Pricing of Product Line Along With Its Value-Added Services With Consideration of Effects of Reference Price

Abstract

Customers’ price comparison behavior and search cost evaluation play a pivotal role in shaping purchasing utility and enterprise pricing strategies. This study employs the multinomial logit (MNL) model to integrate the reference price and search cost into product line design. We probe into pure bundle and mixed bundle pricing decisions for the product line and value-added services in monopolistic settings and delve into the impacts of the reference price and search cost on pricing, profit, product variety, and strategy. Based on model analysis and numerical simulations, the results show that the reference price effect benefits low-priced offerings but undermines high-priced products, overall market share, and profit. As the reference price effect or search cost increases, product variety diminishes. In scenarios where the reference price effect and the proportion of bundled purchases are minimal, the pure bundling strategy is preferable; otherwise, the mixed bundling strategy is more advantageous. When enterprises overlook the reference price effect, there is an imbalance in the pricing of various products and services within the product line, which results in the actual market share and profit consistently falling below the ideal expectations.