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The Perceived Value of Value Meals

a

Zvi Schwartz & Eli Cohen

Department of Hospitality and Tourism Management , School of

Management, Ben-Gurion University of the Negev , Israel
Published online: 22 Oct 2008.

To cite this article: Zvi Schwartz & Eli Cohen (1999) The Perceived Value of Value Meals, Journal of
Restaurant & Foodservice Marketing, 3:3-4, 19-37, DOI: 10.1300/J061v03n03_03
To link to this article: http://dx.doi.org/10.1300/J061v03n03_03

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The Perceived Value of Value Meals:

An Experimental Investigation
into Product Bundling and Decoy Pricing
in Restaurant Menus

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Zvi Schwartz
Eli Cohen
ABSTRACT. This study provides a new explanation as to why restaurants frequently sell value meals along with the meals components
separately. We argue that beyond the traditional economic model of
extracting the surplus from customers with extreme valuation for particular dishes, mixed bundling unintentionally creates a decoy price
effect. With mixed bundling, the value meal might seem more attractive
than with pure bundling, generating more profits for the restaurant. The
combination of extracting additional consumer surplus and the increased
demand due to decoy pricing makes the mixed bundling strategy a
highly valuable marketing tool for restaurants. We test the theory by
measuring subjects willingness to pay for value meals while varying the
prices of the meals components that appear separately on the menu. The
results strongly support our prediction that customers willingness to pay
for a value meal can be manipulated by controlling the price of the
components. [Article copies available for a fee from The Haworth Document
Delivery Service: 1-800-342-9678. E-mail address: getinfo@haworthpressinc.
com <Website: http://www.haworthpressinc.com>]

KEYWORDS. Restaurants, menu pricing, value meals, pure bundling,

mixed bundling, decoy pricing

INTRODUCTION
Value meals in fast food establishments and its table dhte analogous in table-service restaurants have gained increased popularity in
Dr. Zvi Schwartz is Lecturer and Dr. Eli Cohen is Senior Lecturer at the Department of Hospitality and Tourism Management, School of Management, Ben-Gurion
University of the Negev, Israel.
Journal of Restaurant & Foodservice Marketing, Vol. 3(3/4) 1999
E 1999 by The Haworth Press, Inc. All rights reserved.

19

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JOURNAL OF RESTAURANT & FOODSERVICE MARKETING

recent years. According to Miller and Pavesic (1996), the practice of

bundle pricing by McDonalds and Taco Bell demonstrates that value
meals are part of a long term competitive strategy.
Value meals and combination pricing are the restaurant version of
the well known bundle pricing scheme. Bundling means offering two
or more products as a package. The price of the bundle is usually
lower than it would be if the items were purchased separately. There
are two variants to bundling: pure and mixed. In pure bundling the
products are offered only as a package. In mixed bundling, the consumer can purchase either the package or the separate components.
The term Pure Components is often used to describe pricing with no
bundling: products that are sold separately and no package is offered.
The use of mixed bundling in restaurant menus by far exceeds the
use of pure bundling. Seldom is a combination offered without its
components being offered separately as well. However, existing economic theories of bundling fail to fully explain the dominance of
mixed bundling in restaurants. In what follows we add a decoy pricing
element (drawn from consumer behavior theory) to the consumer
surplus model of economics. The extended model indicates that mixed
bundling is more effective than previously predicted by economic
theory, thus providing a better explanation to the increasing popularity
of mixed bundling in restaurant menus. We test our theory using five
variants of a single restaurant menu. The results strongly support the
theory, showing that there is indeed an embedded decoy pricing element in mixed bundling. When priced properly, it can increase the
customers willingness to pay for the bundle and consequently boost
the restaurants profitability beyond what is predicted by the existing
economic theory.
THE ECONOMIC THEORY OF BUNDLING:
EXTRACTING MORE OF THE CONSUMER SURPLUS
Several studies show that negative correlation in customer demand
allows a single bundle price to extract more of the consumer surplus.
This concept was first introduced by Adams and Yellen (1976). The
major findings of Adams and Yellen were later supported by the
analytical work of Schmalensee (1984) who restricted his analysis to
customers reservation prices that follow a bivariate normal distribution, and by the work of Long (1984), who assumed that the distribu-

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Zvi Schwartz and Eli Cohen

21

tion of consumer reservation prices has a continuous density. Telser

(1979) suggested an alternative explanation, focusing on the complementary aspect of bundling that generates a super-additive valuation
for the bundle. Kenney and Klein (1983) considered uncertainty and
suggested that when bundled, components of varying levels of quality
are less often rejected. Miller and Pavesic (1996) and Porter (1985)
claim that bundling is effective in controlling manufacturing costs but
provide no formal analysis to back their statements.
The explanation favored by many scholars (e.g., Lilien, Kotler &
Moorthy, 1992) is that of Adams and Yellen (1976). The authors based
their theory on an early work in the field of economics by Stigler
(1963, 1968), and developed a model that compares three pricing
strategies: pure bundling, pure components and mixed bundling.
Explaining why and when each strategy is preferred they conclude
(p. 89) that:
We are now in a position to understand why a restaurant might offer
complete dinners as well as la carte menu. Some people value an
appetizer relatively highly (soup on a cold day) others may value
dessert relatively highly (baked Alaska, unavailable at home), but
all might wish to pay roughly the same amount for a complete
dinner. The la carte menu is designed to capture the consumer
surplus from those gastronomes with extremely high valuation of
particular dishes, while the complete dinner is designed to retain
those with lower variance in their reservation prices.
We now describe the fundamentals of Adams and Yellens (1976)
model that makes use of the consumers reservation space framework.
In this paper we adopt the term reservation price as used in Adams
and Yellen (1976). Reservation price is the highest price the consumer
is willing to pay for the product or the bundle. Consider the following
example where a restaurant sells two items, a steak and a glass of wine.
With no bundling, the restaurant sells the steak, at price P1, to customers whose reservation prices R1, are higher than P1. The restaurant sells
the wine, at price P2, to customers whose reservation prices, R2, are
higher than P2. Some customers would have reservation prices that
exceed the price for both items, R1P1 and R2P2, and these customers would purchase both items. Other customers who have low reserva-

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22

tion prices for both items, R1 < P1 and R2 < P2, would not buy either
one. Figure 1 illustrates this market without bundling.
The reservation price for a bundle (steak and wine sold together) is
assumed to be equal to the sum of the reservation prices for the two
components, i.e., RB = R1 + R2. Figure 2 demonstrates how the pure
bundling price, PB, divides the restaurant clientele into two groups.
Customers with a bundle reservation price higher than the bundle
price of PB (RB PB) purchase the steak and wine deal, and customers who have a lower reservation price for the bundle (RB < PB) do not
purchase the bundle.
A mixed bundling strategy divides the restaurant customers into
four groups (Figure 3). Customers with R1P1 and R2PB P1 (area J)
buy only the steak and pay P1. Customers with R2P1 and R1PB P2
(area I) buy only the wine and pay P2. Customers with R1 + R2 PB,
R1(RB P2) and R2(RB P1) buy the package of steak and wine and
pay PB (area G). Customers with R1 < P1, R2 < P2 and RB < PB do not
buy the package nor its components (area H).

FIGURE 1. No Bundling: Customers in Area A buy both the steak and the
wine. Customers in Area B buy the wine only and customers in Area D buy
the steak only. Customers in Area C do not buy the steak or the wine.
R2 (Wine)

P1

R (Steak)
1

Zvi Schwartz and Eli Cohen

23

FIGURE 2. Pure Bundling: Customers in Area E buy the wine and steak
package. Customers in Area F do not buy the package.
R2 (Wine)

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PB

R1 (Steak)

ANOMALIES AND THE NEED

FOR AN IMPROVED EXPLANATION
Several studies questioned whether the Adams and Yellen framework indeed provides a comprehensive explanation to the array of
questions surrounding bundling. Drumwright (1992) tested the evaluation of bundles by consumer. She reports some anomalies in the
results of the experiments suggesting that bundles create context that
influence evaluation and choice. Long (1984 p. S246) argues that . . .
the most favorable case for bundling as a price discrimination device
is the case where the bundle components are substitutes in demand (as,
e.g., in variety packs). On the price discrimination grounds alone, the
bundling of complementary components is harder to explain. Since
bundling in restaurant menus is of a complementary nature, the Adams
and Yellen model by itself might not provide an adequate and complete explanation to the use of bundling in restaurants.
In the following section we show that there is another advantage to
mixed bundling beyond the one shown by Adams and Yellen. We

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JOURNAL OF RESTAURANT & FOODSERVICE MARKETING

FIGURE 3. Mixed Bundling: Customers in Area G buy the wine and steak
package. Customers in Area H do not buy the package or either of the items.
Customers in Area J buy the steak only and customers in Area I buy the wine
only.
R2 (Wine)

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I
P

P1

PB

R1 (Steak)

argue that the sum of the components prices serves as a reference

price. When priced correctly it might act as a decoy price, making the
meal (bundle) look more attractive. That is, the presence (on the
menu) of higher unbundled prices can increase the demand for the
bundle. The consumer surplus argument, enhanced by the decoy effect, provides a better explanation to the widespread use of mixed
bundling (value meals and its components) in restaurants.
DECOYS IN RESTAURANT MENUS
The role of decoys in product lines has been given a lot of attention.
Decoy refers to the practice of offering one or more low value/price
ratio products as decoys to make high value/price ratio products, the
targets, look more favorable. Extensive research in this area (Heath
and Chatterjee, 1995; Huber, Payne and Puto, 1982; Huber and Puto,
1983; Josiam and Hobson, 1995; Ratneshwar et al., 1987; Simonson,
1989) concluded that decoy effects appear to be robust in many businesses including restaurants. Shoemaker (1990, 1994) discusses the

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Zvi Schwartz and Eli Cohen

25

use of decoy items in a restaurant menu. He illustrates how after

determining the price value perception of a menu, one could add
decoy items that draw attention to more profitable items by acting as
references.
In this paper we argue that an unintentional decoy effect occurs
whenever a mixed bundle is offered on the menu. The sum of the
separate components prices is higher than the meal (bundle) price even
though the product itself is equal in all other aspects (quality, quantity,
etc.). Hence, the group of components offered separately is relatively
inferior, and it falls under the category of a dominated decoy. As such,
it can increase the attractiveness of the package deal, boosting customer demand and therefore the restaurant profit.
Several factors support the notion that the sum of the components
prices becomes a decoy for the meal package. Most meal packages are
a combination of items that people usually consume together. Thus, it
makes sense for a value-seeking customer to compare the package
price with the closest alternative of purchasing the components separately. Further, in a restaurant setting, this product price comparison is
relatively convenient: all prices appear on the menu and there is often
a time which is designated for studying the menu and making decisions regarding the order.
COMBINING THE ECONOMICS THEORY
WITH CONSUMER PSYCHOLOGY
Figure 4 demonstrates how the decoy effect is incorporated into the
Adams and Yellen framework. Conceptually, we abandon the assumption that the reservation price for the bundle equals the sum of the
components reservation prices (RB = R1 + R2). Instead, we argue that
the reservation price for the bundle depends on the price of the bundle
components. It should be possible to set the prices of the components,
RB, such that the highest price a customer is willing to pay for the
bundle will be somewhat higher than the sum of the components
prices (RB > R1 + R2). The customers perceive the package price to be
more attractive. This shift in the perceived bundle price is represented
by the arrow attached to each customer location on the reservation
price space. While the components reservation prices (the dots) are
unchanged, the reservation price for the bundle is shifted upwards.
According to the Adams and Yellen model, customers located in areas

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FIGURE 4. A positive decoy pricing effect imposed on the Adams and Yellen
framework.
R2 (Wine)

K
P

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L
M

J
P1

PB

R1 (Steak)

K and M purchase one item only and customers in area L purchase

nothing. When adding the positive decoy effect, these customers,
located in K, L and M, purchase the bundle. The positive decoy effect
enables the restaurateur to charge a higher bundle price, PB > PB,
without losing customers, and thus to generate a higher profit. Note
that the argument works also to explain an opposite shift in willingness to pay. Low components price could decrease the customers
reservation price, (RB < R1 + R2), forcing the restaurateur to charge
PB < PB, and reducing the restaurants profits.
Appendix 1 illustrates two markets, adopted from Adams and Yellens article, with some scale modifications, and the relevant optimal
bundling strategy. The first market calls for the use of pure components strategy and the second market calls for mixed bundling. We
demonstrate how the addition of the decoy pricing element to the
mixed bundling scheme can generate higher profits in both markets.
THE EXPERIMENT: METHOD AND HYPOTHESES
Our main contribution, and the core concept of the model we outlined above is the inclusion of the decoy effect within the framework

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Zvi Schwartz and Eli Cohen

27

of product bundling. Specifically, we argue that in mixed bundling the

price of the bundles components affect the customers willingness to
pay for the bundle. This decoy effect is most likely to occur in restaurants where conditions favor such a process. Theoretically, the decoy
effect might be either positive or negative: high prices for the components are likely to increase the customers willingness to pay for the
bundle, while low prices are likely to decrease the willingness to pay.
Naturally, it is expected that the successful restaurateur would use this
tool to their advantage and improve profits by increasing their customers willingness to pay for the meal bundle.
In our experimental investigation we put this theory to a test. That
is, we attempt to determine whether willingness to pay for a combo
meal (the bundle) can indeed be manipulated by varying the price of
the separately sold components. We expect that reservation price for a
pure bundle value meal will differ from the one for the same value
meal when its components are offered separately (a mixed bundle
scheme) because of the decoy effect. Thus, we develop two formal
hypotheses:
Ha: With mixed bundling, the higher the price of the meals
components that are sold separately, the higher the customers
willingness to pay for the bundled meal.
Hb: Customers willingness to pay for a combo meal offered as a
pure bundle can be higher or lower than their willingness to pay
for the same combo when offered as a mixed bundle, depending
on the components prices.
The subjects used for this study consisted of 59 (57 usable responses) MBA and executive MBA students in a university located in
the Midwest. The students participated in the experiment as part of a
course requirement. The experimenter explained the assignment to the
subjects before handing out the material, and verified that the assignment was understood. Each subject received a single menu, one of five
types--assigned randomly, and a questionnaire. All of the items on the
menu, except for three combos (soup and salad bundles), had prices
marked on the menu. Subjects were told that the restaurant managers
consider adding these three combos to the menu and need their assistance in determining the items appeal and appropriate price. We measured the subjects reservation prices for the three combos by asking

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the respondents to report what is the highest price they would be

willing to pay for each combo, and what is the appropriate price the
restaurant should be charging for each combo. See Appendix 2 for one
of the menus and the questions.
There were five menu variants. Four menu types used mixed bundling. That is, in each of these menus, three soups and three salads (the
combos components) appeared along with the combos. These four
menus differed in the prices of the components. The fifth menu used
pure bundling. That is, no soup or salad were offered separately. The
experiment treatments and the number of subjects are reported in
Table 1.
METHOD OF ANALYSIS
Subjects reported two prices for each combo: the highest price they
would be willing to pay and the price that the restaurant should charge.
These data are used to test hypotheses Ha and Hb. A third parameter,
the likelihood of purchasing any of these combo meals, given that
their price is appropriate, was used to detect subjects who do not find
the combos appealing at all, regardless of their price. Only two subjects scored low on this question (1 or 2 on a scale of 1-5) and have
been removed from the data.
To support Ha we need to establish statistically that the prices of the
mixed bundled meals components can be used to manipulate the
customers reservation price. We apply the non-parametric JonckheereTerpsatra test for ordered alternatives. This procedure is most appropriate to test a null hypothesis of equality among population
medians (MIs), H0: M1 = M2 = . . . = Mk, against an alternative in which
order is specified, such as H1: M1 M2 . . . Mk. Unlike the
parametric ANOVA procedure, Jonckheere-Terpsatras test does not require a normally distributed population (see, for example, Daniel, 1990).
TABLE 1. Experiment treatments.
Menu Type
Mixed Bundling 1
Mixed Bundling 2
Mixed Bundling 3
Mixed Bundling 4
Pure Bundling

Price of soups
low
high
low
high
N/A

Price of salads
low
low
high
high
N/A

Number of subjects
12
11
12
11
11

Zvi Schwartz and Eli Cohen

29

To support Hb, we need to show that mixed bundling can induce

reservation prices that are statistically different from the willingness to
pay for the same bundle when sold as a pure bundle. Since the model
does not provide any a priori indication as to what the appropriate
components prices are, we tested a range of price combinations, hoping to find at least some significant differences among the relevant
willingness to pay levels. To compare the selected pairs of reservation
prices we applied the non-parametric median test.

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RESULTS
Table 2 summarizes the responses to the first question, that is, the
highest price that the subjects reported they would be willing to pay
for each of the three combos by menu type. Figure 5 provides a
graphical description of the data.
These data indicate that both Ha and Hb are supported. Subjects in
treatment 1 (mixed bundling with low price for both components)
demonstrated the lowest willingness to pay among all menu types.
This holds true for all three combos. Subjects in treatment 4 (mixed
bundling with high price for both components) demonstrated the highest willingness to pay among all five menu types and for all three
combos. Subjects in treatment 5 (pure bundling) demonstrated willingness to pay that is somewhere between the previous two. Note that
for treatments 2 and 3 (high price for one component and a low price
for the second component) the results are not as consistent. Subjects in
treatment 3 are willing to pay more for combo 1 and combo 3 than
subjects in treatment 2. However, the same subjects are willing to pay
less for combo 2 than subjects in treatment 2.
TABLE 2. The highest price subjects are willing to pay for the combos in each
menu.
Treatment
(menu type)

Bundling
scheme

Components
price

1
2
3
4
5

Mixed
Mixed
Mixed
Mixed
Pure

low/low
low/high
high/low
high/high
n/a

Mean of highest price subjects are willing

to pay
Combo 1
Combo 2
Combo 3
$ 5.45
$ 6.66
$ 6.87
$ 7.21
$ 6.43

$ 6.20
$ 7.84
$ 7.70
$ 8.18
$ 7.57

$ 6.48
$ 7.91
$ 8.55
$ 8.83
$ 7.66

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FIGURE 5. The reservation price for each combo by menu type.

Highest price willing to pay

($s)
9.00
8.50
8.00

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7.50

Low/Low
Low/High
High/Low
High/Low
Pure

7.00
6.50
6.00
5.50
5.00
Combo 1

Combo 2

Combo 3

The Jonckheere-Terpsatra test provides a solid statistical support for

Ha. The null hypotheses, that all prices are equal as opposed to the
specified order, is rejected with p < 0.05 for the first combo meal, with
p < 0.04 for the second combo, and with p < 0.02 for the third combo.
The pattern of the response to the second question, i.e., what is the
price that the restaurant should be charging for each combo, is very
similar. The only significant variation can be found in the overall price
levels. The prices for each item are lower than the corresponding
prices in the results of the first question. This seems to be a reasonable
outcome because people who are asked how much a restaurant should
charge, would most likely suggest a price that is lower than the highest
price they are actually willing to pay. However, the order of the prices
parallels that of the first question, providing more support for the
validity of the theory.
To support Hb, we need to establish that the willingness to pay of

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Zvi Schwartz and Eli Cohen

31

subjects who had menu 5 is significantly different from that of subjects who had one of the other four menus. We tested whether subjects
who had the pure bundling menu were willing to pay less than subjects
who had menu 4 (mixed bundling with high components price), and
whether their reservation price was higher than that of subjects who
had menu 1 (mixed bundling with low components price). Three of
these six tested pairs are significantly different at p < 0.10; willingness
to pay for combo 2 with mixed bundling (menu 4--high components
price) is significantly higher than that with pure bundling, and willingness to pay for combo 1 and combo 3 with pure bundling is significantly higher than that with mixed bundling (menu 1--low components
price).
The results indicate that the theory is supported. The prices of the
components of a mixed bundle affect the subjects willingness to pay
for the bundle. With appropriate pricing for the components on the
menu, a restaurant can get more customers to pay more for a value
meal compared to the same value meal where the components are not
offered separately on the menu.
SUMMARY AND CONCLUSION
This study combines the economic model of consumer surplus with
the consumer behavior model of decoys in a product line. We argue
that the combined approach provides a better explanation for the dominance of mixed bundling in restaurants menus. The theoretic model
along with the two numerical examples in Appendix 1 demonstrate
how the restaurants profitability may increase as a result of an increase in customers willingness to pay for a value meal. Our model
suggests that by manipulating the price of the meals component one
can induce a higher willingness to pay for the value meal, and consequently improve the profits of the restaurant.
The results of the controlled experiment strongly support the theory.
Subjects who faced high prices for the components had a higher willingness to pay for the value meal. Also, the decoy pricing element of
mixed bundling induced a reservation price that was different from
that of subjects who saw a pure bundle.
Our model and experiment provide a strong theoretical explanation
to the widespread use of value meals. Restaurateurs who set appropriate prices for the components enjoy higher profitability and are more

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JOURNAL OF RESTAURANT & FOODSERVICE MARKETING

likely to survive. However, more research is needed before this phenomenon is fully understood. Our model predicts that the decoy element will not always have a positive impact on willingness to pay.
Low price for the components may act as a negative benchmark
and most likely decrease customers willingness to pay for the value
meal. Mixed bundling induces higher willingness to pay and consequently higher profits only if the restaurant sets high enough prices for
the combo meals components. This was evident in the results of the
experiment. Hence, future research should be aimed at identifying the
appropriate components prices. Managers could greatly benefit from
clear guidance on which prices work and what the likely outcomes are.
Future research should also establish what factors affect the efficacy
of the decoy element. For example, it would be helpful to learn how
the overall price level of the menu influences the role of the decoy
element, and which external factors dictate upper and lower thresholds
to the range of useful components prices. Another promising avenue
for future research has to do with the type of research. This study
suggested a theory and tested it in a controlled experiment. This method of research is most appropriate for a first stage falsification procedure of a general theory. We followed the common approach and used
a sample that was homogenous on the non-theoretical variables (see,
for example, the excellent article by Calder, Phillips, and Tybout,
1981). After establishing the validity of the general theory, future
research could use procedures that are appropriate for the next two
stages of investigation. Specifically, the sample could encompass individual differences that might influence performances. Another extension could include a sample that is statistically representative of the
real world populations. A relevant operationalization of this approach
would be to sample subjects from a pool of various customer segments
of the same restaurant and of different types of restaurants.
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Stigler, G. J. (1963). United States vs. Loews Inc: A Note on Block Booking. In P.
Kurland, The Supreme Court Review, 152, Chicago, IL., University of Chicago
Press.
Stigler, G. J. (1968). A Note on Block Booking. In G. J. Stigler (ed.) The Organization of Industry, Homewood IL, Irwin.
Telser, L. G. (1979). A Theory of Monopoly of Complementary Goods. Journal of
Business, 52 pp. 211-230.

JOURNAL OF RESTAURANT & FOODSERVICE MARKETING

34

APPENDIX 1
Example 1. This example builds upon Adams and Yellens Figure VIII. Prices
were modified to better resemble real restaurant menus. The decoy effect is
added to the mixed bundling option as follows: The sum of the steak and wine
prices sold separately is $50 (25+25). The price of the same two products sold
as a package is only $30. Since the bundle price is significantly cheaper (a
bargain of 40% discount) it seems more attractive. This psychological effect is
reflected in higher reservation prices for the bundle (column 5 of Table 1).
TABLE 1. Reservation prices for the prime steak, the wine, the bundle without
the decoy effect and the bundle with the decoy effect.

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Reservation Price for

Customer

Steak (Rs)

Wine (Rw)

Bundle (RB)

25

25

Bundle w/Decoy Effect (RB)

30

25

10

35

37

17

25

30

15

12.5

27.5

33

12.5

12.5

25

30

12.5

15

27.5

33

10

25

35

37

17

25

30

25

25

30

The food cost is $11.25 for the steak and $11.25 for the wine. For each pricing
strategy the profits are given in Table 2.
TABLE 2. Profits with each pricing strategy for market 1.
Strategy

Pure Components

Customers who purchase the: Profits1

Price of
Steak
(P1)
25

Wine
(P2)
25

Bundle
P1+P2 (PB)
50

Pure Bundling

Steak
a, b

Wine Bundle
g, i

35

55
b, g

25

b, d, f, g

47.50

Mixed Bundling

25

25

50

27.5

Mixed Bundling Adjusted to Decoy

25

25

50

30

i b, c, d e, f , g
h,

80

When the decoy effect is ignored, the most profitable strategy is pure
components with a profit of 55 (compared to a profit of 25 with pure bundling
and 47.50 with mixed bundling). Allowing for a 19% increase in the bundle
price due to the decoy effect, the mixed bundling becomes the best strategy
with a profit of 80--an increase of over 65%.

1425--411.25=55;

235--411.25=25; 225--211.25+427.5--8111.25=47.50; 225+730--1611.25=80.

Zvi Schwartz and Eli Cohen

35

Example 2. The market described in Table 3 follows the structure in Adams

and Yellens Figure V. It describes the case where mixed bundling is the most
profitable strategy. Note that for the sake of simplicity (and without losing
generality) it is assumed that both costs are zero.
TABLE 3. Reservation prices for the prime steak, the wine, the bundle without
the decoy effect and the bundle with the decoy effect.

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Reservation Price for

Customer

Steak (Rs)

Wine (Rw)

Bundle (RB)

36

40

Bundle w/Decoy Effect (RB)

44

16

32

48

52

32

16

48

52

36

40

44

The profits for each pricing strategy are given in Table 4 (assuming no
production cost).
TABLE 4. Profits with each pricing strategy for market 2.
Strategy

Pure Components

Customers who purchase the: Profits2

Price of
Steak

Wine

Bundle

(P1)

(P2)

P1+P2

32

32

64

Pure Bundling

Steak

Wine Bundle

(PB)
c, d

a, b

40

128
a, b, c, d

160

Mixed Bundling

36

36

72

48

b, c

168

Mixed Bundling Adjusted to Decoy

36

36

72

52

b, c

176

In Example 2s market, the most proitable strategy is mixed bundling with

a profit of 168 (compared to a profit of 128 with pure components and 160
with pure bundling). Allowing for an increase in the attractiveness of the
bundle due to the decoy effect, the mixed bundling remains the best
strategy but with a higher profit of 176.
2432=128;

440=160; 236+248=168; 236+252=176.

JOURNAL OF RESTAURANT & FOODSERVICE MARKETING

36

APPENDIX 2

We consider adding the Soup & Salad Value Combo category to our menu and would appreciate your input on
the appropriate pricing. Please, answer the following three questions.

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What is the HIGHEST price YOU would be willing to pay for each of the three combos? (fill in the blank)
Combo 1: $ ____ -- ____
Combo 2: $ ____ -- ____
Combo 3: $ ____ -- ____

In your opinion, how much should the MENU PRICE of each of the three combos be?
Combo 1: $ ____ -- ____
Combo 2: $ ____ -- ____
Combo 3: $ ____ -- ____

Assuming that the price is appropriate, how likely are you to order one of the combos?
1

not likely at all

5
very likely

Thank you for your cooperation

The staff of The Lancaster Caf

Zvi Schwartz and Eli Cohen

37

Appetizers
French Garlic Bread--French bread with garlic butter & feta cheese . . . $2.95
Spicy Buffalo Wings--A large plate of spicy buffalo wings . . . $2.95
Super Nachos--Tortilla chips with chili, cheddar, jalapenos and guacamole . . . $3.75
Soups*
Chowder -- . . . $2.25
Minestrone -- . . . $2.25
Soup of the day -- made fresh daily . . . $2.25

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*all soups are served with 2 freshly baked rolls

Salads
Caesar Salad -- Crisp romaine lettuce with seasoned croutons, shredded Parmesan and creamy Caesar dressing
. . . $3.95
Chicken Fajita Salad--Stripes of char-broiled chicken breast on a bed of greens . . . $4.95
Grilled Tuna Salad--A warm grilled tuna fillet on top of fresh greens with onions and vinaigrette . . . $4.95
Our Famous Chicken Dijon--Char-grilled chicken breast with a savory Dijon butter sauce on top of fresh greens with
eggs and onions . . . $6.25
Sandwiches
Char-broiled Chicken Sandwich--Coated with Cajun spices . . . $5.25
Smoked Turkey Club--with bacon, lettuce and tomato . . . $5.25
Burgers
Lancaster Burger--Quarter pound, grilled with onions, lettuce, tomato & mustard sauce . . . $5.75
Lancaster Extreme--Topped with two cheeses . . . $6.25
Side Orders
Grilled Onions . . . 1.75
French Fries . . . 1.75
Sauteed Mushrooms . . . 2.75
Soup & Salad Value Combos
Combo 1 --

Soup--Chowder, Minestrone or Soup of the Day with 2 freshly baked rolls

Salad--Caesar Salad
Drink--Soft drink, iced tea, mineral water, coffee or hot tea

Combo 2 --

Soup--Chowder, Minestrone or Soup of the Day with 2 freshly baked rolls

Salad--Chicken Fajita Salad or Grilled Tuna Salad
Drink--Soft drink, iced tea, mineral water, coffee or hot tea

Combo 3 --

Soup--Chowder, Minestrone or Soup of the Day with 2 freshly baked rolls

Salad--Char-grilled Chicken Dijon Salad
Drink--Soft drink, tea mineral water, coffee or hot tea

Beverages
Coca Cola, Diet Coke & Sprite . . . $1.50
Iced Tea . . . $1.50
Fresh Squeezed Lemonade . . . $1.75
Mineral Water . . . $1.50
Brewed Coffee, Decaffeinated Coffee & Hot Tea . . . $1.50