This page provides my definitions of Mass Customization, Personalization, the difference between
Mass Customization vs. Personalization, and of Open Innovation, and Customer Co-Creation. For more a more in-depth insight also see the FAQ Page!
Mass Customization means to offer products or services which meet the demands of each individual customer, but which still can be produced and delivered with mass production efficiency. Or, as B. Joseph Pine, who made mass customization popular with his 1993 book, said: "Today I define Mass Customization as the low-cost, high-volume, efficient production of individually customized offerings".
The core idea of mass customization is to turn customers’ heterogeneous needs into an opportunity to create value, rather than a problem to be minimized, challenging the “one size fits all” assumption of traditional mass production.
The concept of mass customization makes business sense in these times. Why wouldn’t people want to be treated as individual customers, with products tailored to their specific needs? But mass customization has been trickier to implement than first anticipated. The key to profiting from mass customization is to see it not as a stand-alone business strategy that is replacing today's production and distribution systems, but as a set of organizational capabilities that can supplement and enrich an existing system.
Personalization must not be mixed up with customization (Note: the following is my personal understanding of both terms. There are many different definitions of personalization). While customization relates to changing, assembling or modifying product or service components according to customers' needs and desires, personalization involves intense communication and interaction between two parties, namely customer and supplier. Personalization in general is about selecting or filtering information objects for an individual by using information about the individual (the customer profile) and then negotiating the selection with the individual.
Thus, personalization compares strongly to recommendation: From a large set of possibilities, customer specific recommendations are selected. From a technical point of view, automatic personalization or recommendation means matching meta-information of products or information objects to meta-information of customers (stored in the customer profile). Personalization is increasingly considered to be an important ingredient of Web applications. In most cases personalization techniques are used for tailoring information services to personal user needs.
See this article about Personalization on Wikipedia.org for additional information.
A good example of both customization and personalization is provided by Lands' End, a catalog retailer. The company is a pioneer of exploring personalization techniques on the Internet and has been using a virtual model and recommendation service on its web site since 1999. The system recommends a customized bundle of standard mass products matching each other and the customers' style profile. This service provides customers with a set of coherent outfits rather than with isolated articles of clothing. But each product is still a standard product.
In 2001, Land's End also introduced mass customization. Customers can order made-to-measure trousers and shirts. All products are made to order in a specially assigned factory. The company offers a substantial number of design options and varieties. However, this customization process is not supported by personalization. A consumer has to know by herself which style, waistline and length suits her best. The configuration toolkit used by Land's End does not provide any information or consultancy. For this company, personalization as performed for (almost ironically) standard products would only provide real additional benefit for the mass customization operations. Combining personalization with customization would empower a customer without the knowledge of a tailor to customize a product more easily.
´The term open innovation has been used to characterize a system where innovation is not solely performed internally within a firm, but in a cooperative mode with other external actors (Chesbrough 2003). According to Chesbrough and Crowther (2006), open innovation is the "use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. […] firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology". Open innovation is opposed to closed innovation, in which companies use only ideas generated within their boundaries, characterized by big corporate research labs and closely managed networks of vertically integrated partners.
Ín my understanding (which is more narrow than much of the literature), open innovation is the formal discipline and practice of leveraging the discoveries of unobvious others as input for the innovation process through formal and informal relationships.
The objective is to access external information to reduce uncertainties in an innovation project with regard to need and solution information. In my opinion, especially the informal relationships define the "innovativeness" of open innovation. Open innovation goes beyond conventional contractual arrangements of organizing collaborative value creation. It especially includes new forms of knowledge exchange which are based on informal, non-contractual, flexible and often short-term relationships.
Open innovation is different to traditional cooperative arrangements like contract research, R&D alliances and networks in such as it uses different mechanisms to bridge between a seeker (the company) and an actor that can provide relevant knowledge (discoveries) like crowdsourcing, broadcasting of problems, and open search. Sources of external information for the innovation process are plentiful, including market actors like customers, suppliers, competitors; the scientific system of university labs and research institutions; public authorities like patent agents and public funding agencies; and mediating parties like technology consultants, media, and conference organizers.
Customer co-creation, in short, is open innovation with customers. It is a product (or service) development approach where users and customers are actively involved and take part in the design of a new offering (Wikstroem 1996; Piller 2004; Prahalad/Ramaswamy 2004). More specifically, I define customer co-creation as an active, creative, and social process, based on collaboration between producers (retailers) and customers (users) (Ihl & Piller 2010, building on Roser et al. 2009. The idea of co-creation is to actively involve customers in the design or development of future offerings (Ramirez 1999), often with the help of tools that are provided by the firm.
Co-creation activities are performed in an act of company-to-customer interaction which is facilitated by the company. The manufacturer is either empowering its customers to design a solution by themselves or is implementing methodologies to efficiently transfer an innovative solution from the customer into the company domain. Examples for methods include ideation contests, lead user workshops, consumer opinion platforms, toolkits for user innovation, or communities for social product development.
For an extended definition of co-creation, refer to this SSRN working paper.