article

Consumer Mental Accounts and Implications to Selling Base Products and Add-ons

Authors:

Sreekumar R. BhaskaranAuthors Info & Claims

Marketing Science, Volume 31, Issue 5

Pages 801 - 818

https://doi.org/10.1287/mksc.1120.0731

Published: 01 September 2012 Publication History

Abstract

Firms in a variety of industries offer add-on products to consumers who have previously purchased a base product. We posit that consumers, in making their decisions as to whether to purchase add-ons that complement the base products, find a greater need for the value offered by the add-ons when the “unrecovered” value (i.e., price paid minus the benefits obtained so far) associated with the base products is higher. We conduct experiments that test the proposed hypothesis and examine the strategic implications of such consumer decision making to a firm that sells base product add-on pairs.

Consistent with our hypothesis, the experiments show that a consumer's unrecovered value associated with the base product is positively correlated to his likelihood of purchasing the add-on. Formal modeling of this bias shows that firms may find penetration pricing strategies (such as loss leader pricing) suboptimal. Furthermore, the identified bias leads the firm to spend more resources toward enhancing both the base product and the add-on quality, especially so when the add-on will be offered before the consumer has a chance to extensively use the base product. Finally, the effect of competition in the base product market is also considered.

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Cited By

Özer ÖUrrea GVilla S(2024)To Earmark or to Nonearmark? The Role of Control, Transparency, and Warm-GlowManufacturing & Service Operations Management10.1287/msom.2022.009626:2(739-757)Online publication date: 1-Mar-2024
https://dl.acm.org/doi/10.1287/msom.2022.0096
Gao PFu XLiu HChen Y(2022)Free Add-Ons in ServicesService Science10.1287/serv.2022.030714:4(292-306)Online publication date: 1-Dec-2022
https://dl.acm.org/doi/10.1287/serv.2022.0307
Nan GLi XZhang ZLi M(2018)Optimal pricing for new product entry under free strategyInformation Technology and Management10.1007/s10799-016-0271-719:1(1-19)Online publication date: 1-Mar-2018
https://dl.acm.org/doi/10.1007/s10799-016-0271-7
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Consumer Mental Accounts and Implications to Selling Base Products and Add-ons
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cover image Marketing Science

Marketing Science Volume 31, Issue 5

09-10 2012

137 pages

ISSN:1526-548X

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INFORMS

Linthicum, MD, United States

Publication History

Published: 01 September 2012

Accepted: 05 June 2012

Received: 28 July 2010

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Cited By

Özer ÖUrrea GVilla S(2024)To Earmark or to Nonearmark? The Role of Control, Transparency, and Warm-GlowManufacturing & Service Operations Management10.1287/msom.2022.009626:2(739-757)Online publication date: 1-Mar-2024
https://dl.acm.org/doi/10.1287/msom.2022.0096
Gao PFu XLiu HChen Y(2022)Free Add-Ons in ServicesService Science10.1287/serv.2022.030714:4(292-306)Online publication date: 1-Dec-2022
https://dl.acm.org/doi/10.1287/serv.2022.0307
Nan GLi XZhang ZLi M(2018)Optimal pricing for new product entry under free strategyInformation Technology and Management10.1007/s10799-016-0271-719:1(1-19)Online publication date: 1-Mar-2018
https://dl.acm.org/doi/10.1007/s10799-016-0271-7
Agrawal VKavadias SToktay L(2016)The Limits of Planned Obsolescence for Conspicuous Durable GoodsManufacturing & Service Operations Management10.1287/msom.2015.055418:2(216-226)Online publication date: 1-May-2016
https://dl.acm.org/doi/10.1287/msom.2015.0554
Agrawal VAtasu Avan Ittersum K(2015)Remanufacturing, Third-Party Competition, and Consumers' Perceived Value of New ProductsManagement Science10.1287/mnsc.2014.209961:1(60-72)Online publication date: 1-Jan-2015
https://dl.acm.org/doi/10.1287/mnsc.2014.2099

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