compared to the ones who buy the components separately.

What You Need to Know

Products and services are often bundled together in an attempt to provide better functional and price value to customers (such as in the telecommunications industry). Bundles play a powerful role in determining customers’ engagement behaviors that are critical to firms. Depending on their choice of purchasing a service bundle vs. a non-bundle, there are significant differences in how the functional value and price value would determine the customers’ attitude and word-of-mouth intent towards the service provider. Understanding these differences can help firms better cater to both types of customers.

More Details

What Did the Researchers Do?

Chatura Ranaweera and Heikki Karjaluoto asked: how do customers of combined product-service bundles differ in their engagement behavior from those purchasing a product and associated service separately? The authors used inferences from prospect theory and mental accounting theory to analyze the research questions, using survey data from mobile phone subscribers in Finland.

What Did the Researchers Find?

Although many industries see firms bundling products and services together to offer better value to customers, sometimes customers opt to purchase the product from one firm and the associated service from another.

The authors conducted a survey using data from two sets of customers of telecommunication services. The first set included bundle customers, who had bought the telephone and the mobile services from the same firm, while the individuals in the other group had bought the handset and services from two separate firms. The authors found that functional value is a stronger factor in determining bundle-customers’ attitudes, while price value is more important for non-bundle customers. Moreover, for bundle-customers, functional value has a stronger effect on their word-of-mouth behavior, than does price value. Finally, the findings also highlight that bundle and non-bundle customers differ in their ability to evaluate price and functionality.

How Can You Use This Research?

This research has valuable insights for industries where services are associated with products. The evidence shows that to generate positive word-of-mouth, firms should highlight functional benefits more for those purchasing bundles and price benefits for non-bundle customers, while not ignoring the other segment in either case. Counter to prevalent business practices, it might be useful to reduce price complexity to allow better evaluation of price benefits for the bundle customers.

Want to Know More?

Contact: Chatura Ranaweera

Article citation: Ranaweera, C., & Karjaluoto, H. (2017). The Impact of Service Bundles on the Mechanism Through Which Functional Value and Price Value Affect WOM Intent. Journal of Service Management, 28(4), 707-723.