Success Factors for Mass Customization: A Conceptual Model

Mass customization entails the ability to provide customized products and services to individual customers using technology (information) at optimal production efficiency and cost levels. The concept is gaining prominence because the marketing literature is increasingly focused on delivering superior customer value. Although the mass- customization literature provides many insights into its origins, formats and approaches, it does not provide a coherent framework to assess the viability of a successful mass- customization strategy. Based on the premise of customer perceived value, we have developed a conceptual framework to address this need. We present a series of hypotheses that serve to encourage other authors and direct future research

Success Factors for Mass Customization:

A Conceptual Model

PhD Candidate, University of Groningen, Faculty of Management and Organization, Department of Marketing, P.O Box 800, 9700 AV Groningen, The Netherlands

Associate Professor of Marketing, University of Groningen, Faculty of Economics, Department of Marketing and Marketing Research, P.O Box 800, 9700 AV Groningen, The Netherlands

Abstract

Mass customization entails the ability to provide customized products and services toindividual customers using technology (information) at optimal production efficiencyand cost levels The concept is gaining prominence because the marketing literature

is increasingly focused on delivering superior customer value Although the customization literature provides many insights into its origins, formats and approaches,

it does not provide a coherent framework to assess the viability of a successful customization strategy Based on the premise of customer perceived value, we havedeveloped a conceptual framework to address this need We present a series of hypothesesthat serve to encourage other authors and direct future research

mass-Keywords: mass customization, customer value, conceptual framework

Introduction

The development of customer value is a prevailing theme in the marketing literature.Companies should listen more carefully to their customers (Fournier, Dobscha andMick, 1998), pay more attention to delivering services (Gro¨nroos, 1997), and try to buildlasting relationships with their most profitable customers instead of focusing on acquiringnew customers (Peppers and Rogers, 1997; Reichheld, 1996) In the last three decades,many mass producers have tried to better meet consumer needs by increasing varietyand brands However, Kotler (1989) and Piller et al (2000) noted that an increasingnumber of companies within various industries are incapable of addressing diverseconsumer needs by merely using a variety strategy because the number of varietiesrequired to address these needs is enormous and results in unit cost increases that are toosubstantial for demanding and price-conscious customers (Piller et al., 2000) In addition,excessive availability of choice also results in frustration as it complicates buyingdecisions (Cox and Alm, 1999) Therefore, it is becoming necessary to produce exactlywhat customers want

Journal of Market-Focused Management, 5, 309 – 330, 2002

# 2004 Kluwer Academic Publishers, Boston Manufactured in The Netherlands.

Mass customization has the potential to solve these problems, by delivering tocustomers exactly what they want, at reasonable prices To date, the high expectations

of theorists and practitioners have not yet been met on a large scale (Agrawal, Kumareshand Mercer, 2001; Zipkin, 2001) The primary reason for the low adoption rate ofmass customization is the requirement for significant change to existing businessmodels Furthermore, some industries do not lend themselves to mass customizationbecause their customers have homogeneous needs, and/or do not want customization.These industries can be served effectively with a variety strategy or a mass productionstrategy For example, Unilever and Procter & Gamble concluded that the costs ofsupporting a large number of brands and line extensions are prohibitive, resulting in theelimination of a significant number of brands and products.Rapid advances in informationand manufacturing technology and management methods have provided companies withunprecedented opportunities But for many companies the question remains: ‘‘will thepursuit of mass customization be successful?’’ We have developed a model that tries toanswer this question Our main objective is to identify the key success factors of masscustomization and to map these into a coherent model This paper starts with a literaturereview to explore and refine the concept of mass customization Next, we define the success

of mass customization and its antecedents In the following section, we present ourconceptual model In the final section, we conclude by presenting an evaluation of ourmodel

What is Mass Customization?

Definition of Mass CustomizationDefinitions of mass customization vary Mass ization is often confused with direct deliveries, maximum product variant delivery,e-commerce, one-to-one marketing, or personalization of communication flows We willprovide a practical definition before investigating the success factors Mass custom-ization is distinct from the strategy of delivering as many product variants as possible

custom-More specifically, it concerns delivering the desired product – on a mass scale – after

the expression of needs has taken place (Piller, 1999) Variety provides customerschoice, but does not involve the ability to specify the product (Duray et al., 2000).With mass customization, customers must first interact with the producer, the retailer

or the product (i.e., adaptive products) to configure their product In other words, theymust be involved in specifying characteristics of the product during design, fabrication,assembly, or use As a result, mass customizers need to develop a mechanism thatelicits individual customer needs and transforms these needs into suitable products(Zipkin, 2001)

Pioneering mass customization researchers (Davis, 1987; Kotler 1989; Pine 1993)have focused on the need to be flexible and quickly respond to dynamic market con-ditions By comparing Mintzberg’s vision of the inflexibility of strategic planning(Mintzberg, 1993), they demonstrated the need to quickly adjust to market changes

in order to become a ‘dynamically stable company’ (Boynton and Victor, 1991) Theymainly focused on the supply side, i.e the technological progress and supply shocks

BROEKHUIZEN AND ALSEM

310

(e.g., the oil crisis of the 1970s) Today, however, research and practice focus on the dynamicdemand side Thesupply side appears to be under control, but the fragmented markets, whichare characterized by demanding consumers, are not (Gilmore and Pine, 2000; Moynagh andWorsley, 2002; Piller, 1998) In order to emphasize the importance of the dynamic demandside, this paper uses a consumer-oriented definition.

From a consumer perspective, the objective of mass customization is to providesuperior customer value by producing goods and delivering services that meet individualcustomer needs with near mass production efficiency (Tseng and Jiao, 2001) Masscustomizers determine customer needs and attempt to rapidly respond by providing acustomized product offering that costs slightly more than standardized, mass-producedproducts (Duray and Milligan, 1999) Piller (1998) defines mass customization as

‘‘the production of goods and services for a (relatively) large part of the market, in whichthe needs of individual consumers can be met at a cost level that roughly corresponds

to that of mass producers The information gathered from the expression of the vidual customer’s needs, serve as a means to build long-lasting relationships with eachcustomer.’’ As such, Piller emphasizes that mass customizers can gain a competitiveadvantage by learning from their customers and fulfilling customer wishes moreexactly at every interaction level to build profitable customer relationships (Pine,Peppers and Rogers, 1995; Peppers and Rogers, 1997) We believe that ‘learningrelationships’ are important, but they are not always critical to the success of masscustomization In circumstances where the time gap between repurchase is substantial, it

indi-is seldom possible to capitalize on knowledge gained from the individual consumer.Classifications of Mass Customization

There are many methods to achieve mass customization (A˚ hlstro¨m and Westbrook, 1999).Each method can be categorized by 1) the degree of organizational transformation that isrequired and 2) the mass customization approach The degree of transformation requiredrefers to the initial point in the manufacturing process where customers can alter theirproducts (i.e point of customer involvement), whereas the mass customization approachesrelate to the nature of the customization

The degree of organizational transformation required largely depends on the initial point

of customer involvement (Duray and Milligan 1999; Duray et al 2000; Lampel andMintzberg, 1996), also known as the ‘‘decoupling point’’ (Alfnes and Strandhagen, 2000).The earlier customers influence the fabrication or assembly processes, the higher theimpact will be on the end product and the more significant the required organizationaltransformation (Duray, 2002) According to Piller (1998), the initial point of customer

involvement breaks down into four types of mass-customized products: customized

additional services, adaptive products, modular products and tailor-made products Whilethe initial point of customer involvement relates to the internal transformation required,

mass customization approaches relate to how customer value can be created and involve

the nature of the inherent customization rather than the organizational changes needed.Gilmore and Pine (1997a) identified four approaches that can be used to customize theoffering Companies can change the ‘packaging’ of the product (cosmetic approach), the

product itself (transparent approach), both product and packaging (collaborative proach), or enable customers to customize the product during use (adaptive approach).These four approaches, or ‘faces’ as Gilmore and Pine (1997a) termed them, deal with thefour sacrifices customers face when purchasing products By acting on the sacrificescustomers make each time, the customer sacrifice, i.e., the gap between what a customersettles for and what he or she exactly wants, can be minimized (Gilmore and Pine, 1997b).The ‘either-or’ sacrifice represents the point at which a consumer must make unnecessarytrade-offs The ability of a customer to collaborate on the design of a product – changingboth the product and the representation – circumvents this ‘either-or’ sacrifice It is themost pervasive approach and dialog with customers is needed The second approach, thetransparent approach, deals with the ‘repeat-of’ sacrifice and allows customers toavoid annoying, repetitive tasks by changing the product without the customer’sexplicit knowledge This approach is particularly suitable for serving convenience-orientedcustomers, but it requires customer’s needs to be predictable or easily accessible.Companies must elicit the customer’s needs over time and adapt the product or service

ap-to the cusap-tomer’s requirements The Ritz-Carlap-ton Hotel, for example, provides thepreferred newspapers and drinks of individual guests based on data collected duringprior stays The customer preferences are stored in a database and are used to tailorthe offering for subsequent visits The third approach, the cosmetic approach, deals withthe ‘form-of sacrifice’ and is appropriate when customers are satisfied with thefunctioning of the product, but not with the form Many users of cellular phones arecontent with the basic functions, but desire cosmetic changes to their phones Theadaptive approach helps customers to solve the ‘sort-through’ sacrifice by allowing them

to satisfy their needs without sorting through numerous options For example, someautomobiles remember a driver’s seat position and favorite radio stations when theyinsert their unique car key By examining individual customer sacrifices, methods can bedeveloped to improve customer satisfaction by closely meeting individual customerneeds (Hart, 1995; Pine and Gilmore, 1999)

Table 1 shows that both classifications are related: the earlier customers can alterproduction, the better their wishes are met In other words, the uniqueness of the offer-ing is correlated to the initial point of customer involvement (Hart, 1995) However,mass customizers are not obliged to enable customers to alter the production process atthe earliest possible stage When customers are satisfied with the product’s functioning,but are less satisfied with the product’s representation, then cosmetic changes are

Table 1 Levels and approaches of mass customization.

Design Collaborative, Transparent Tailor-made products

Fabrication Collaborative, Transparent Tailor-made products

Assembly Collaborative, Transparent Modular products

Additional services Cosmetic Customized additional services

BROEKHUIZEN AND ALSEM

312

more likely to deliver value, as opposed to complicated product adaptations Managersmust find an optimal balance between the additional customer value created and theinvestments required to allow customization on a mass scale In order to determine thefeasibility and success of mass customization, we believe it is useful to use bothclassifications As such, the additional value created (i.e., nature of customization) andthe necessary organizational changes (i.e., initial point of customer involvement) areincorporated.

Literature Review

Literature on mass customization has mainly focused on two areas: 1) the factorsinfluencing companies to shift from mass production to mass customization (Kotha,1995; Pine, 1993) and 2) the implementation of mass customization (cf Pine, Victor, andBoynton, 1993) Relatively little attention has been paid to the success factors for masscustomization Some authors have addressed success factors (Pine, 1993; Hart 1996;Kotha, 1995; Piller, 1998), but they have not defined a coherent and detailed frameworkfor determining the probability of success (Table 2) Before addressing the success factors

of mass customization, we must first define the ‘‘success’’ of mass customization.What is Success?

The ultimate success of mass customization depends on the perceived value of buyingmass-customized products compared to mass-produced ones We therefore define the

success of mass customization as the ability to provide superior customer value – in

contrast to mass manufacturers’ offerings – through customization on a mass scale Weagree with Piller and Schaller (2002) that mass customization (apart from this superiority)

is able to enhance customer loyalty by enabling the foundation of relationships throughcustomer knowledge However, this is only the case when the frequency of purchasing ishigh

Perceived customer value plays an important role in achieving sustainable competitiveadvantage (e.g., Bolton and Drew, 1991; Holbrook, 1994; Woodruff, 1997); it relates tothe consumer perceptions of relative performance (Parasuraman, Zeithaml and Berry,1985) The literature has often described perceived customer value as a trade-off betweenquality and price However, others have indicated that value is more than perceivedproduct quality divided by price (Kerin, Jain and Howard, 1992) They argue that theshopping experience itself plays a key role in creating value In fact, value is based onconsumer perceptions of what is received and what is given (Zeithaml, 1988); it represents

a trade-off of all salient ‘‘get and give-components,’’ which are perceived as benefits andcosts (Chen and Dubinsky, 2003)

The success of mass customization thus depends on how customers perceive theadditional costs and benefits of mass customization In order to outperform massproduction, the perceived costs related to the configuration process must be offset bythe benefits Apart from monetary costs, customers also endure nonmonetary costs, like

Table 2 Classifications of success factors.

Author(s) Focus Customer factors Product factors Market factors Industry factors Organizational factors

Pine (1993) The need to make

the move to mass

customization can

be determined by

assessing the

market-turbulence The more

dynamic the market,

the more appropriate

the strategy of mass

customization will be.

Demand factors

- Instability/

unpredictability of demand levels

- Heterogeneity of desires

- Uncertainty of consumer needs and wants

- Dependency on economic cycles

- Level of competition

- Level of differentiation

- Level of saturation

- Number of substitutes

- Shortness of product life cycles

- Rate of technological change

- Customer sensitivity towards customizations

Process technology

- Readiness of process technology

Organization readiness

- Company’s readiness

Business improvement potential

- Potential of reducing

costs First mover advantage

- Potential of creating deep customer relationships Kotha (1995) The likelihood of

success for pursuing

both mass customization

and mass production can

be assessed by checking

whether the conditions

in four areas of interest

are met

Customization sensitivity

- Existence of group of industry customers who can

be persuaded to value customization

Industry settings

- High degree of product proliferation and new product introductions

Culture and organization design

- Focus on knowledge creation and development

of manufacturing capabilities

- Focus on zero mistakes

priorities are matched to its product/market environment

- Fostering of interactions

among focused plants

instituted by top

management

Resources and capabilities

- Access to group of highly trained, disciplined and

group of trained retailers

First mover advantage

- The absence of a

time and effort, and psychological burdens, like uncertainty (Berry, Seiders and Grewal,2002; Zeithaml, 1988) When customizing their product, customers generally experiencemonetary (price premium) and nonmonetary costs (additional time and effort, anduncertainty) On the other hand, instrumental and hedonic benefits can also be identified.Customers are expected to receive better fitting products (higher perceived quality) and amore enjoyable shopping process, respectively.

Customers are often willing to pay a premium for customized products because their

needs are better met However, the price premium must be commensurate with the

perceived added value Built-to-order customization reduces variable costs: lower tory, lower obsolescence, less inventory handling and management, and fewer out-of-stockitems resulting in higher profit margins However, tthe benefits of migrating a mass-manufacturing (push) system to a build-to-order (pull) system remain unclear in manyindustries, such as the automotive industry (Agrawal, Kumaresh and Mercer, 2001) Theprice premium will be largely determined by the product’s adaptability, companies canreduce over time through efficiencies

inven-The time and effort spent on configuration and delivery can seriously lessen the

total shopping experience Today’s time-starved customers often favor convenience overshopping Zero lead times throughout the supply chain therefore have to be sought.Especially in low product involvement purchasing situations (e.g., fast moving consumergoods), customers are neither willing to spend time to configure their product, nor willing

to wait for it For mid-range products, customers are generally willing to spend time toconfigure their product, but they are unwilling to wait for more than a couple of days toreceive it These constraints require products that can be delivered quickly, and thisconstraint in turn places enormous demands on manufacturing, logistics and informationsystems

Customers also bear additional psychological costs by experiencing uncertainty.

With build-to-order customizations, customers do not receive an off-the-shelf product.They must trust that the product delivered will be consistent with their orderedspecifications Apart from guarantees, trust may be instilled by a strong brand image,especially when the organization/brand embodies innovative and customer-orientedfeatures Another way companies can reduce uncertainties is through the visual presen-tation of the specified end product using computer-based interfaces and demonstrations.The uncertainty factor may increase when customers do not possess sufficient productknowledge to specify the characteristics of the product that most closely matches theirneeds (Huffman and Kahn, 1998; Piller and Schaller, 2002) Under these situations, theyneed assistance with the selection of options (Moynagh and Worsley, 2002) In certaincases, customers may also experience uncertainty when configuring modular products,

as they must calculate an end price based on the selected components (for additionalinformation on optimizing modular pricing, see Liechty, Ramaswamy and Cohen, 2002).Additionally, due to the limited transparency of customized products, customers mayexperience difficulties in judging whether the end product represents good value Theperceived costs of a repurchase can be reduced if they can be made without the hassle ofre-expressing individual needs Possen, a tailor-made fashion provider, maintains adatabase of individual client measurements to facilitate a repurchase If a customer

BROEKHUIZEN AND ALSEM

316

maintains his/her weight, a repurchase can be made without taking new measurements.Apart from additional costs, customers also experience hedonic and instrumental benefitswhen customizing their offering One factor that appears to be central to the creation ofperceived value is the shopping experience (Kerin, Jain and Howard, 1992) Theexperience of configuring one’s own product can be enjoyable (e.g., configuring cus-tomized eyeglasses with the help of Mikissimes Custom Design System) because of theentertainment value and the enhanced customer control (Huffman and Kahn, 1998) Butmost importantly, customers will be more satisfied, because the customized product orservice fits their needs more closely In general, the success of mass customizationresides in the perceived customer value, which is the net perceived cost/ benefit equation

of buying mass-customized versus mass-produced products

Success Factors

Only a few researchers have developed an extensive framework to assess the likelihood

of success in pursuing mass customization Pine (1993) developed a market-turbulence

questionnaire that managers can use to determine the need to shift to mass customization.

The 17 factors listed in his survey can be classified as ‘demand’ and ‘structural’ factors.The demand factors include things like the instability/unpredictability of demand levels,the luxury level of the product, and consumer characteristics (e.g., heterogeneity, qualityawareness, etc.) The structural factors relate to marketplace conditions such as buyerpower, dependency on economic cycles, and the level of competition Each factor isattributed a weight, based on its significance A score exceeding a certain thresholdrepresents an indicator favorable to mass customization Although this tool includes someuncommon factors (for example, does the instability of demand levels really enhance the

success of mass customization?), it remains a useful tool for indicating the need to move to

mass customization However, additional information is required to define the probability

of success, as it does not link the organizational capabilities to the opportunities generated

by the environment It is obvious that two companies can differ in their probability ofsuccess based on their competencies

Hart (1996) identified five key factors for the opportunity analysis of mass ization Apart from two industry factors (customization sensitivity and competitiveenvironment), he mentioned three organizational dimensions: business improvementpotential, process technology feasibility, and organizational readiness He stressedthe fact that mass customization appears to be a promising alternative when 1) thetechnology required is at hand, 2) the customers are sensitive to customization, and 3) thebusiness improvement potential is high Moreover, companies should act quickly ifcompetitors introduce the concept Although these five factors are comprehensive, theyare expressed in general terms and the results of the analysis provide little guidance formanagers

custom-Kotha (1995) also addressed the issue of success factors related to the pursuit of masscustomization In contrast to Pine (1993), he showed the compatibility of these twoseemingly contradictory terms He made the most significant contribution in identifying

critical success factors for pursuing both mass production and mass customization

simultaneously According to Kotha (1995), the necessary conditions for a successfulimplementation of mass customization can be categorized as follows:

1 Industry and competitive conditions

2 Culture and organizational design

3 Resources and capabilities

4 Inter-organizational and intra-organizational coordination

The industry and competitive conditions involve the degree of product innovation and

introductions, the size of the segment that can be persuaded to value customization, and

the first-mover advantage Culture and organizational design relate to the focus on

knowledge creation and manufacturing capabilities, the dissemination of informationthroughout the entire company, the match of manufacturing capabilities with competitivepriorities within the product/market environment, and the importance of zero errorsand short lead times Thus, companies must be designed to handle information flowsquickly, learn from the flows, and enable customization in dedicated productions environ-

ments The third set of conditions influencing success relate to resources and capabilities.

This involves the expertise and skills of employees, and the in-house availability

and investment in (information) technologies The last category of conditions,

inter-organizational and intra-inter-organizational coordination, largely coincide with

network-related skills and abilities required Because of the broadness of the concept and the highdemands on the skills sets involved, the pursuit of mass customization usually involvescoordination and collaboration with suppliers and retailers In his model, Kotha (1995)stressed the importance of the organization’s capabilities; three out of four factors areorganization related While we feel that Kotha’s model is of significant value, we believethat the external factors are relatively underrated

It is our objective to integrate the success factors identified in prior research into a morecomplete framework Since the success of mass customization is dependent on thealignment of internal capabilities and external opportunities, the use of a model similar

to a SWOT analysis is logical To ensure that our framework is comprehensive, we usedfactors that are relevant to strategic marketing decisions (Aaker, 1998; Jain, 2000; Kerin,Mahajan and Varadarajan, 1990; Lehmann and Winer, 2002) Based on the literature, weidentified the following factors:

nobody wants.’’ To define whether customers are sensitive to customization, companies

should first analyze the heterogeneity of customer needs and the rate of changing needs.

Customers with greatly differing needs are likely to opt for customization, thus increasingthe probability of success Pine (1993) cited that heterogeneity in customer needsfragments the market (by means of a reinforcing feedback loop) into niches that arecharacterized by demanding customers As customers are confronted with more choice,they will ultimately become more demanding as they gradually raise their standards.However, it is unlikely that all customers will demand customization (Zipkin, 2001).Therefore, companies should only allow for customization in those areas where customerneeds are most diverse and critical to product evaluations

Consumer involvement, as defined as the personal relevance of a stimulus in a particular

context (Zaichkowsky, 1986), is a key issue that has been under-represented in masscustomization literature Most customizations require some effort from customers toexpress their needs and appeal to the customers’ patience (waiting period) In otherwords, customers must invest before they reap the benefits, and this constraint requires acertain amount of involvement When the level of consumer involvement is low,customers are not likely to invest time and money in a configurable product, but rathersettle for an off-the-shelf product

Consumer willingness to pay a price premium represents the foundation for the

re-covery of the additional expenses The price premium should be in line with the additionalvalue created Sometimes mass customizers even succeed in delivering products andservices that cost less than mass-produced ones, but this is rarely the case To ensurethat the price is not too high, mass producers should start with customizing products withthe biggest margins; this is an area in which customers are least price sensitive To theprice-sensitive segment, price is an important criterion for value judgment (Chen andDubinsky, 2003), and it is unlikely that this segment will prefer products that costmore Today customers are more likely to opt for mass-customized products because thebasic functions of products no longer fulfill consumer needs More luxurious productsincreasingly have to account for self-esteem and self-actualization (Maslow, 1954) Thishas resulted in more ‘wannahaves’ and other non-physiological products entering themarket (Hildebrand, 1997)

The appeal of mass customization is limited when customers are concerned about

their privacy because the disclosure of individual preferences is paramount to the

process ‘Intrusive’ direct marketing techniques based on consciously and unconsciouslyexpressed consumer needs has led to increasing opposition to relationship market-ing (Fournier, Dobscha and Mick, 1998) Many politicians and customers are fight-ing for more restrictive legislation regarding dissemination and/or selling of personaldata As a result, it is becoming more difficult for companies to learn from theircustomers

In summary, we believe that the probability of success increases when customers havemore heterogeneous needs, are more involved, are more willing to pay a price premium,and are less concerned about their privacy

H1a: Consumer heterogeneity positively affects the probability of success.