Mass Customization Concept
“It is the customer who determines what a business is” – Drucker, 1954
The concept of mass customization was coined by Stan Davis in 1987, in his book “Future Perfect”. In this book, he emphasizes that in traditional industrial production there is on the one hand mass production, using economies of scale to produce goods at low costs, but with nearly no variety or on the other hand individual production with a high degree of variety but in small volumes with high costs. Joseph Pine, an IBM-executive turned consultant and author who is the father of the mass customization concept, in his 1993 book “Mass Customization – A New Frontier in Business Competition”, outlines more about Mass Customization.
“developing, producing, marketing and delivering affordable goods, and services with enough variety and customization that nearly everyone finds exactly what they want.” – Joseph Pine, 1993
“Mass customization is a system that uses information technology, flexible processes, and organizational structures to deliver a wide range of products and services that meet specific needs of individual customers at a cost near that of mass-produced items” – Hart, 1995
Mass customization is a viable business strategy, by enabling customized products to be manufactured with the economies of scale associated with mass production. Mass customization explains how affordable products and services can be delivered to satisfy the needs of the individual by combining the efficiency of mass production and the customization level of craftsmanship. The goal of mass customization is to produce high quality products with the shortest delivery time and lower cost.
Mass customization can be viewed as collaborative efforts between customers and manufacturers, who have different sets of priorities. The competitive advantage of mass customization is driven by economies of scale, using a set of standardized components to produce a large variety of customized goods and services.
As a business paradigm, mass customization provides an attractive business proposition
to add value by directly addressing customer needs and in the mean time utilizing resources efficiently without incurring excessive cost. The paradigm shift to mass customization is made an imperative for many companies to survive in an increasingly diversified, fragmented and competitive market place.
What is the difference between mass customization and personalization? Personalization is the process of tailoring products and services to individual customers characteristics or preferences. Mass customization is a process for implementing personalization. In some respects, personalization is a goal and mass customization is the way to accomplish that goal. Both personalization and mass customization push a company towards being more responsive to the marketplace and thus being more nimble. Both result in a firm that can react faster and more effectively to volatility. Both enable a company to build defendable competitive advantages, because both require a firm to track, understand and accommodate the needs of its customers.
Joseph Pine explained about four types of mass customization in his book. They are:
- Collaborative Customization – Firms talk to individual customers to determine the precise product offering that best serves the customer’s needs. This information is then used to specify and manufacture a product that suits that specific customer.
- Adaptive Customization – Firms produce a standardized product, but this product is customizable in the hands of the end-user (the customers alter the product themselves.)
- Transparent Customization – Firms provide individual customers with unique products, without explicitly telling them that the products are customized. In this case there is a need to accurately assess customer needs.
- Cosmetic Customization – Firms produce a standardized physical product, but market it to different customers in unique ways.
The driving force behind the adoption of mass customization strategy is a self reinforcing feedback loop.
Demand fragmentation –> Heterogeneous markets –> Low-cost, high quality, customized products –> Mass customization processes –> New products –> Shorter product development cycles –> Shorter product life cycles –> Demand fragmentation.
Mass customization can provide firms with a competitive edge in fragmented markets when mass production is no longer capable of meeting fast changing consumer demand at affordable price levels.
Dell Computers, with a market capitalization over $3 billion, eclipses many of its traditional competitors, is an example which pursue mass customization strategy very successfully. The 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.
Dynamic Stability Product/Process Matrix
Joseph Pine in his 1993 book Mass Customization, says firms are characterized by their products and their processes. The degree of change in those products and processes as measured on the Dynamic Stability Product/Process matrix. The matrix defines what kind of strategy the company is pursuing.
- Mass Production: A traditional production strategy concentrates on generating economies of scale by specializing in standardized, unchanging processes to manufacture of large quantities of standardized products, frequently utilizing assembly line technology. This represents a low degree of change in products and process. This strategy is one alternative route toward Porter’s Cost Leadership strategy.
- Invention: Another traditional strategy involves with constant changes in processes and products. This reflects a high degree of both product and process change. This is another route companies take to achieve Porter’s Differentiation strategy.
- Continuous Improvement: Instead of seeking occasional revolutionary changes to achieve improvement, these companies have continually sought incremental improvements in an evolutionary strategy. When these incremental improvements are summed up, they often are more significant than occasional changes brought about by a revolutionary change strategy.
- Mass Customization: The strategy in which firms are able to benefit from the ability to customize its products to individual customer specifications while still maintaining the capacity to produce with economies of scale. This scenario describes a situation in which firms products change as needed but firms are able to specialize and generate economies of scale by utilizing stable processes.