Optimal Design and Pricing of Sequenced Bundles in the Presence of Satiation

28 Pages Posted: 7 Dec 2023

See all articles by Ragıp Gürlek

Ragıp Gürlek

Emory University - Goizueta Business School

Manel Baucells

University of Virginia - Darden School of Business

Nikolay Osadchiy

Emory University - Goizueta Business School

Date Written: November 29, 2023

Abstract

Problem definition: Sequencing of consumption has significant implications for enjoyment of experiential goods and derived ex-post utility due to psychological and physiological effects, such as satiation, habituation, or memory decay. In this paper, we examine the effect of consumption sequencing on ex-ante valuations of bundles, with the goal of increasing consumer surplus and revenue.

Methodology/results: We conduct a lab experiment to elicit preferences and willingness to pay for
three bundles of goods consisting of two high (H) type products and one low (L) type product that vary only in the position of low type product. We find that consistent with the satiation model, 53% of subjects prefer the HLH sequence, placing an approximately 2.7% greater ex-ante valuation over the second-best LHH sequence. The LHH sequence is optimal under the acclimation, and memory decay model and preferred by 31% of subjects. The front-loaded HHL sequence, optimal under the discounted expected utility model, is preferred by 16% of subjects. We estimate the parameters of the satiation model and find that satiation effects are significant with a half-life of 17 hours.

Managerial implications: Using the calibrated satiation model, we optimize consumption for each
period and find that, compared to a bundle with equal consumption in each period, the optimal bundle has a greater selling probability and achieves a revenue lift in excess of 4.5%.

Keywords: Satiation, Experiment, Pricing

Suggested Citation

Gürlek, Ragıp and Baucells, Manel and Osadchiy, Nikolay, Optimal Design and Pricing of Sequenced Bundles in the Presence of Satiation (November 29, 2023). Darden Business School Working Paper, Available at SSRN: https://ssrn.com/abstract=4648305 or http://dx.doi.org/10.2139/ssrn.4648305

Ragıp Gürlek (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Manel Baucells

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Nikolay Osadchiy

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.nikolayosadchiy.com

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
47
Abstract Views
197
PlumX Metrics