By Eric Weiss and Koen Pauwels
For companies looking to lower costs across their vertical product lines, component sharing is an attractive opportunity. Cutting costs is not always beneficial, however, as worsened customer brand evaluation may outweigh any savings incurred by such component sharing techniques. Indeed, our survey finding that 93% of car buyers were aware of the fact that car producers commonly share components between brands. But does it substantially drive their purchase decisions? We answered this question in our research “Assessing Consequences of Component Sharing across Brands in the Vertical Product Line in the Automotive Market.”
Component type and the source of component sharing both drove the magnitude of the customer evaluation effect. First, sharing the interior, wheels, or the chassis has a significant larger negative impact than sharing the wiper component. Second, consumers reacted very differently to a higher-end car sharing components with a lower-end car than vice-versa. A visual breakdown of our categorizations conveys the many ways component sharing exists inside a vertical product line:
Sharing components between brands in the vertical product line has negative consequences for the higher-positioned brand, while it has positive consequences for the lower-positioned brand. Overall, we also established that volume (middle positioned) brands are less susceptible to these forces relative to luxury or economy offerings. Below is an illustrated example of component sharing, in this case the vehicle’s engine, between varying products in manufacturer’s lines:
The initial source of the product significantly impacted the consumers’ negative evaluations. Luxury brands are less affected by sharing their components with lower-end brands; however, these lower-end brands benefit most from when they send a component to a higher-end brand.
Overall, we suggest management be wary of sharing components from higher-end products to lower-end goods in the vertical line. Sharing components between a volume brand and an economy brand may be a viable strategy. The communication of sharing must align with our source component findings as to mitigate negative impacts to the higher-end brand.