Part 1: Competing in the Age of Mass Customization

By: Dominik Walcher / Fabrizio Salvador / Frank Piller

The concept of “the customer is always right” is taking on a whole new meaning as the the ability to manage personalized products is starting to determine whether your company can keep up with the competition. In part one of this series, Frank Piller, a leading expert on mass customization, personalization and open innovation, discusses the goals, scope and core capabilities of mass customization.

“It is the customer who determines what a business is” (Drucker, 1954). In the very sense of Drucker’s statement, the ability to manage the value chain from the customers’ point of view determines the competitiveness of many companies. An important part of this ability today are strategies to cope with the increasing heterogeneity of demand of customers.

In particular, consumers with great purchasing power are increasingly attempting to express their personality through individual products. Explanations may be found in the growing number of single households, a changing demographic structure, an orientation towards design, and a new awareness of quality and functionality that demands durable and reliable products corresponding exactly to the specific needs of the purchaser. Thus, manufacturers are forced to create product portfolios with an increasing wealth of variants, right down to the production of units of one. Companies have to process their customers’ demand individually.

What is mass customization?

Since the early 1990s, mass customization has emerged as one leading idea for achieving precisely this objective. In accordance with Joseph Pine, an IBM-executive turned consultant and author who is the father of the mass customization concept, we define mass customization as “developing, producing, marketing, and delivering affordable goods and services with enough variety and customization that nearly everyone finds exactly what they want.”

…the goal is to provide customers what they want, when they want it.

In other words, the goal is to provide customers what they want, when they want it. As a business paradigm, mass customization provides an attractive business proposition to add value by directly addressing customer needs and in the meantime utilizing resources efficiently without incurring excessive cost. This is particularly important at a time where competition is no longer just based on price and conformance of dimensional quality.

The scope of mass customization

When the subject of mass customization is raised, the successful business model of the computer supplier Dell is often cited as one of the most impressive examples. The growth and success of Dell is based on this firm’s ability to produce custom computers on demand, meeting precisely the needs of each individual customer and producing these items, with no finished goods inventory risk, only after an order has been placed (and paid for).

But beyond Dell, there are many other examples of companies that have employed mass customization successfully. Consider the following examples:

• Pandora Radio relieves people of having to channel surf through radio stations to find the music they like. Customers submit an initial set of their preferred songs, and from that information Pandora identifies a broader set of msic that fits their preference profile and then broadcasts those songs as a custom radio channel. As of summer 2010, Pandora.com had 48 million listeners who created more than half a billion of radio stations from the 700,000 tracks in its library and who listened for 11.6 hours per month on average.
• BMW customers can use an online toolkit to design the roof of a Mini Cooper with their very own graphics or picture, which is then reproduced with an advanced digital printing system on a special foil. The toolkit has enabled BMW to tap into the custom after-sales market, which was previously owned by niche companies. In addition, Mini Cooper customers can also choose from among hundreds of options for many of the car’s components, as BWM is able to manufacture all cars on-demand according to each buyer’s individual order.
• Selve, a London- and Munich-based manufacturer of women’s custom shoes, is a fine example of a company that interacts well with its customers both in the traditional store and online. Selve enables its customers to create their own shoes by selecting from a variety of materials and designs, in addition to a truly custom shoe fit, based on a 3D-scan of a customer’s feet. Trained consultants provide advice in the company’s stores; the online shop offers re-orders. Shoes are all made to order in a specialized factory in China and are delivered in about two weeks. Customers get this dedicated service for a cost between 150 and 450 Euro, not cheap but still affordable for many consumers compared to the price level of a traditional shoe maker (starting at 1000 Euro and more).

…In the consumer market, we today know almost no large consumer brand that has not at least one mass customization initiative.

In the consumer market, we today know almost no large consumer brand that has not at least one mass customization initiative. Nike, Adidas, Lego, P&G, Unilever, Nestle, Mars, Lego, and many others, all have invested in profiting from mass customization. In this series of articles, we will introduce some of these examples in larger detail.

Mass Customization in industrial markets

The heritage of mass customization, however, is in the business-to-business market. The success of the German machine tool industry, driving the German economy in these turbulent times, for example, is a direct outcome of the ability of these firms to customize their products efficiently to the needs for very different customers around the world.

Consider as an example of great BtoB customization the case of American Power Conversion (APC). APC sells, designs, produces, delivers, and installs large complex infrastructure systems for data centers, and components for these systems. At the heart of its mass customization strategy of this company are a module-based product range and the use of product configuration systems for sales and order processing. In addition, the company has implemented a manufacturing concept, which involves the mass production of standard components in the Far East, and customer order-based final assembly at various production sites around the world within close customer proximity.

The results of applying mass customization principles included a reduction of the overall delivery time for a complete system from around 400 to 16 days. Also, production costs were significantly reduced. At the same time, the company’s capability for introducing new products has increased dramatically. Due to the modular system architecture, new component technologies can be integrated within a matter of days, and not months as before.

Profiting from the fact that all people are different

What do all of these examples have in common? Regardless of product category or industry, these companies have turned customers’ heterogeneous needs into an opportunity to create value, rather than regarding heterogeneity as a problem that has to be minimized, challenging the “one size fits all” assumption of traditional mass production.

Profiting from the fact that all people are different is the essence of mass customization.

Profiting from the fact that all people are different is the essence of mass customization. However, to apply this apparently simple statement in practice is quite complex. In this series of articles, we build on the results of the Customization500, the largest benchmarking study in the field of mass customization (www.mc-500.com). This study has allowed us to analyze some of the facts that distinguish the companies succeeding in mass customization from those that are just trying.

We will explore the common elements and characteristics of successful mass customization strategies. We will show that mass customization means to develop processes and capabilities for aligning an organization with its customers’ needs.

Three core capabilities to make mass customization work

In our research, we found that companies that benefit from mass customization have implemented three fundamental capabilities:

• Solution space definition, i.e. the ability of an organization to identify the product or service attributes along which customer needs diverge,
• Robust process design, i.e. the ability to reuse or recombine existing organizational and supply chain resources,
• Choice navigation, i.e. the ability to help customers identify or build solutions to their own needs.

We will describe some methods and measures that companies can undertake to establish these capabilities in later contributions to this series (Part 3, 4, 5 and 6). Before we move into a deeper discussion, a brief comment on the relationship between mass customization and innovation management. Implementing mass customization demands both product innovation and process innovation. We will see during the later discussion of solution space development that it is not an easy task to determine where people want choice and to transfer customers’ heterogeneities into meaningful product architectures. Even more, we find that many companies struggle with the process innovation required in setting up a mass customization system. Mass customization per se can be regarded as a business model innovation, with large requirements for change with an organization. We will discuss this aspect in larger detail in Part 7 of this series.

By Frank Piller