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

36 Pages Posted: 9 Sep 2005

See all articles by Peter C. Verhoef

Peter C. Verhoef

University of Groningen - Department of Marketing & Marketing Research

Koen H. Pauwels

Ozyegin University

Date Written: April 3, 2005

Abstract

Component sharing may look great in the boardroom, but not in the showroom. Indeed, savings on R&D and production costs could be offset by a plunge in customer brand attractiveness and willingness to pay. This paper investigates the impact of component sharing on customer evaluation of luxury, volume and economy brands offered in a car manufacturer's vertical product line and its subsequent revenue consequences. The authors consider both the harm to the higher-end brand and the benefits for the lower end brand, and analyze with a random effects model how the size of these effects depends on the brand combination, the type of component, the source of the components sharing, and customer characteristics. An experimental study shows that the harm for the higher-end brand is largest, when (1) a luxury brand shares components with a volume brand, (2) the source of the components is the higherend brand, and when (3) the customer has a high initial evaluation of the higher-end brand. For the lower-end brand, the positive effect is largest, when (1) a volume brand shares with an economy brand, (2) the lower-end brand is the source of the components, and (3) customers have a high initial evaluation of the higher-end brand. Components that have a strong impact on evaluation are interior, wheels, chassis and the engine. Simulations show that sharing components typically translates in negative revenue consequences for both analyzed manufacturers. An interesting exception emerges for the Japanese manufacturer, which obtains a boost in total revenue when its small luxury brand shares components with its large volume brand.

Keywords: Component sharing, branding, interface marketing and production, customer evaluation, firm

Keywords: Component sharing, branding, interface marketing and production, customer evaluation, firm

JEL Classification: M, C44, L11, M31

Suggested Citation

Verhoef, Peter C. and Pauwels, Koen H., Assessing Customer Evaluation and Revenue Consequences of Component Sharing Across Brands in the Vertical Product Line (April 3, 2005). ERIM Report Series Reference No. ERS-2005-007-MKT. Available at SSRN: https://ssrn.com/abstract=797923

Peter C. Verhoef (Contact Author)

University of Groningen - Department of Marketing & Marketing Research ( email )

Netherlands

Koen H. Pauwels

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

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