Essays on cross selling, bundling, and customer retention
In today's business environment, customer retention is one of the cornerstones of a firm's effort to manage its customers. As one of several strategies to increase customer retention, firms may cross-sell other products to the customer, perhaps offering the products as a bundle. This thesis proposes three essays on the use of bundling and cross-selling by firms to retain customers. In Chapter 2 we analytically model the effect of strategic competition on bundling. In contrast to the previous literature, we find that concurrent bundling by competitors, if it occurs in equilibrium, is profitable and helps firm retain customers. Further, when one firm bundles and the other firm does not, the bundling firm gains a greater share of customers and makes a higher profit. Chapter 3 empirically investigates if "act of cross-buying" multiple products from the same service provider reduces customer churn. Using customer data from a vendor of wireless phone services, we find that cross-buying has a dual benefit in that it not only generates profit from additional products but also improves customer retention. Chapter 4 analytically investigates if bundling discounts reduces customer switching and increase profits. This essay considers competition between firms using price promotions. The main intuition of this chapter is that bundling increases profits through a reduction in switching.