Impacts of service uncertainty in bundling strategies on heterogeneous consumers

More e-commerce firms bundle their products with their services, and the service uncertainty arising in e-business influences the purchase choice made by heterogeneous consumers. The traditional literature assumes that the quality of products or services are distributed at some fixed levels to segment consumers who have specific preferences. We adopt an approach involving services with a level of uncertain quality, and guarantee a bound or range of service quality for the purpose of market segmentation in e-business. By using linear interpolation in an analytical model, we address price competition when fixed and uncertain quality-level services are vertically differentiated between bundling and individual sales. The bundling discount plays a different role according to the degree of service uncertainty in e-business, because the cannibalization effect may drive product-service bundling or individual sales out of the market. Our experimental results show that service quality uncertainty is effective for heterogeneous consumers when the constant quality of product is low or the cost is insensitive to the quality. However, the bundling discount may contribute or counterbalance the impact of service uncertainty according to the bundling type.