International Conference on Operations Research - OR 2024

The impact of asymmetric WTP distributions on the pricing of bundles containing flexible products

Ralf Gössinger* and Jacqueline Wand**

Abstract

A flexible resource utilization can be beneficial for a multi-product vendor in times of increased uncertainty. One possibility is to offer flexible bundles, i.e. bundles that contain flexible products. 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 have a significant impact on customers' purchasing behavior. An empirical study was conducted to collect data on customers’ individual WTP range for flexible bundles. It turned out that customers perceive greater performance uncertainty the more flexible the bundles are. As a result, the individual WTP range becomes narrower and has a lower mean value. Since this effect is moderated by the customer's purchasing power and risk attitude, different customer segments can be formed. However, the segment-related aggregation of individual WTP ranges results in asymmetric distributions, which are difficult to handle analytically and numerically. Against this background, we propose a way of how to incorporate asymmetric WTP distributions into a bundle pricing model that can be solved by standard optimization software. A numerical study provides insights into profit, sales quantities and prices depending on the characteristics of both customer segments and capacity. Furthermore, we determine the impact of incorrect assumptions about segment-related WTP distributions on the advantageousness of pricing.