Bundling Strategy: How It Helps Lower Consumers’ Perceived Risk Associated with a New High-Tech Product Purchase Nataporn Chanvarasuth 1) , Shikhar Sarin 2) , Trina Sego 3) 1) Lally School of Management and Technology, Rensselaer Polytechnic Institute (supann@rpi.edu ) 2) Lally School of Management and Technology, Rensselaer Polytechnic Institute (sarin@rpi.edu ) 3) Lally School of Management and Technology, Rensselaer Polytechnic Institute (segot@rpi.edu ) Abstract Convincing consumers to buy a new product is always a challenge for marketers of a high-tech firm because consumers usually perceive a new high-tech product as risky. With this doubtful feeling, consumers tend to delay or cancel a product purchase reflecting in a high failure rate for a new product. This study aims to explore whether bundling strategies help lower consumers’ risk perception associated with a purchase of a new high-tech product. We develop a theoretical framework to explain how bundling strategies help consumers feel more confident to buy the product. We also explore the factors influencing this feeling. Based on an extensive review of the literature, we suggest five related factors influencing consumers’ risk perception. The results of this study not only help marketers formulate specific strategies for successfully introducing new high-tech products into today’s dynamic market, but also help consumers make their decision to buy new high-tech products easily with less time, effort, and anxiety. 1. Introduction High level of risk perception has been known as an impediment that delays consumer acceptance of a product [1]. In high-tech environment, many consumers experience high risk from either market uncertainty or technology uncertainty [2]. For example, most consumers are concerned whether a new product will perform as advertised, have reliable functions, or offer sufficient after sales services. When faced with the purchase of a new high-tech product, especially in the absence of complete or reliable information, consumers tend to either delay product purchase [3], or rely upon external cues such as brand name, store reputation, and price [4]. To be successful and to have high rate of new product adoption, marketers need to develop strategies for lowering consumers’ perceived risk [5]. In general, marketers develop various strategies to reduce perceived risks and increase levels of consumer awareness and product acceptance [6,7]. These strategies include brand extension, advertisement, or warranty with trial period. However, the effectiveness of these strategies is often compromised because they require consumers engage in more information search and product/price/brand comparisons from a better deal making the decision process even more time- and effort-intensive. Research on cognitive dissonance suggests that when the best choice is not obvious, consumers feel anxious and hesitant. Previous research on bundling indicates that bundling not only helps decrease consumers’ effort and anxiety, but also increases consumers’ feelings of confidence by convincing them to make risk-return tradeoffs [8]. This leads us to believe that consumers may feel more confident to buy high-tech products offered in a bundle because the benefit provided by a whole bundle cancel or exceed the inherent risk perceived in a new product. 2. Research Objectives The purpose of this study is to examine whether marketers can use bundling as a viable strategy for marketing new high-tech products. Two specific research questions are addressed: 1. Is consumers’ risk perception of the new high-tech product lower when the product is sold as a bundle as opposed to a stand-alone product? 2. What specific kinds of bundles help lower consumers’ risk perception? To answer the second question, we also examine factors that make one bundle of products more attractive to consumers than another. Based on an extensive review of the literature, the following factors reflecting the choices usually found in the market have been identified: 1. Type of presentation (bundle vs. stand-alone product) 2. Position of a new product in a bundle [anchor (main product) vs. tie-in (secondary product)] 3. Brand of a new product and existing product in a bundle (well-known vs. less-known) 4. The level of a new product innovation (high vs. low) 5. Discount of a bundle purchase (low vs. high)