Wednesday, July 23, 2008

Bundling on Amazon: better together?

On his fun and varied economics blog, Grinnell grad Seth Gitter writes an interesting post on the economics of the combo meal, from the starting point of a bundle that Amazon offers.

Gitter's explanation is right on, but regarding the Amazon promotions, I'd like to add one point that I find interesting. Those Amazon discounts are not actually discounts. Hence the brilliance of the Amazon scheme: the bundles convey the feeling of discounts without costing the seller any money.

I can't find the bundle Gitter references anymore, but I'll stick with his example of The Perfect Storm. Here is the bundling language from this DVD:

Better Together
Buy this DVD with U-571 (Collector's Edition) DVD ~ Bill Paxton today!

Total List Price: $24.97
Buy Together Today: $17.48

The cost of The Perfect Storm is $9.99, so the offer is to get the second item, U-571, for an additional $7.49. The Amazon price for U-571? Yup: $7.49. I've checked dozens of these bundles, and none of them has ever offered a genuine discount; they just let you buy two Amazon items instead of one.

Of course, the language never quite claims otherwise. The key to the promotion is that it a) presumably relies on Amazon's database to choose pairing that will attract the viewer, and b) it uses the language of the discount combo to reinforce the benchmark of the list price and to activate all our associations with other companies' bundled offers--these offers feel like McDonald's combo meals, even if they don't behave like them.

I do hope, reader, that you are now pondering the behavior of the combo meal in the most striking and graphic ways.


Jennie said...

Actually, I have seen the bundles with a genuine discount, however, the bundle offer is worded differently so it's quite explicit that there is a real discount if you buy the two together, instead of buying them separately on Amazon.

Such a true discount is really rare, though.

Tim Jarrett said...

And of course any of the bundles do offer a discount, of a kind: if you are actually interested in both works, they reduce your search cost to get them both by a few seconds or so.

A negligible, but non-zero effect--and when you consider that most of the advantage that Amazon offers over conventional bookstores is in reduction of search cost, every negligible non-zero contribution to that goal helps.