International Conference on Operations Research - OR 2023

Price bundling considering flexible products, discrete customer segments and different types of capacity

Ralf Gössinger, Jacqueline Wand

In times of increased uncertainty, a more flexible resource utilization and the ability to customize can be beneficial for multi-product vendors. In this way, one possibility is to offer flexible bundles. Such a bundle is a package of different individual products sold at a single price, where at least one of the products is a flexible one. At the time of purchase, a flexible product is an incompletely specified offer, which contains a set of variants that meet the same customer needs. Its specification is completed in the time between purchase and delivery. The bundling of flexible products enables the vendor to manage capacity more efficiently. While price bundling makes it possible to achieve the capacity utilization with the highest expected profit at the time of purchase, flexible products provide opportunities to manage demand and resource uncertainties in the time between purchase and delivery. However, both price bundling and flexible products also have a significant impact on customers' purchasing behavior that is reflected in their WTP. Since this impact is essential for price and variant-related decisions, results of an empirical study on WTP for flexible bundles are used.

Against this background, we propose an extended optimization model that considers flexible bundles, multiple capacity types with different levels of product flexibility and multiple customer segments with different WTP distributions. The resulting MINLP model is solved by means of a standard solver. A full-factorial numerical study is conducted to analyze the model behavior in terms of solution time and solution quality. In addition, economic insights on profit, sales quantities and prices depending on characteristics of both customer segments and capacity are provided.

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