Consumer Perceptions of Bundles and Time Limited Promotion

Consumer perceptions of bundles and time-limited promotion deals: Docontracts matter?

LISA MCQUILKEN1*, NICHOLA ROBERTSON2, MICHAEL POLONSKY1 and PAUL HARRISON2

1School of Management and Marketing, Deakin University, Burwood, Victoria, Australia2Deakin Graduate School of Business, Deakin University, Burwood, Victoria, Australia

ABSTRACT

Marketers use various types of deals to positively influence consumers’ product evaluations. Across two experiments, we manipulated printadvertisements to examine whether the commonly used deal content of both bundling and time-limited promotions affect consumers’perceived confusion, risk and value. In study 1, the influence of this content was tested in the context of a 2-year telecommunications (telco)contract. Here, consumers associated a three-item bundle with greater perceived value than a single item, but perceived value was reducedand risk heightened when it was only available for a limited time. We speculate that this is because of the long-term nature of the contract.Study 2 removed the contract restriction, examining the bundling of a video game console and game(s), again with a time-limited promo-tion. However, in this context, we failed to locate any interaction effects. It appears that consumers further appraise the drawbacks of a long-term telco contract when accompanied by a time-limited promotion and may perceive the switching costs for study 1 three-item telco bundleto be particularly risky. Our studies represent the first empirical investigation of the effect on consumers’ perceptions of offering a bundle inconjunction with a time-limited promotion. Testing these effects in contract and no contract conditions adds to the contribution of our stud-ies by delineating a boundary condition. From a managerial perspective, our findings are thought-provoking in respect to informationintegration, or how consumers process different deal content together. Copyright © 2015 John Wiley & Sons, Ltd.

INTRODUCTION

Bundling two or more goods and/or services together is com-monplace in many consumer industries, including telecom-munications (telco), fast food, health and fitness, energyutility, cruise line, video games, and travel (Naylor and Frank,2001; Woolf, 2008). Consumer perceptions and behavior areheavily influenced by how bundles are designed andpromoted (Sinha et al., 1999), such as their configuration(i.e. packaging two or more together for a special price) andtime-limited promotions (e.g. “Hurry, last days, specialends…”). Such marketing communications often stress thatoffers are only available for a restricted time (Inman et al.,1997), such as “sale ends Friday”. Time restrictions are themost frequently used “scarcity appeal” in print advertise-ments (Howard and Kerin, 2006). Organizations employ suchpromotions to potentially increase desire for products per-ceived as scarce; that is, fear of missing out causes consumersto make prompt purchase decisions (Devlin et al., 2007).

In some industries, organizations also use fixed-term con-tracts to reduce consumer switching behavior. A contract is anagreement between parties involved in the exchange of agood and/or service (Bar-Gill and Ben-Shahar, 2014); itdefines the subject matter of an exchange (Lusch and Brown,1996) and includes terms and conditions that express bothparties’ rights and obligations including the duration of theexchange. A failure to abide by these terms and conditionscould result in a breach of contract (Bar-Gill and Ben-Shahar,2014) that can incur penalties, such as fees charged for earlytermination of a term deposit (Laksamana et al., 2013), utilityservice (Caruana, 2004) or telco contract (Chuang, 2011).

By committing to a long-term (e.g. 1 or 2-year) contract,consumers usually enjoy upfront benefits (e.g. free orheavily discounted mobile handset, or reduced call rates).However, while such benefits are undoubtedly appealing toconsumers, contracts frequently contain complex specifica-tions (Malhotra and Malhotra, 2013), and “contract ‘fineprint’ rarely contains happy surprises” (Bar-Gill andBen-Shahar, 2014: 31). Long-term contracts generallyinclude substantial switching costs—financially punitiveways of keeping consumers “locked in” (Laksamana et al.,2013; Malhotra and Malhotra, 2013). Switching costs are“the real or perceived costs that are incurred when changingsupplier” (Xavier and Ypsilanti, 2008: 14). For example, anenergy utility’s customers who sign an undertaking toremain loyal for a certain period will pay an early termina-tion fee (ETF) if they switch prior to the end date (Caruana,2004). Switching costs are, therefore, disutilities thatconsumers try to avoid (Molina-Castillo et al., 2012).

In this paper, we examined the effects of the commonlyused deal content of both bundling and time-limited promo-tions on consumer perceptions of confusion, risk and value.Consumers’ perceived confusion is reported in the contextof deals where product offerings become inherently morecomplex and thus confusing. Similarly, consumerscommonly perceive risk when offers are multifaceted. Inregard to perceived value, bundling and time-limited dealsare referred to as a “value-based strategy”. We studied theseindependent (manipulations) and dependent variables in bothcontract and non-contract contexts.

In study 1, we conducted an empirical examination of theeffects of deal content (i.e. bundles and time-limited promo-tions) in telco plan (contract) advertising. At the time of ourstudy, most mobile phones were acquired via 24-month plans(i.e. consumers sign up for a 2-year contract and receive amobile bundled with a range of call and usage features). In

*Correspondence to: Lisa McQuilken, School of Management and Market-ing, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125,Australia.E-mail: [email protected]

Copyright © 2015 John Wiley & Sons, Ltd.

Journal of Consumer Behaviour, J. Consumer Behav. (2015)Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/cb.1513

study 2, we replicated study 1 in a video game context thatdid not involve a contract. Both are similar in respect to prod-uct involvement and comprise considerable consumer invest-ment, but there is no contract or ongoing fees in the videogame context. We propose that consumers may be less scru-tinizing of the bundle when there is no contract, as they arenot locked in to ongoing fixed costs (pre-set monthly mini-mum charges) and variable costs (associated with any excessusage), as in most telco plans (ACMA, 2011).

Our paper is organized broadly into the following parts.The first is the background and hypotheses development forstudy 1, drawing on both existing literature and industryevidence. The next section outlines the experimental designadopted in study 1. Data analysis then follows; followed bya discussion of study 1 findings. We then present the samedetails for study 2 and its results. The managerial implica-tions are then provided based on the integrated findings ofboth studies. Finally, limitations and opportunities for futureresearch are provided.

STUDY 1

BackgroundA recent Australian public inquiry suggested that thecommunication of deals, including bundles and time-limitedpromotions, in telco advertising impedes consumer under-standing (ACMA, 2011). In the Australian telco industry,bundling substantially increased following its deregulationin the late 1990s (Papandrea et al., 2003) and now featuresheavily in telco advertising. Bundling is used to enticeconsumers to obtain multiple products from a single provider(Papandrea et al., 2003; ACMA, 2011) and can include arange of goods and services such as phone handsets, broad-band internet and telephone calls, with varying plan costsand time commitments.

However, bundling can also increase the complexity ofofferings (Papandrea et al., 2003), with the addition oftime-limited promotions, for example, being used to hastendifficult consumer decision-making (Devlin et al., 2007).Such deal content in telco advertising has been reported tohave, at least in part, fuelled the consumer complaints thatplague this industry (ACMA, 2011).

Contracts impose switching costs on consumers in variousmarkets, including telcos (Lörincz and Nagy, 2007), and thusare off-putting to consumers. For example, cancelling anexisting telco contract is deemed a major cost for consumersin Hungary (Lörincz and Nagy, 2007) and Turkey (Aydinet al., 2005). It is, therefore, unsurprising that Australia’slargest telco provider found that 8 out of 10 consumers prefernot to be tied to a long-term contract (Telstra, 2013). Suchfindings have caused several Australian telco providers tooffer rolling month-to-month plans rather than long-termcontracts.

Hypotheses developmentBundling contentBased on anecdotal evidence from the Australian telco indus-try, the complexity of bundling has resulted in increased

consumer confusion (ACMA, 2011), defined as consumerfailure to correctly interpret various aspects of an advertise-ment (Turnbull et al., 2000). While bundles can deliverbenefits, such as savings and convenience, some suggest thatthey add to the complexity (and hence confusion) thatconsumers already face in the telco market (ACMA, 2011).

Comparing packages versus individual items across telcoproviders is inherently more confusing. The literature alsosupports an association between bundling and consumer-perceived confusion as a result of stimulus overload(Mitchell and Papavassiliou, 1999; Turnbull et al., 2000).That is, telco bundles present consumers with increased vari-ety that they are required to categorize based on desired anddisliked attributes (Huffman and Kahn, 1998; Mitchell andPapavassiliou, 1999). This bundling leads to increased per-ceived complexity, with consumers having to assess a widerange of services (Xavier and Ypsilanti, 2008). Unsurpris-ingly, bundles with many or dissimilar items are particularlydifficult for consumers to evaluate and compare (Agarwaland Chatterjee, 2003). Nevertheless, even when a bundlecontains minimal items, the volume of information can meanthat substantial cognitive processing is required, making con-sumer assessment difficult (Agarwal and Chatterjee, 2003;Harris and Blair, 2006).

Overall, bundles considerably increase consumers’ evalu-ation costs; they need to spend extensive time selecting anappropriate bundle (Papandrea et al., 2003). Therefore, con-sumers often rely on heuristic processing strategies, or deci-sion shortcuts, to cope with the confusion of evaluatingalternatives (Papandrea et al., 2003; Harris and Blair,2006). In light of this discussion, the following hypothesisis raised:

H1a: Advertising a telco bundle, as distinct from a singleservice offer, is associated with increased consumer-perceived confusion.

An important aspect in understanding consumers’motivesto purchase bundles is the value they derive from them (Hsuand Chang, 2007). In the fast food context, Sharpe andStaelin (2010) found that bundling increases consumers’ per-ceived value; that is, their overall assessment of the offer’sutility based on perceptions of what is received and what issacrificed (Zeithaml, 1988). This is because of a reductionin consumers’ perceived costs, including perceiving thebundle as a value promotion (Sharpe and Staelin, 2010).Bundles can add to perceived value through discounts ormonetary savings (Yadav and Monroe, 1993; Stremerschand Tellis, 2002). Bundles signal a perceived cost saving,and this indicator may have become a decision shortcut in it-self (Ahmetoglu et al., 2010). Unsurprisingly, bundles havebeen referred to as a value-based strategy (Arora, 2011),leading to the following hypothesis:

H1b: Advertising a telco bundle, as distinct from a singleservice offer, is associated with increased consumerperceived value.

Consumers’ perceived risk is their assessed degree of loss(i.e. amount at stake) when a wrong choice is made (Turnbullet al., 2000). Reducing consumers’ perceptions of risk is

L. McQuilken et al.

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

important for the effective introduction of new products(Sarin et al., 2003). To increase consumer adoption ofnew products, marketers need to develop tactics to reduceconsumers’ perceived risk, and bundling may be an effec-tive strategy (Sarin et al., 2003).

Prospect theory, derived from mental accounting princi-ples, suggests that people are more sensitive to losses thanto gains (Kahneman and Tversky, 1979). Bundles might,therefore, reduce consumers’ perceived risk, because theyoffer several distinct benefits (gains) for one lower price(loss) (versus if each of the bundled items was purchasedseparately) (Sarin et al., 2003). The association between bun-dling and perceived risk has not been empirically tested, butbased on the literature, we raised the following hypothesis:

H1c: Advertising a telco bundle, as distinct from a singleservice offer, is associated with reduced consumerperceived risk.

Time-limited promotion contentA review of Australian telco advertising reveals that a tacticcommonly applied is the time-limited promotion. The scar-city technique, where a promotion is available for a limitedtime, has been used in many product contexts (Suri et al.,2007). It is designed to speed up consumer decision-making(Devlin et al., 2007) via a “use-or-lose” threat (Aggarwal andVaidyanathan, 2003). For example, Busse et al. (2010) foundthat US consumers were more likely to purchase an automo-bile when a time-limited offer was present, even though theymay have attained lower prices without the offer. However,time-limited promotions also mean additional informationfor consumers to assess (Devlin et al., 2007). This has beenproposed to increase consumer confusion because consumersare forced to process more information over a shorter periodof time (Mitchell and Papavassiliou, 1999) Therefore, weadvanced the following hypothesis, which has not beenempirically tested previously:

H2a: Advertising a telco offering in the presence of a time-limited promotion is associated with increased consumerperceived confusion.

Researchers have contended that marketers need a deeperunderstanding of the effects of contextual variables such astime pressure on consumers’ value perceptions (Devlinet al., 2007). Most telco and other providers assume thattime-limited offers increase the perceived value of their ser-vices (Suri et al., 2007). The premise is that they will urgeconsumers to advance a purchase to take advantage of extravalue incentives, such as price-offs that will disappear inthe future (Schultz and Robinson, 1982).

Psychology-based theories support the associationbetween perceived scarcity and consumers’ perceptions ofvalue. For instance, commodity theory proposes that anyoffer will be valued to the extent that it is perceived to beunavailable (Devlin et al., 2007), which relates to thepsychological effects of scarcity. It suggests that there willbe greater consumer desire for offers subject to restrictions,such as time limits. Inman et al. (1997) demonstrated therobustness of a “restriction effect”, whereby more stringent

restrictions are effective in signaling value to consumers. Ithas also been shown that limiting the temporal validity ofan offer results in more favorable evaluations, particularlyif it potentially represents a saving (Aggarwal andVaidyanathan, 2003). Therefore, we raised the followinghypothesis:

H2b: Advertising a telco offering in the presence of a time-limited price promotion is associated with increased con-sumer perceived value.

When selecting a provider, consumers utilize riskrelievers to minimize the high level of perceived risk oftenattached to services generally, primarily because of the diffi-culty in evaluating them. One such “reliever” is seeking out“special offers” (Mitchell and Greatorex, 1993), such astime-limited deals.

The association between the time-limited offer and areduction in consumers’ perceived risk might be explainedby prospect theory, which contends that consumers are lossadverse and “losses loom larger than gains” (Kahnemanand Tversky, 1979: 279). In relation to sales promotions, thisimplies that monetary promotions are more likely to beviewed as “reduced losses” (Lowe, 2010), as the price paidis lower than usual (Busse et al., 2010). This confirms thatoffering discounts to prospective consumers lowersperceived risk; so the following hypothesis was advanced:

H2c: Advertising a telco offering in the presence of a time-limited price promotion is associated with reduced con-sumer perceived risk.

The heuristic-cue theory (Cialdini, 1993) suggests thatwhen advertisements employ a scarcity appeal, consumerswill engage in relatively thoughtless automatic responses;that is, reduced sensitivity to the message’s merits or lackthereof. This is because scarcity results in “brain cloudingarousal”, which degrades scrutiny or hinders the ability toprocess information, resulting in shortcut judgements(Cialdini, 1993: 217).

In contrast, liberalized commodity theory (Brock andBrannon, 1992) advances that consumers are more motivatedto attend to an offer’s attributes in the presence of scarcity(Inman et al., 1997), which may not always lead to it beingperceived as valuable (Brock and Brannon, 1992; Inmanet al., 1997; Brannon and Brock, 2001). Bozzolo and Brock(1992: 96–97) suggested that “unavailability has the abilityto enhance one’s motivation to process”. Brannon and Brock(2001) also found that scarcity instigates consumers’ evalua-tive scrutiny. In their experiment, an inherently strong mes-sage was more compelling when accompanied by a timerestriction; a weak one was less compelling because the re-striction led recipients to properly appraise its drawbacks.A pattern of no difference in consumer sensitivity to strongversus weak or specious messages would have occurred ifthe heuristic-cue theory were true, so this theorical explana-tion does not hold (Cialdini, 1993).

While consumers in the telco market may regard a three-item bundle (as opposed to one-item or two-item) as greatervalue when it is not accompanied by a scarcity appeal, liber-alized commodity theory suggests that they are prompted to

Consumer perceptions of bundles and time-limited promotion deals: Do contracts matter?

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

scrutinize the offering’s merits if scarcity information isjuxtaposed. We hypothesize that as consumers devote morecognitive resources to evaluation, they conclude thatpurchasing all three items is a more confusing, riskier andless valuable proposition than purchasing them separately.Consumers better appraise any potential weaknesses associ-ated with the offer, including being locked into a 2-yearcontract for all three services where they cannot take advan-tage of new products or better prices. Therefore, we raisedthe following hypotheses, which have not been empiricallytested previously:

H3: Advertising a telco bundle, as distinct from a singleservice offer, has a greater (positive) effect on consumer:(a) perceived confusion; (b) perceived risk and a greater(negative) effect on consumer (c) perceived value, in thepresence of a time-limited promotion.

Research methodWe employed a 3 (no bundle or bundle [two or three prod-ucts on offer]) x 2 (time-limited offer: absence or presence)between-subject experimental design using a short-writtenscenario accompanied by fictional advertisements. The useof a hypothetical telco provider avoids any complicationsarising from different levels of brand familiarity or pre-existing consumer sentiment toward existing Australian telcobrands (ACMA, 2011). Scenerios have often been used inmarketing research (e.g. Bitner, 1990; Wirtz and Mattila,2004) and have two key advantages: (1) allow for controlof variables that may vary in field conditions and (2) savetime by summarizing events that may occur over days, weeksor even months (Bitner, 1990). Our study used print mediabecause it enables consumers to process the specific detailsof the alternative telco deals. Additionally, print media is stillone of the most commonly used advertising media by telcoproviders.

Our bundling manipulation was designed to emulatecurrent industry advertising of telco services and adaptedcopy and visual elements of existing Australian telco printadvertisements (refer to Figure 1 for an example). Our reviewof telco print advertising revealed three distinct offerings thatwere commonly marketed: a mobile phone alone, a two-itembundle comprising home phone and broadband internet, anda three-item bundle encompassing all three items. Themobile phone offer included the handset and associated plan,and all advertised offers involved a standard 2-year contract.The prices of offers included in the advertisements reflectedactual telco industry pricing at the time. Advertisements werepre-tested for realism using an expert panel of telcoexecutives.

The following copy appeared in the advertisements for thetwo-item (i.e. home phone and broadband internet) andthree-item bundle offers: “Bundle and save! Add moreservices and get more discounts or credits”. Across all bundlescenarios, the benefit for consumers is the promoted “dis-counts or credits”. We then compared these same offers witha time-limited promotion, which explicitly stated an offerdeadline: “Hurry! Save 15%. Offer ends 30th August”. To

ensure that respondents would notice the time-limited offer,it was printed in large, bold, red-colored font.

Web-based, self-report survey data were collected from anational sample of online panel members aged 18 years andover. The panel was recruited via email and targeted websiteadvertising. Panel members were chosen to participate in oursurvey using a computer-assisted random selection process,including being randomly assigned to each of the experimen-tal conditions. The sample was reflective of the Australianpopulation in terms of gender, age and location, as percurrent data from the Australian Bureau of Statistics. Panelmembers were screened to ensure that they had purchased atelco service (e.g. mobile phone, fixed (home) phone or inter-net) within the last 2 years. This ensured that the question-naire was relevant to respondents, resulting in more validresponses. Each respondent received $3 for participating inthe survey.

Prior to completing the questionnaire, respondents wereprovided with the following instructions: “Imagine that youare a customer in the market for telco services. Please readthe following print advertisement for a hypothetical telcoprovider, TelcoFirst. Imagine that TelcoFirst is one of themajor players in the market”. To verify the time-limited pro-motion manipulation, respondents were asked to indicatetheir agreement with two statements: “I was encouraged toact quickly to purchase” and “The telco offer presented inthe advertisement was only available for a limited time”(both measured on a 1–7 scale, from “strongly disagree” to“strongly agree”). A significant difference between theabsence (M=3.44, SD=1.20) and presence of the time-limited offer was found [M=4.96, SD=1.39; t(178)=�7.90, p=0.000], as was intended.

With regard to the dependent variables, “perceived confu-sion” (i.e. degree to which advertisement is perceived asbeing misunderstood) was measured using four itemsadapted from Lastovicka (1983); “perceived risk” was mea-sured via four items developed by Laroch et al. (2005); and“perceived value of the offer” was measured by five itemsfrom Grewal et al. (1998). All of the dependent variableswere measured on a 1–7 scale, anchored at “disagreestrongly” to “agree strongly”. Respondents also provideddemographic data.

Data analysisOf the 207 questionnaires completed, the following wereremoved: 11 multivariate outliers (criterion was Mahalanobisdistance at p≤ 0.001), as per Osborne and Overbay’s (2004)recommendation to enhance the accuracy of estimates; and16 cases where response to the bundling manipulation check(“How many telco services appeared in the advertisementthat you were asked to read?”) was incorrect. This left 180usable responses. Each of the six experimental cellscontained between 29 and 31 responses: 47% male and53% female; 17% aged 18–24 years; 25% 25–34 years;16% each for 35–44, 45–54 and 55–64 years; and 10% 65+years.

Confirmatory factor analysis (CFA) was employed to testthe validity of the dependent variables. The measurementmodel was found to fit the data adequately, following the

L. McQuilken et al.

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

removal of a single item to assess consumer confusion (referto Table 1). Composite reliability (CR) and average varianceextracted (AVE) were calculated per construct, and all wereabove 0.7. The constructs were considered to have adequatediscriminant validity (refer to Table 2), as the square root ofthe AVE value for each was larger than the correlationbetween them. Weighted composites were created tomeasure all (unidimensional) constructs (Joreskog andSorbom, 1989).

A series of between-group univariate analysis of variances(ANOVAs) were run to examine the influence of the bundleand time-limited offer on the dependent variables (refer toTable 3 for cell means and Table 4 for ANOVA results).The main effect of the bundle’s number of items on

perceived confusion [F(2, 173) = 0.637, p=0.530] was notstatistically significant; thus H1a was rejected. The maineffect of time-limited offer on perceived confusion [F(2,173) =0.648, p=0.422] was also not statistically significant;thus H2a was also rejected. We also failed to find a significantinteraction between bundle and time-limited offer onperceived confusion; thus H3a was also rejected.

Overall, none of the advertised deals were perceived byconsumers as good value. This is reflective of the pricingreality in Australia, as consumers generally believe that theyare paying too much for telecommunications (ACMA, 2011).The main effects of bundle [F(2, 173) =2.63, p=0.075] (H1b)and time-limited offer [F(2, 173) = 0.892, p=0.346] (H2b) onperceived value were not statistically significant. However,

Figure 1. Example fictional advertisement for study 1. This figure is available in colour online at wileyonlinelibrary.com/journal/cb

Consumer perceptions of bundles and time-limited promotion deals: Do contracts matter?

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

there was a two-way interaction found between bundle andtime-limited offer on perceived value; hence, H3c was sup-ported [F(2, 174) = 4.11, p=0.018] (refer to Figure 2). Simi-larly, while the main effects for both bundle (H1c) [F(2, 173)= 0.626, p=0.536] and time-limited offer (H2c) [F(2, 173)= 0.185, p=0.667] on perceived risk were not statisticallysignificant, we also found a two-way interaction betweenthese variables (refer to Figure 3) for perceived risk; henceH3b is supported [F(2, 174) = 3.231, p=0.042].

To better understand the nature of the interaction betweenbundle and time-limited offer on perceived value (H3c), weconducted additional post-hoc comparisons using the Scheffetest. This indicated that when the time-limited offer was notavailable, the mean score for perceived value for the non-bundled option (i.e. mobile phone only) was significantlylower (M=2.79) than for the three bundled items (p<0.05,M=3.81). However, there was no difference in consumers’value perceptions for the mobile only option, compared withwhen two items (M=3.33) were bundled. In contrast, for thetime-limited offer, there was no significant difference be-tween any of the one-item, two-item or three-item conditions(Ms of 3.39, 3.91, and 3.19, respectively). Further analysisusing simple effects revealed that consumers’ value percep-tions were not significantly different when a time-limited

promotion is present when one [F(1, 57) = 2.33, p=0.132,Ms 3.39 vs 2.79] or two [F(1, 58) = 3.19, p=0.079, Ms3.91 vs 3.33] items are offered. However, consumers associ-ate the three-item bundle with having somewhat lower valuewhen accompanied by a time-limited promotion [F(1, 56)= 4.15, p=0.046, Ms 3.19 vs 3.81].

To gain a deeper understanding of the bundle and time-limited offer interaction on perceived risk (H3b), we alsoconducted post-hoc tests and simple effects. Post-hoc com-parisons using the Scheffe test indicated that when thetime-limited offer was not available, the mean score for per-ceived risk when offering a mobile phone only (M=4.23)was not significantly different from when two (M=4.27) orthree (M=3.94) items were being sold. In addition, therewas no significant difference between the two-item andthree-item bundles. When the time-limited offer was present,there was no significant difference between the one-item andtwo-item bundles (Ms of 4.19 and 3.81, respectively) orbetween the one-item and three-item (M=4.70) bundles.

However, there was a somewhat sharp rise in risk percep-tions when three versus two items were offered. Simple effectsanalysis revealed that consumers’ risk perceptions are notsignificantly different when a time-limited promotion ispresent when one [F(1, 57) = 0.013, p=0.908, Ms 4.18 vs4.23] or two [F(1, 58) = 2.29, p=0.135,Ms 3.80 vs 4.27] itemsare offered. They are significantly greater thoughwhen a time-limited offer is present, versus when it is not, for the three-itembundle [F(1, 56) = 5.68, p=0.021,Ms 4.70 vs 3.94].

DiscussionTelco providers presume that bundles communicate greatervalue so are more appealing to consumers than single items.However, we did not find a significant main effect forbundling on consumers’ value perceptions, instead noting a

Table 1. Final measurement model results for study 1

Model Fit

Chi-square Df GFI CFI RMSEA

100.66 51 0.92 0.98 0.07

Variable MeanStd.dev.

Standardizedloading CR

Customer confusion 3.5 1.6 0.91The advertisement was too complex. 3.5 1.7 0.95I was not sure what was going on in the advertisement. 3.1 1.5 0.79It required a lot of effort to follow the advertisement. 3.8 1.8 0.88

Customer perceived value 3.4 1.4 0.96If I purchased this telco offering, I feel that I would be getting my money’s worth. 3.3 1.4 0.90After evaluating the features of the advertised telco offering, I am confident that I wouldbe getting good quality.

3.6 1.3 0.81

If I acquired this telco offering, I think I would be getting good value for money. 3.5 1.4 0.93I think that this telco offering is good value for money. 3.4 1.5 0.97I think that purchasing this telco offering would meet both my high quality and low pricerequirements.

3.3 1.5 0.93

Customer perceived risk 4.2 1.3 0.92There is a good chance that it would be a mistake if I purchased this telco offering. 4.4 1.5 0.70I feel that purchasing this telco offering would really cause me lots of trouble. 4.1 1.4 0.91I would incur some risk if I purchased this telco offering. 4.4 1.4 0.91Purchasing this telco offering would be very risky. 4.1 1.5 0.93

Table 2. Correlation matrix and AVE statistics for study 1

Construct 1 2 3

1. Consumer perceived confusion 0.882. Consumer perceived value �0.05 0.913. Consumer perceived risk 0.36** �0.49** 0.87

Diagonal elements shown in bold are square roots of the AVE values of theconstructs.**p< 0.01.

L. McQuilken et al.

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

significant interaction effect between the two manipulatedvariables, as was hypothesized. That is, a three-item bundle,as distinct from a single item, with a time-limited promotionis associated with reduced perceived value. Similarly, weanticipated a main effect for both bundle and time-limitedoffer on consumers’ risk perceptions but instead observedthat these variables interact to influence risk. That is, riskperceptions increase when three (versus two) items are bun-dled but only in the presence of a time-limited offer. Thus,our study 1 findings are thought-provoking in respect toinformation integration, that is, how consumers process andamalgamate deal information.

When the time-limited promotion is absent, consumers per-ceive greater value when three (as opposed to one or two) itemsare offered. This suggests that the value-driven benefits con-sumers associate with bundling three items are lost when it isaccompanied by a time-limited promotion, and perceived riskis heightened. Offering consumers an additional discount butplacing a time restriction on it causes the bundle to be per-ceived less favorably than a straight bundle offer. Although,this was only relevant in our study for the three-item bundleand not that comprising two items (i.e. home phone and broad-band internet). Perhaps, this is because in the Australian telcocontext, home phone and internet are so closely connected theyare increasingly perceived by consumers as a single servicerather than a bundle. An alternative explanation is that two ser-vices do not produce sufficient complexity to heighten con-sumer scrutiny when evaluating the offer.

The liberalized commodity theory could also explainreduced perceived value and increased perceived risk when

bundling with a time-limited offer. Consumers seem inclinedto thoroughly review an offer when accompanied by a scar-city appeal, as with the three-item bundle with a time limitadvertised in our study. Greater scrutiny might have led ourconsumer respondents to assume that the bundle is associatedwith several potential risks.

First, as telco service prices generally trend downwards inthe long term, a 2-year contract may be perceived as being oflittle value (Billing Bureau, 2014), especially as more pro-viders move to month-to-month plans. There is a perceivedrisk of being overcharged in the long run (Xavier andYpsilanti, 2008), with more products bundled equating toincreased potential for overpayment. Second, there is per-ceived risk as to whether actual usage of all three telco itemsmakes the bundle “worth it”. The potential costs associatedwith switching providers for one bundled item, for example,may also be viewed as a disincentive (Xavier and Ypsilanti,2008). These first two issues both relate to consumersquestioning the value of committing to a 2-year plan for allbundled items. Finally, consumers realize that telco technologyadvances at a pace that makes lock-in costly (Bar-Gill andBen-Shahar, 2014) and could prevent them from adoptingtechnological innovations. Such drawbacks are likely to dimin-ish a three-item bundle’s perceived value. Telco contracts areincreasingly unfavored by consumers, especially with thegrowth in more flexible “pay as you go” models that ensurethat they will not get caught in an unsuitable plan—able to“jump ship” at any time (Malhotra and Malhotra, 2013).

In study 1, we failed to find an association between bundlesand time-limited offers on consumers’ perceived confusion.

Table 3. Means and standard deviations for consumer perceived value and consumer perceived risk for study 1

Perceived value Perceived risk

Number in bundle Time limit Mean (SD) Number in bundle Time limit Mean (SD)

One No 2.79 (1.54) One No 4.28 (1.77)Yes 3.40 (1.50) Yes 4.21 (1.28)Total 3.08 (1.54) Total 4.21 (1.54)

Two No 3.33 (1.09) Two No 4.29 (1.15)Yes 3.91 (1.40) Yes 3.80 (1.20)Total 3.63 (1.29) Total 4.03 (1.89)

Three No 3.81 (0.96) Three No 3.98 (1.08)Yes 3.17 (1.35) Yes 4.70 (1.35)Total 3.50 (1.20) Total 4.31 (1.27)

Total No 3.30 (1.26) Total No 4.15 (1.37)Yes 3.51 (1.43) Yes 4.22 (1.31)Total 3.41 (1.36) Total 4.18 (1.34)

n = 180.

Table 4. ANOVAs for consumer perceived value, perceived risk, and perceived confusion for study 1

Perceived value Perceived risk Perceived confusion

TestSum ofsquares Df

Meansquare F Sig.

Sum ofsquares Df

Meansquares F Sig.

Sum ofsquares Df

Meansquare F Sig.

Number of items 9.25 2 4.64 2.63 0.075 2.20 2 1.10 0.63 0.536 3.09 2 1.55 0.64 0.530Time-limited offer 1.57 1 1.57 0.89 0.346 0.327 1 0.33 0.19 0.667 1.57 1 1.75 0.65 0.422Number of items× time-limitedoffer

14.46 2 7.23 4.11 0.018 11.38 2 5.70 3.23 0.042 2.28 2 2.28 0.94 0.393

Computed using alpha = 0.05; n = 180.

Consumer perceptions of bundles and time-limited promotion deals: Do contracts matter?

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

Perhaps, telco consumers have become so accustomed to con-fusing advertising that they deflect it through various copingstrategies (Mitchell and Papavassiliou, 1999), such as applyingheuristics (Harris and Blair, 2006). Another explanation mightbe that consumers are unaware that they are confused, onlyrealizing their misprocessing of telco advertising when thepurchased telco bundle is not what they expected (Leek andChansawatkit, 2006). It could also be that our consumerrespondents were unwilling to admit their confusion as a resultof social desirability bias, that is, for ego-defensive or impres-sion management reasons (Fisher, 1993).

STUDY 2

Background and modified hypothesesGiven that the location of interaction effects in study 1 wasprobably partly because of the contractual nature of

relationships examined (i.e. a 2-year lock-in contract), instudy 2, we removed this contract condition. We instead ex-amined a bundle and time-limited offer for a video game con-sole and game(s) without contract lock-in. Video gameconsumers are not under any contractual obligation to staywith a provider (i.e. consumers experience a one-off fixedcost versus ongoing costs for telco consumers with a 2-yearplan). We deemed this context suitable because video gameproducts are expensive, which is comparable with telcoproducts.

In study 2, we examined the same hypotheses as in study1 (H1a-c and H2a-c). As in study 1, we proposed that con-sumers will be more motivated to attend to the video gamebundle benefits in the presence of scarcity (i.e. when accom-panied by a time-limited promotion) (Inman et al., 1997).However, this heightened scrutiny was deemed to positivelyinfluence consumer perceptions of value and reduce con-sumers’ perceived risk for the three-item video game bundle,as there are no obvious drawbacks, unlike for the lock-intelco contract. This is because an inherently valuable offering(i.e. providing cost savings) without contractual obligationsis more compelling even when accompanied by a time re-striction (Brannon and Brock, 2001). This discussion gaverise to the following revised hypotheses for study 2 (i.e. thatreplace H3a-c in study 1):

H4: Advertising a video game bundle, as distinct from asingle-item offer, has a greater (negative) effect onconsumer: (a) perceived confusion; (b) perceived riskand a greater (positive) effect on (c) perceived value inthe presence of a time-limited promotion.

Research methodStudy 2 was a replication of study 1, aside from the “new”bundle manipulations required to accommodate the videogame context. In this study, we used a recognized brand,given the highly competitive nature of the video game indus-try and strong consumer brand loyalty. Since its introduction,the Sony PlayStation 4 has outsold leading competitors(Jennings, 2014) and thus was selected for us to examine.

To add further viability to our choice of video game prod-uct context, we asked respondents to think back to when theyhad last purchased both a video game and a telco product andthen respond to items about their level of purchase involve-ment. We measured involvement by adapting seven itemsfrom Zaichkowsky’s (1985) 7-point semantic differential in-volvement instrument. Mean scores of 4.72 for video gameproducts and 4.66 for telco products suggest that respondentsperceive the purchase of these products to be equallyinvolving.

A review of PlayStation 4 print advertising revealed threecommonly promoted offerings that we used: a video gameconsole plus one controller (no bundle); a console and onecontroller, plus the choice of any video game (two-itembundle); and a console, two controllers and the choice ofany video game (three-item bundle). We adapted copy andvisual elements of existing PlayStation 4 advertisements(refer Figure 4 for example), and the pricing reflectedAustralian industry price points at the time of our study.

Figure 3. Interaction between bundle and time-limited offer on con-sumer perceived risk for study 1. This figure is available in colour

online at wileyonlinelibrary.com/journal/cb

Figure 2. Interaction between bundle and time-limited offer on con-sumer perceived value for study 1. This figure is available in colour

online at wileyonlinelibrary.com/journal/cb

L. McQuilken et al.

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

A second dataset was collected from a different sample usingthe same panel provider as in study 1, to examine the study 1hypotheses and the revised hypotheses (i.e. H4a-c in replacementof H3a-c) in the study 2 video game (no contract) context.

An independent sample t-test identified a significantdifference between the absence (M=3.97, SD=3.97) andpresence of the time-limited offer [M=5.11, SD=5.11; t(204) =�6.16, p=0.000], suggesting that this manipulationworked well.

Data analysisOf the 210 questionnaires completed, four were omitted fromthe analysis as respondents incorrectly answered: Whichvideo game products appeared in the advertisement thatyou were asked to read? This left 206 usable responses. Eachof the six experimental cells contained between 33 and 35responses: 49% male and 51% female; 13% aged18–24 years, 18% 25–34 years, 20% 35–44 years, 19%45–54 years, 17% 55–64 years, and 13% 65+ years.

The CFA revealed that the measurement model fit the datawell, following the removal of one item for each of perceivedconfusion and perceived risk and two items for perceivedvalue (refer to Table 5). CR and AVE were all above 0.7,and the constructs were considered to have adequate discrim-inant validity (refer to Table 6). As in study 1, weighted com-posites were created to measure all (unidimensional)constructs (Joreskog and Sorbom, 1989).

We ran a series of between-group ANOVAs to examinethe influence of bundle and time-limited offer on the depen-dent variables (refer to Table 7 for cell means and Table 8 forANCOVA results). All hypothesized direct associations andinteraction effects for perceived risk, value and confusion(i.e. H1a-c, H2a-c and H4a-c) in the video game context werenot significant.

DiscussionOffering consumers an additional, time-limited discount forthe three-item video game bundle does not cause it to be

Figure 4. Example PlayStation advertisement for study 2. This figure is available in colour online at wileyonlinelibrary.com/journal/cb

Consumer perceptions of bundles and time-limited promotion deals: Do contracts matter?

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

perceived less favorably than a straight bundle offer, unlikein study 1 telco context. This is probably because the height-ened scrutiny associated with the time-limited promotiondoes not reveal any drawbacks, in contrast to the 2-yearcontract condition in study 1. However, while this findingaligns with liberalized commodity theory (Brannon andBrock, 2001), we did not identify positive consumer percep-tions toward the time-limited promotion. Perhaps, consumersdoubt sellers’ motives for applying such pricing techniques.

It is important when organizations apply scarcity tech-niques, such as time-limited offers, that they justify theiruse. They need a believable reason for their application(e.g. a shortage of products), which was not the case in ourstudy. Another possible explanation is that the increasing

prevalence of time-limited offers could mean that consumersno longer perceive them as special, instead regarding them asthe norm (Darke and Chung, 2005). Furthermore, videogame products are “technologically tied”, in that the manu-facturer designs or integrates them to only function with acorresponding console (Liu et al., 2014). Although con-sumers do not enter into a contractual arrangement withvideo game manufacturers per se, the compatibility require-ments create a switching cost that locks them in (Liu et al.,2014). Consumers may resent the video game producer’s at-tempt to lock them into a given platform as a consequence ofthis manufactured interdependence (Liu et al., 2014).

Given consumers’ suspicion as to the true motivationbehind limited time promotions, their general distrust of salespromotions (Sewell and Goldstein, 1979; Liefeld andHeslop, 1985) and their belief that the sale price (not the ini-tial price) is the “true” price of the product (Darke andChung, 2005), perhaps our study 2 (non-significant) findingsare not all that unexpected.

OVERALL MANAGERIAL IMPLICATIONS

Our findings suggest that organizations should be cautiouswhen using bundling and time-limited offers. There is someevidence in the telco context to support three-item bundlingproviding marginal benefit, i.e. positively influencing con-sumers’ perceived value. However, we found no evidenceof bundling affecting consumers’ perceived value in thevideo game context. Bundling has traditionally beenregarded as a useful strategy to extend brand preference(Stigler, 1961) and to achieve market penetration(Stremersch and Tellis, 2002), but our findings suggest thatorganizations such as telcos and video game producers needto be more proactive in selling the benefits of bundles. Forexample, bundling advertisements might specify the cost ofeach individual item, as well as the bundle price, to explicitly

Table 5. Final measurement model results for study 2

Model fit

Chi-square Df GFI CFI RMSEA

62.67 24 0.94 0.97 0.08

Variable MeanStd.dev.

Standardizedloading CR

Customer confusion 2.3 1.3 0.87The advertisement was too complex. 2.3 1.4 0.79I was not sure what was going on in the advertisement. 2.4 1.4 0.87It required a lot of effort to follow the advertisement. 2.3 1.5 0.84

Customer perceived value 4.4 1.4 0.93If I purchased this PlayStation offering, I feel that I would be getting mymoney’s worth.

4.4 1.5 0.87

I think that this PlayStation offering is good value for money. 4.5 1.5 0.87I think that purchasing this PlayStation offering would meet both my high qualityand low price requirements.

4.4 1.5 0.95

Customer perceived risk 2.8 1.4 0.94I feel that purchasing this PlayStation offering would really cause me lots of trouble. 2.7 1.4 0.90I would incur some risk if I purchased this PlayStation offering. 2.8 1.6 0.93Purchasing this PlayStation offering would be very risky. 2.6 1.5 0.90

Table 6. Correlation matrix and AVE statistics for study 2

Construct 1 2 3

1. Consumer perceived confusion 0.832. Consumer perceived value �0.20** 0.913. Consumer perceived risk 0.52** �0.44** 0.90

Diagonal elements shown in bold are square roots of the AVE values of theconstructs.**p< 0.01.

Table 7. Means and standard deviations for consumer perceivedvalue, perceived risk and perceived confusion for study 2

Number inbundle

Perceivedvalue

Perceivedrisk

Perceivedconfusion

One 2.44 (1.50) 4.32 (1.45) 2.78 (1.47)Two 2.23 (1.15) 4.56 (1.36) 2.70 (1.41)Three 2.37 (1.23 4.37 (1.46) 2.77 (1.44)

Time-limited offerNo 2.34 (1.33) 4.32 (1.40) 2.75 (1.49)Yes 2.34 (1.27) 4.51 (1.44) 2.75 (1.38)

n = 206.

L. McQuilken et al.

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

communicate the bundle cost savings. Telco and other suchproviders might also promote the non-price benefits of bun-dles, such as the convenience of receiving one bill for multi-ple services. Focusing on the benefits of bundles in telcoadvertising is particularly important, as consumers areincreasingly questioning the need to purchase a telco bundlefrom a “one stop shop”.

Telco managers do not want to deter consumers byincluding potentially aversive restrictions in their contracts.Some consumers feel hassled about interpreting complextelco contracts (Lee et al., 2001) and resent perceived promo-tion savings that are offset by financially punitive contractuallock-ins (Sinha et al., 1999; Malhotra and Malhotra, 2013).The pairing of deal content and lock-in conditions seems tobe perceived by consumers as incongruous.

In contrast, bundling and time-limited deals are notviewed by consumers positively or negatively within thevideo game context that has no formal contracts. This mayexplain why many telco consumer complaints are about pro-viders’ efforts to lock them into contracts by increasingswitching costs (Lee et al., 2001). In the telco context, thiscreates a power imbalance, as the provider is effectively re-moving the consumer’s choice of walking away if dissatis-fied (Malhotra and Malhotra, 2013).

Given consumers’ negative reaction to telco contracts, werecommend that reducing their duration (e.g. 1 year versusstandard 2 years), simplifying the terms and conditions,and/or abolishing long-term contracts can address this issue.ETFs should also be eliminated, as has occurred in the Aus-tralian home mortgage market. The complexity of telco con-tracts also means that consumers should be allowed a 30-day“cooling off period”, during which time they may terminateif the contract fails to meet their expectations. Given that lessthan half of all mobile phones in Australia during 2013 wereacquired via service contracts (Telsyte, 2014), it is likely thatcontract exit provisions are becoming increasingly salient toconsumers. Telco providers need to respond to the easy exitdemands of informed consumers if they are to survive(Bar-Gill and Ben-Shahar, 2014).

As bundling value is lost when accompanied by a time-limited promotion in the context of a lock-in contract andhas no effect if there is no lock-in, we recommend that time-limited promotions not be used in conjunction with bundlingcontractual services such as telco offers. If time limitationsand bundles are integrated in the same advertisement, it maywell be that consumers decline a genuinely good offerbecause they are turned off by its terms (Sinha et al., 1999).

It appears that the cost of offering the type of complexpromotions manipulated in this study could surpass any util-ity delivered to either consumers or an organization’s bottomline. Thus, the excess use of the deal types that we studiedcould in fact undermine their aims.

OVERALL STUDY LIMITATIONS AND SUGGESTIONSFOR FUTURE RESEARCH

Several limitations of our study need to be acknowledged,which provide opportunities for future research. First, we usedhypothetical advertisements, even though they were developedto reflect “real” market offers. Thus, future researchers mightendeavor to enhance external validity by embarking on a fieldstudy. Second, our hypotheses were tested across two productcategories in the Australian context, and caution needs to beexercised in generalizing our findings beyond these bound-aries. Third, we also only considered print advertisements,while future research could examine different media types,such as online review sites. Fourth, as with most experiments,we measured consumers’ perceptions based on their exposureto advertisements, and future researchers will need to examineactual consumer behavior. Another limitation of our study isthat it examined the presence or absence of a time-limited offerthat involved a 15% discount. It is possible that respondentsmay not have perceived this discount to be sufficient to warrantchanges in perceptions. Future work might, therefore, considervarying the discount amount and/or manipulating differenttypes of “value-added” incentives, such as extra features ratherthan monetary discounts.

ACKNOWLEDGEMENTS

This research was supported by funding from DeakinUniversity’s Centre for Sustainable and Responsible Organi-sations and the Australian Communications ConsumerAction Network. The authors also wish to thank KathrynChalmers for her assistance.

BIOGRAPHICAL NOTES

Lisa McQuilken is a senior lecturer in Marketing in the School ofManagement and Marketing, Deakin University, Melbourne,Australia. She holds a PhD in managing service recovery and haspublished in the Journal of Tourism and Travel Marketing, the Journal

Table 8. ANOVAs for consumer perceived value, perceived risk, and perceived confusion for study 2

Perceived value Perceived risk Perceived confusion

TestSum ofsquares Df

Meansquare F Sig.

Sum ofsquares Df

Meansquare F Sig.

Sum ofsquares Df

Meansquare F Sig.

Number of items 2.10 2 1.05 0.53 0.592 0.22 2 0.11 0.05 0.947 1.56 2 0.78 0.45 0.637Time-limited offer 1.87 1 1.87 0.93 0.335 9.49 1 9.49 0.00 0.998 0.00 1 0.00 0.00 0.993Number of items ×time-limited offer

9.19 2 4.60 2.30 0.103 3.73 2 1.87 0.89 0.411 0.41 2 0.21 0.12 0.887

Computed using alpha = 0.05; n = 206.

Consumer perceptions of bundles and time-limited promotion deals: Do contracts matter?

Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb

of Hospitality and Tourism Research, the Journal of ConsumerBehaviour, the International Journal of Hospitality Management, theAustralasian Marketing Journal, and the Journal of FinancialServices Marketing, among others. Her research interests in-clude service failures, service guarantees as a recovery tool,self-service technologies, and consumer complaining behavior.

Nichola Robertson, PhD, is a senior lecturer in Marketing in theDeakin Graduate School of Business, Deakin University, Mel-bourne, Australia. Her research interests include customercomplaining behavior, customer dissatisfaction, self-service tech-nologies, and customer service. Her research has been publishedin the Journal of Service Research, Journal of Hospitality and Tour-ism Research, International Journal of Hospitality Management,Managing Service Quality, Journal of Retailing and ConsumerServices, and the Australasian Marketing Journal, among others.She serves on the Editorial Advisory Board of Managing ServiceQuality: An International Journal.

Michael Jay Polonsky is an Alfred Deakin Professor and Chair inMarketing within the Faculty of Business and Law at DeakinUniversity. He is widely published in social and environmentalissues in marketing and has a variety of interests in other areas,including marketing education, services, international marketingand strategy issues.

Paul Harrison, PhD, is a researcher with Deakin University’s Cen-tre for Sustainable and Responsible Organisations, and a senior lec-turer in consumer behavior and advertising in the MBA program atDeakin University. He is a board member of the Telecommunica-tions Industry Ombudsman and past chair (and current board mem-ber) of the Asylum Seeker Resource Centre. His work has beenpublished in a range of media, including the Journal of ConsumerAffairs, Public Health Nutrition, Journal of Product and Brand Man-agement, Consumption, Markets and Culture, Marketing Science,and the Journal of Nonprofit and Voluntary Sector Marketing.

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Copyright © 2015 John Wiley & Sons, Ltd. J. Consumer Behav. (2015)

DOI: 10.1002/cb