Pricing decisions in a multiechelon supply chain under a bundling strategy

Abstract Product pure bundling is an effective marketing strategy in real successful businesses, which has been extensively discussed in the economics and marketing areas. While investigating the theoretical and empirical aspects of operational and supply chain implications of pure bundling is essential, this paper determines the optimal pricing decisions in a centralized three‐level supply chain that consists of multiple raw material suppliers, a manufacturer and a retailer, and analyzes the impact of raw material suppliers and manufacturer operations and market characteristics on selecting the best pricing strategy. A general supply chain structure is considered, in which the manufacturer receives different raw materials from the suppliers, produces two different products, and then sells them separately, called no bundling strategy, and sells two products in a package, called pure bundling strategy, with uniformly distributed customer valuations. The proposed model finds the optimal pricing decisions of the mentioned supply chain under pure and no bundling strategies and derives the closed‐form solutions to explore the impact of each strategy on the performance of the chain due to its profit. Computational results and sensitivity analysis explain how pure bundling can be utilized as an operational strategy to improve the integrated supply chain profit through a case study. Accordingly, the final results indicate that small market size, low costs, and small amounts of required raw materials, bundling basic products with the premium ones makes the pure bundling strategy profitable even when the cost of the packages is more than the sum of the costs of two products.