The impact of the sharing economy on manufacturers

sharing-economyThe sharing economy has undoubtedly mushroomed in recent years, with all manner of new ventures emerging outside of the main areas of property and car sharing services.

Typically, when the merits of these new industries are discussed, they’re done in the sense of their impact on the workforce.  Are Uber drivers employees?  Is the sharing economy a race to the bottom?

I’m sure you are familiar with the arguments.  That isn’t, of course, the only area ripe for impact, and a recent paper explores the way manufacturing might be impacted as the sharing economy grows.

Sharing economy and manufacturing

Whilst there is a perception that as we share items between us, it will result in fewer new items being purchase, which will subsequently have an impact on the manufacturing sector, but the paper is slightly more bullish than that.

“These past few years have seen an enormous growth in sharing,” the authors say. “There have been discussions in the popular press that found some companies were worried their customers were sharing products, so some of them might not buy the product anymore. So when should companies help facilitate the sharing, when should they not, and what should they do to respond to such a market?”

They used an analytical framework to assess the various strategic responses a firm could make to the sharing economy hitting their sector, whether it was in terms of their pricing or quality.  The analysis suggests that it is quite possible to develop win-win situations whereby both consumer and manufacturer benefit.

“When consumers can share products, some of them may decide not to buy anymore,” the authors say. “So the firm’s own customers may compete with the firm in this sharing market, cannibalizing some of the firm’s sales.

A growing market

The flip side however is that the sharing can increase the overall size of the market.  After all, a growing number of people are buying properties in order to rent them out on Airbnb, and the authors suggest this is not to be under-estimated.

“Suppose I use the product, say a car, during weekends only, and I don’t use it during weekdays, because I take the bus to work on weekdays, but on weekends I need cars for recreational activities,” they explain. “I might not buy the car before. But now, I can buy the car, 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. The sharing market actually makes the product more valuable to the firm’s customer.”

What’s more, firms can position themselves to capitalize on the sharing economy.  For instance, a number of companies are beginning to use the appeal of their products in the sharing economy as an active part of their marketing work.  Some are going a step further and partnering with sharing economy platforms to make it easier for consumers to share their wares.  The logic is that they will gain the trust of consumers if they believe a product isn’t a sunk cost as much as an investment that will earn them returns.  This reduces the price sensitivity of consumers.

It will undoubtedly be fascinating to see how this unfolds, and I think this paper is a welcome talking point for the sector to consider.

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