Re-Post: I have republished these articles to make them better accessible for search on the blog. This article has been published first in the Newsletter No. 3/2004.
Three recent research studies on mass customization:
(1) Customers are willing to pay more for customized products
Together with Nikolaus Franke, Professor of Entrepreneurship and Innovation Management, I conducted a study on the value of toolkits for co-design (configuration) from the consumers' perspective. In our study, we asked (1) if customers actually make use of the solution space offered by the mass customization variety, and (2) if they are willing to pay for this option. Results are very promising.
For our study, we used a relatively simple, design-focused toolkit from the watch industry for a set of four experiments with a total of 717 participants, 267 of whom actually created their own watches. The heterogeneity of the resulting design solutions was calculated using the entropy concept, and willingness to pay was measured by the contingent valuation method and Vickrey auctions. Entropy coefficients showed that self-designed watches vary quite widely. On the other hand, significant patterns are still visible despite this high level of entropy, meaning that customer preferences are highly heterogeneous and diverse in style but not completely random.
We also found that consumers are willing to pay a considerable price premium. Their willingness to pay (WTP) for a self-designed watch exceeds the WTP for standard watches by far, even for the best-selling standard watches of the same technical quality. On average, we found a 100% value increment for watches designed by users with the help of the toolkit.
Taken together, these findings suggest that the toolkit's ability to allow customers to customize products to suit their individual preferences creates value for them in a B2C setting even when only a simple toolkit is employed. Alternative explanations, implications and necessary future research are discussed.
The full research will be published in the November 2004 issue of the Journal of Product Innovation Management ("Value Creation by Toolkits for User Innovation and Design", by Nikolaus Franke and Frank Piller, Journal of Product Innovation Management, Vol. 21, Issue 6, pp. 401-415 [ http://www.blackwell-synergy.com/links/toc/jpim ].
(2) Striking the balance between utility and complexity when marketing mass customized products
In this study, professors Benedict G.C. Dellaert and Stefan Stremersch investigate consumers' evaluations of different mass customization configurations when asked to mass customize a product. For instance, mass customization configurations may differ in the number of modules that may be mass customized. The authors find - in the context of mass customization of personal computers - that mass customization configuration affects the product utility consumers can achieve in mass customization as well as their perception of mass customization complexity.
In turn, product utility and complexity affect the utility consumers derive from using a certain mass customization configuration. More specifically, product utility has a positive, and complexity has a negative effect on mass customization configuration utility. The effect of complexity is direct as well as indirect, because complexity also lowers product utility.
The authors also find that consumers with high product expertise find mass customization configurations less complex than consumers with low product expertise and that for more expert consumers complexity has a less negative impact on product utility. The study has important managerial implications for how companies can design their mass customization configuration to increase utility and decrease complexity.
The full paper is forthcoming in the Journal of Marketing Research in summer 2005.
(3) Does mass customization pay? An economic approach to evaluate customer integration
Another paper that was available as a working paper already since a longer period of time has now been finally published. Together with Kathrin Möslein from London Business School and Christoph Stotko from our Munich research group we present a conceptual model to structure the costs and benefits of mass customization.
The paper provides an integrated view of value creation in mass customization based production models. While flexible manufacturing technologies are often seen as the main enabler of mass customization, we argue that modern information technologies play a similar important role. Their significance is based on enabling a distinctive principle of mass customization efficiently: customer integration into the production processes. The customer is integrated into value creation during the course of configuration, product specification, and co-design.
Customer integration is often seen as a necessity and source of additional costs of customization. However, we argue in this paper that customer integration may also be an important asset to increase efficiency and could pave the way for a new set of cost saving potentials. We coin the term 'economies of integration' to sum up these saving potentials.
Economies of integration arise from three sources: (1) from postponing some activities until an order is placed, (2) from more precise information about market demands, and (3) from the ability to increase loyalty by directly interacting with each customer. By examining and structuring the economic principles of mass customization the paper will give insights into the benefits, but also the constraints of a mass customization strategy.
The full paper is published in the journal "Production Planning & Control", Vol. 15, No.4, June 2004, pp. 435-444. The whole issue of this journal, edited Prof. Ian McCarthy from Simon Fraser University in Canada, is very worth reading. It is a special issue on mass customization and provides a very good selection of recent mass customization papers. You find the issue easily on the publisher's web site: Taylor & Francis, http://www.tandf.co.uk/journals.