How to Maximize Profit with Bundling Strategy in Fast Food Restaurant
What is the optimal price of the bundle and profit (per type of customer) for a local fast food restaurant with two types of customers using pure bundling strategy? Can the restaurant increase profit with mixed bundling strategy?
a. Optimal Price and Profit with Pure Bundling
With pure bundling, the restaurant should charge $3.05 for the bundle to maximize profit. The profit per type of customer for chicken nuggets and fries is $0.55 for customer A and $1.10 for customer B.
b. Mixed Bundling Strategy and Profit Analysis
Yes, the restaurant can use mixed bundling to increase profit. The optimal bundle price is $2.55. The separate prices for chicken nuggets and french fries are $1.50 and $0.45 for customer A, and $2.05 and $0.05 for customer B. The profit from each type of customer is $0.55 for customer A and $1.20 for customer B.
Mixed bundling allows the restaurant to capture more of the consumer surplus and increase profit by offering different prices for different products. By using different pricing strategies for chicken nuggets and french fries, the restaurant can attract both types of customers and maximize revenue.
Consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. With mixed bundling, the restaurant can extract more value from each type of customer by setting prices that align with their willingness to pay.
By offering a bundle price and individual prices for chicken nuggets and fries, the restaurant can cater to different preferences and budget constraints. This flexibility in pricing helps in attracting a wider range of customers and increases overall profitability.
In conclusion, by implementing a mixed bundling strategy, the fast food restaurant can optimize its pricing strategies and maximize profit by leveraging the varying willingness to pay of different customer segments.