Analysis & Commentary:

MASS CUSTOMIZATION: THE HOLY GRAIL OF MARKETING

A new modeling approach to mass-customization may allow customers to truly have it their way when ordering products over the Web. It may also assist a firm in achieving the "holy grail of mass customization" -- manufacturing a product or delivering a service in response to a particular customer's needs, and doing it in a cost-effective way.

"Long before a company tries to build a better mousetrap, they typically perform a great deal of analysis to see if the world will truly beat a path to their door. The traditional approach to product design starts by using focus groups and other qualitative techniques to narrow the range of possible products," explains John Liechty, assistant professor of marketing in Penn State's Smeal College of Business. "The emphasis, generally speaking, was on designing 'whole' products and product lines for customers, because customized products require larger amounts of shelf space, more sophisticated manufacturing processes and more involvement with the customer as they customizing the product."

Thanks to rapid advances in information and manufacturing technology, Liechty notes that many of the barriers that have kept firms from providing customized products, on a mass scale, are disappearing. The Internet gives firms the opportunity to let customers create customized products and allows them to display an almost unlimited number of different products. Firms now offer customers a choice-menu of items and let them design their own products by choosing the items that are most appropriate to their needs.

"It's known as mass customization and it is intended to provide superior value to customers by meeting their unique needs for products and services," says Liechty. For example, publishing companies on the web allow customers to create their own customized publications by choosing from various sets of information categories and articles.

"Dell Computer Corporation has revolutionized the personal computer industry by offering an increased product variety by moving towards mass customization. Customers can configure their personal computers by choosing from a menu of items pertaining to processor speed, memory, hard disk size, graphics cards, and so on, where the modifications to a basic system are individually priced," says Liechty.

Although the Internet and improvements in manufacturing technology has raised the possibility of mass customization, one of the missing links that has been holding firms back is the ability to assess demand for all of the potential customized products. Liechty and two other researchers recently unveiled a new approach for analyzing customer demand in a paper, "Choice-Menus for Mass Customization: An Experimental Approach for Analyzing Customer Demand With an Application to a Web-based Information Service," that appeared in the Journal of Marketing Research. He coauthored the paper with Dr. Venkatram Ramaswamy, professor of marketing and computer and information systems at the University of Michigan, and Steven H. Cohen, senior vice-president of InterSurvey in Boston.

This approach allows firms to directly assess demand for all of the potential variations of a product. In an experimental setting, customers' are allowed to create their own products by choosing product features from a list of possible features. Different pricing schemes for each feature were considered, as were possible discount schemes for including certain bundles of features. The co-authors illustrate this approach in a commercial application of a customized Web-based information system.

"The proposed approach enables firms to understand customers' demand for each feature and different combinations of features, as a function of price and other marketing mix variables. It can be used to identify complement and substitute features and offers a natural framework for maximizing customer value, revenues, profitability, and other strategic objectives of the firm," says Liechty.

He notes that a detailed understanding of feature demand can enable firms to leverage their internal resources and capabilities more effectively, and engage in formulating successful mass customization strategies. In addition, information on the nature and extent of demand for the variety of products and services that can be offered through mass customization can help firms better manage their internal and external supply chains to keep down costs.

"Our approach can provide a firm with individual-level information. With that ability, a firm offering mass customization services on the Web could potentially allow each customer who visits their web to design their ideal product," says Liechty.