Assessing Customer Evaluation and Revenue Consequences of Component Sharing Across Brands in the Vertical Product Line

Component sharing may look great in the boardroom, but not in the showroom. Indeed, savingson R&D and production costs could be offset by a plunge in customer brand attractiveness andwillingness to pay. This paper investigates the impact of component sharing on customerevaluation of luxury, volume and economy brands offered in a car manufacturer’s verticalproduct line and its subsequent revenue consequences. The authors consider both the harm tothe higher-end brand and the benefits for the lower end brand, and analyze with a randomeffects model how the size of these effects depends on the brand combination, the type ofcomponent, the source of the components sharing, and customer characteristics. Anexperimental study shows that the harm for the higher-end brand is largest, when (1) a luxurybrand shares components with a volume brand, (2) the source of the components is the higherendbrand, and when (3) the customer has a high initial evaluation of the higher-end brand. Forthe lower-end brand, the positive effect is largest, when (1) a volume brand shares with aneconomy brand, (2) the lower-end brand is the source of the components, and (3) customershave a high initial evaluation of the higher-end brand. Components that have a strong impact onevaluation are interior, wheels, chassis and the engine. Simulations show that sharingcomponents typically translates in negative revenue consequences for both analyzedmanufacturers. An interesting exception emerges for the Japanese manufacturer, which obtainsa boost in total revenue when its small luxury brand shares components with its large volumebrand.branding;firm;Component sharing;interface marketing and production;customer evaluation