Product Bundling as a Marketing Application

Product bundling describes an interdisciplinary problem of great importance. It can be used to tailor offers to the demand of consumer segments (marketing), it helps to tackle variety reduction management issues (production), it is based on consumer preferences (data analysis), and it needs combinatorial optimization as solution tool (operations research).In this paper a new profit-maximizing mixed integer product bundling formulation is presented that works well for modest problem instances. Additionally, a heuristic approach is derived that copes with the situation in a Greedy-like manner for larger problem instances by providing a sequence of monotone increasing lower bounds for the objective function of our product bundling methodology.