Mass Customization: Business Models for Personalization, Customization and Long Tail Markets — A Video Introduction

The growing individualization of demand and the advent of long-tail markets are forcing companies to re-invent themselves and reach new levels of flexibility. Mass customization is a key strategy to meet this challenge. The idea of mass customization is to turn heterogeneities across your customers into a source of profits.

Over the past decade, we have studied mass customization in more than 200 different organizations. Recently, our Customization500 study provided the first international benchmarking of more 500 companies in BtoC mass customization.

In our research, we found that mass customization is a strategic mechanism that is applicable to most businesses, provided that it is appropriately understood and deployed. The key is to view it basically as a process for aligning an organization with its customers’ needs. Mass customization is about moving towards these goals by developing a set of organizational capabilities that will, over time, supplement and enrich an existing business.

In this video introduction, you will learn why Mass Customization is far more applicable than often believed. Most importantly, this program will introduce you to the different issues, tools and approaches that you can adopt to build profitability by serving differentiated customers’ needs – to move towards mass customization.

Participants will gain a holistic understanding of the various capabilities – both organizational and individual – that companies will have to develop in order profit from the fact that all people are different.

Mass Customization & Personalization Conference 2017 in Aachen

Want to learn more about Mass Customization, meet the global community or even present your own research? This year’s Mass Customization & Personalization Conference (MCPC) will take place in Aachen, Germany from November 19th to 21st.

All information on www.mcpc2017.com

See you in Aachen!

Motivation and Overview: What is this Mini MOOC all about?

The first video module provides some background and context and challenges you to think about buying individual products or services from a customer perspective:

Recall one situation in which you considered purchasing a customized product or service (online or offline).

  • What did positively affect your willingness to buy the customized solution?
  • What aspects did negatively affect your willingness to buy the customized solution?
  • Try to generalize a few principles for selling custom products or services.

(1) Why should we care about managing long tail markets?

To start our program, we will discuss how markets developed in the last years: Why do we have all this explosion of variety? And you will learn how we define mass customization. You will also be introduced to some of the intellectual thought leaders in the field. Their research inspired me in my own analysis of mass customization.

Mass Customization: Two definitions

(1) The core idea of mass customization: Profiting from exploiting heterogeneities across customers‘ needs.

(2) A more direct definition comes from Mitchell Tseng and Roger Jiao: Producing goods and/or providing services to meet individual customer’s needs with near mass production efficiency.

(2) Case Study: Mass Customization at Reflect.com (P&G)

In this in-depth case study, we want to explore the set-up of a mass customization program and learn about  its benefits, but also its challenges. The case is about reflect.com, an early pioneer offering customized cosmetics and body care products.

Note: As you will learn in a later video segment at the end of this seminar, reflect.com is not operating any longer. I will discuss the reasons there, but can you come up with your own reflection of the challenges of such a business?

And check this article for a recent perspective of mass customization in the beauty segment.

(3) Mass Customization Basics: Definition and Market Trends

Now you should already have a better idea what mass customization is and how it provides value. So let’s look a bit closer into this concept and also explore some market trends. The main message of this segment is: Mass customization is much larger than you believe! Plenty of current business models are exactly building on the principles of mass customization.

Note: This video introduction focuses on mass customization of tangible products, and also has a BtoC focus. But in many BtoB markets, customization is the default option, and a lot of the research in the field comes from this domain. More recently, mass customization of services is a large and growing trend.

(4) Strategic Capabilities for Mass Customization – (4.1) Robust Process Design

Just doing it is not enough … you have to do it right! This is common wisdom, and also very true in mass customization, While specific answers are clearly industry or product-dependent, a decade of studying mass customization led me and my research collaborators to identify three fundamental capabilities that determine the ability of a firm to mass customize:

Solution Space Development. First and foremost, a company seeking to adopt mass customization has to be able to understand what the idiosyncratic needs of its customers are.

Robust Process Design. A second critical requirement for mass customization is that the increased variability in customers’ requirements does not lead to significant deterioration in the firm’s operations and supply chain.

Choice navigation. Finally, the firm must be able to support customers in identifying their own problems and solutions, while minimizing complexity and burden of choice.

In this first part of Video Chapter 4, we look in depth into Robust Process Design  — defined as the capability to reuse or re-combine existing organizational and value chain resources to fulfill differentiated customers needs.  With robust process design, customized solutions can be delivered with near mass production efficiency and reliability.

(4.2) Choice navigation

Another core capability for a mass customizing firm is to support customers in identifying their own problems and solutions, while minimizing complexity and burden of choice. When a customer is exposed to too many choices, the cognitive cost of evaluation can easily outweigh the increased utility from having more choices, creating the “paradox of choice”: too many choices, reduce customer value, instead of increasing it.

As such, offering more product choices can easily prompt customers to postpone or suspend their buying decisions, and, even more worryingly, to classify the vendor as difficult to deal with and hence undesirable. Therefore, a requirement needed to ensure successful adoption of mass customization is the organizational capability to simplify the navigation of the company’s product assortment. We call that choice simplification.

  • This capability has been the subject of plenty of research. Check the papers by Martin Schreiber, Benedict Daellart, or Nik Franke, for example. A classic paper on the elements of a good configuration toolkit helping customers to navigate the choice is by Taylor Randall, Christian Terwiesch, and Karl T. Ulrich. „Principles for user design of customized products.“ California Management Review 47, no. 4 (2005): 68.
  • Often, the NikeID configurator is mentioned as one of the best configurators, setting the industry standard. Try to identify some of the elements that make it indeed a great toolkit for choice navigation.

(4.3) Solution Space Development

Last, but actually first, a company seeking to adopt mass customization has to be able to understand what the idiosyncratic needs of its customers are. This is in stark contrast to the approach of a mass producer, where the company focuses on identifying “central tendencies” among its customers’ needs, and targets them with a limited number of standard products.

Conversely, a mass customizer has to identify the product attributes along which customer needs diverge the most. Once this is understood, the firm knows what is needed to properly cover the needs of its customers. It can draw up the “boundaries of its playground”, clearly defining what it is going to offer and what it is not – the firm’s solution space is defined. Mass customization implies by necessity the development of vast solution spaces, thus escalating the cost and complexity of understanding customer needs, in terms of spotting differentiating attributes, validating product concepts, and collecting customer feedback.

Developing the solution space is also about learning from the experiences of past customers, and even from people who were not customers. Consider, for example, the combination of options evaluated but not ordered. This information is no longer in short supply thanks, for example, to the log-file data of browsing behavior of users of online configurators (e.g., the ones of miAdidas’ or Dell’s), and should be systematically analyzed. With that kind of customer experience intelligence, data from past customer interactions can be turned into information on customer preferences and, ultimately, into better choices for the customer.

(4.4) How are the three capabilities related?

Mass customization has the potential to provide a long lasting competitive advantage. Looking at all three capabilities together, we may conclude:

  • Successful mass customization must be understood as a process by which organizational capabilities are built. The three capabilities cannot be perfectly acquired: what matters is the capacity of the company to differentiate vis-à-vis its competitors in the level of these capabilities.
  • Successful mass customization requires significant managerial attention, but also continued commitment. Since empirical evidence tells us that inertial forces in organizations are difficult to counter, the process by which these capabilities are implemented requires a strong sense of strategic vision from the management team. The journey is difficult, but no strategic advantage comes easily.
  • Mass customization is not simply about increasing the number of choices: it is, or can be, a platform upon which the strategy of the firm can be built, and one of the main contributors to its success. There is not a standard platform for mass customization: Each company has to select the appropriate tools and approaches and to align them to its business and corporate strategy.

(5) Implementing Mass Customization: Organizational Challenges and Requirements

At the end of this seminar, we want to reflect a bit what it takes to implement mass customization. I will update you on the two case studies from the beginning of this video: Levi Strauss and Reflect.com. And provide some closing thoughts …

I am looking forward to your feedback and comments on this teaching program — and hope that you got  a better introduction into mass customization and the core principles and ideas behind this strategy.