The rise in collaborative consumption – where consumers share products with each other – could increase profits for firms that strategically adjust product quality and price to align with product-sharing behavior.
So conclude two researchers – one from the United States and the other from China – after exploring the effects of peer-to-peer product sharing on the firms that make and sell products.
Enabled by advances in online and mobile communications, collaborative consumption has emerged as a major trend in recent years.
Perhaps spurred by economic recession and concerns about consumption sustainability, consumers and society as a whole seem keener than ever to find more efficient ways to use resources and products.
The researchers suggest the sharing market may spur a consumer to buy a better product – say a higher specification car – because they can use it to earn money from sharing.
People are sharing cars, bicycles, and even agricultural equipment. With today’s technology they can do it quickly and efficiently, with a simple button click or finger swipe.
Collaborative consumption expert Rachel Botsman said in a TED talk in 2010 that collaborative consumption is not a flimsy idea, but a “powerful cultural and economic force reinventing not just what we consume, but how we consume.”
Botsman says because “technology is enabling trust between strangers,” and we have “wired our world to share,” we can stretch the life cycle of a product and thereby reduce waste by adding “redistribute” to the list of “reduce, reuse, recycle, repair.”
Own the journey, not the car
The collaborative economy allows the idea of ownership to shift from owning the physical product to owning what it allows me to do.
Take cars, for example. From a resource efficiency point of view, it does not make sense for a car to be in use only 1 or 2 hours a day and spend the rest of the time sitting in a garage or parking lot. What about the other 22-23 hours? What about the other millions and millions of cars sitting around?
Many product-sharing schemes operate through an online platform where renters pay a fee to product owners. There are obvious benefits in this consumer-to-consumer system: the product owner makes a profit, the renter saves costs, and there is less impact on the environment.
Benefits to product firms
So how can product manufacturers benefit from this new paradigm?
That is what Baojun Jiang, assistant professor of marketing at Olin Business School at Washington University in St. Louis, MO, and his colleague Lin Tian from Shanghai University of Finance and Economics in China, set out to explore.
Jiang says there is a view much aired in the popular press that some companies are worried about their customers sharing products – it might cause a drop in sales.
“So when should companies help facilitate the sharing,” he asks, and “when should they not, and what should they do to respond to such a market?”
Using an analytical framework, the researchers examined these questions and looked at a firm’s best strategic responses – in terms of pricing and quality – to product-sharing behavior in consumers.
They found there are some scenarios where peer-to-peer sharing can create a win-win all round – for product manufacturers as well as consumers. They say firms can make higher profits – especially for high-cost assets like cars.
There seems to be a trade off between two main effects, say the researchers. One is where, as a result of sharing, some consumers choose to stop buying products – the firm is essentially competing with its own customers in the sharing market.
But the other effect is that sharing can expand the market. Some consumers who would not have bought the product just for their own use, are now attracted to the idea because they can use it in the sharing market to generate money.
Sharing market increases product value to customer
Jiang gives the example of someone who would only use a car at the weekends because during the week it is easier to take the bus to work. Before the sharing market came along, they may have just got along without a car.
“But now, I can buy the car,” says Jiang, “and when I don’t use it, I can rent it out and earn some income. In fact, I may even buy a better car or add some upgrade options, because I can also get a higher rental price if I have a better car with upgrades, which I can now afford.”
What happens is that the sharing market actually increases the product’s value to the firm’s customer, says Jiang.
He says product firms that strategically adjust their prices and quality in response to the sharing market will make more profit. In fact, some are already doing this, he notes, and explains:
“Many firms promote product sharing on their websites, informing the consumers that sharing is very easy and there isn’t too much risk but a lot of flexibility.”
There are now manufacturers that actually partner with product-sharing platforms to reduce the burden and cost of sharing. They are prepared to do this, says Jiang, “because consumers will value the product more, knowing they can generate some income with it, thus, the consumers are less price-sensitive.”
The paper, Collaborative consumption: Strategic and economic implications of product sharing by B. Jiang and L. Tian, published online August 2016, is available to download. It has been accepted for publication in Management Science.
Video – Rachel Botsman’s TED Talk on the case for collaborative consumption
