Does mass customization pay? An economic approach to evaluate customer integration
TL;DR: In this paper, the authors argue 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, which are referred to as economies of integration.
Abstract: Keywords Mass customization, flexible manufacturing, customer integration, economies, cost and profit drivers Abstract. 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 produc- tion 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 post- poning some activities until an order is placed, (2) from more
Citations
More filters
TL;DR: It is not enough merely to design MC toolkits in such a way that preference fit is maximized and design effort is minimized; to capture the full value of MC, toolk Kits should also elicit “I designed it myself” feelings.
Abstract: Many companies offer websites that enable customers to design their own individual products, which the manufacturer can then produce to order. To date, the economic value of products self-designed using mass customization (MC) toolkits has been attributed to the two factors of preference fit achieved (which should be as high as possible) and design effort (which should be as low as possible). On the basis of literature on behavioral decision making, we suggest a third factor, namely the awareness of being the creator of the product design. In the course of five different studies, we provide experimental evidence that this “I designed it myself” effect creates economic value for the customer. Regardless of the two other factors, self-designed products generate a significantly higher willingness to pay. This effect is mediated by feelings of accomplishment and moderated by the outcome of the process as well as the individual's perceived contribution to the self-design process. These findings have important implications for MC companies: It is not enough merely to design MC toolkits in such a way that preference fit is maximized and design effort is minimized. To capture the full value of MC, toolkits should also elicit “I designed it myself” feelings.
661 citations
Cites background from "Does mass customization pay? An eco..."
...After all, developing and implementing such a system involves costs (Piller et al. 2004), and the adoption of such a system only makes economic sense if it generates value by allowing the manufacturer to charge a price premium or to sell more units (Ansari and Mela 2003, Kramer 2007)....
[...]
TL;DR: This paper updates the literature review on MC presented in a previous paper, and identifies research gaps to be investigated in the future through summary statistics.
613 citations
TL;DR: In this paper, the authors discuss the challenges of managing product variety throughout the entire product life cycle, and the effective co-development of variants and their manufacturing systems to ensure economic sustainability.
Abstract: A great challenge facing industry today is managing variety throughout the entire products life cycle. Drivers of products variety, its benefits, pre-requisites and associated complexity and cost are presented. Enhancing consumers’ value through variety and approaches for achieving it efficiently including modularity, commonality and differentiation are discussed. Variant-oriented manufacturing systems paradigms, as enablers of product variety, and the effective co-development of variants and their manufacturing systems to ensure economic sustainability are reviewed. Industrial applications and guidelines to achieve economy of scope with advantages of economy of scale are discussed. Perspectives and insights on future research in this field are offered.
536 citations
Journal Article•
TL;DR: In this article, Salvador is Professor of Operations Management at the Instituto de Empresa Business School, adjunct professor at the MIT-Zaragoza Logistics Program and research affiliate at the Massachusetts Institute of Technology.
Abstract: Fabrizio Salvador is Professor of Operations Management at the Instituto de Empresa Business School, adjunct professor at the MIT-Zaragoza Logistics Program and research affiliate at the Massachusetts Institute of Technology. Pablo Martin de Holan is the chairman of the Entrepreneurial Management Department of the Instituto de Empresa Business School and a professor of Strategy at INCAE Business School. Frank Piller is a chair professor of management at the Technology & Innovation Management Group of RWTH Aachen University in Germany. He is also a co-founder of the MIT Smart Customization Group and a founding partner of Think Consult, a management consultancy.
413 citations
TL;DR: In this article, the authors analyze the recent state of mass customization practice by answering four basic questions which are frequently raised by managers and scholars when talking about the challenges of this approach: Do customers need customized products? If yes, what prevents them from purchasing these offerings? Do we have the enabling technologies for mass customization? And why do many firms fail during and after the introduction of Mass Customization?
Abstract: The opportunities of mass customization are acknowledged as fundamentally positive by theoretical and empirical studies for many years. Many companies are already operating on this new business model successfully. But most of them are rather small start-ups which utilize the novelty effect of mass customization to enter mature markets. Large scale mass customization operations are still limited to a few examples. The objective of this paper is to analyze the recent state of mass customization practice by answering four basic questions which are frequently raised by managers and scholars when talking about the challenges of this approach: Do customers need customized products? If yes, what prevents them from purchasing these offerings? Do we have the enabling technologies for mass customization? And why do many firms fail during and after the introduction of mass customization? To answer these questions, this paper develops twelve propositions. These refer to terminological problems, a shortage of reliable information about the real demand for customized products in various markets, the state of implementation of configuration technologies, lack of management knowledge about organizational and strategic capabilities of mass customization operations, and the demand for sincere change management activities. These issues may explain why the present state of practical implementation of mass customization lacks behind the description and discussion of the phenomenon in the management literature.
371 citations
Cites background from "Does mass customization pay? An eco..."
...In a number of market surveys by our own mass customization research center at the TUM Business School, we looked into the potential for mass customization in several fashion markets (footwear, clothing, watches) and found that on an average, average ten to twenty percent of the overall market population (representing twenty to thirty percent of the market volume) seems to be interested in mass customized products (see EuroShoE Consortium, 2002; Franke and Piller, 2004; Jaeger, 2004; Kieserling, 1999; Piller and Müller, 2004; Piller et al., 2002; Reichwald, Müller, and Piller, 2005)....
[...]
...…population (representing twenty to thirty percent of the market volume) seems to be interested in mass customized products (see EuroShoE Consortium, 2002; Franke and Piller, 2004; Jaeger, 2004; Kieserling, 1999; Piller and Müller, 2004; Piller et al., 2002; Reichwald, Müller, and Piller, 2005)....
[...]
...Empirical research has shown that customers are often willing to pay up to 150 percent more for the increment of utility they get from a product that fits better to their needs than the second best solution available (Bendapudi and Leone, 2003; Franke and Piller, 2004; Piller et al., 2002)....
[...]
References
More filters
TL;DR: The impact of information stickiness on the locus of innovation-related problem solving is explored and it is found that when sticky information needed by problem solvers is held at one site only, problem solving will be carried out at that locus, other things being equal.
Abstract: To solve a problem, needed information and problem-solving capabilities must be brought together. Often the information used in technical problem solving is costly to acquire, transfer, and use in a new location-is, in our terms, "sticky." In this paper we explore the impact of information stickiness on the locus of innovation-related problem solving. We find, first, that when sticky information needed by problem solvers is held at one site only, problem solving will be carried out at that locus, other things being equal. Second, when more than one locus of sticky information is called upon by problem solvers, the locus of problem solving may iterate among these sites as problem solving proceeds. When the costs of such iteration are high, then, third, problems that draw upon multiple sites of sticky information will sometimes be "task partitioned" into subproblems that each draw on only one such locus, and/or, fourth, investments will be made to reduce the stickiness of information at some locations.
Information stickiness appears to affect a number of issues of importance to researchers and practitioners. Among these are patterns in the diffusion of information, the specialization of firms, the locus of innovation, and the nature of problems selected by problem solvers.
3,828 citations
"Does mass customization pay? An eco..." refers background in this paper
...(2) By integrating the customer into value creation, a firm gets access to so-called ‘sticky information’ (von Hippel 1994)....
[...]
...(von Hippel 1994: 430) Sticky information originates in location-specific costs like technological and organizational activities of decoding, transmitting and diffusing information....
[...]
...The self-configuration by the buyer allows access to ‘sticky local information’ (von Hippel 1994, 1998): We define the stickiness of a given unit of information in a given instance as the incremental expenditure required to transfer that unit of information to a specified locus in a form usable by…...
[...]
Posted Content•
TL;DR: In this article, the authors present a model of a flexible multiproduct firm that emphasizes quality and speedy response to market conditions while utilizing technologically advanced equipment and new forms of organization.
Abstract: Manufacturing is undergoing a revolution. The mass production model is being replaced by a vision of a flexible multiproduct firm that emphasizes quality and speedy response to market conditions while utilizing technologically advanced equipment and new forms of organization. The authors' optimizing model of the firm generates many of the observed patterns that mark modern manufacturing. Central to the authors' results is a method of handling optimization and comparative statics problems that requires neither differentiability nor convexity. Copyright 1990 by American Economic Association.
2,765 citations
2,278 citations
Journal Article•
TL;DR: In today's fast-changing competitive environment, strategy is no longer a matter of positioning a fixed set of activities along that old industrial model, the value chain, but of reconfigure roles and relationships among a constellation of actors in order to mobilize the creation of value by new combinations of players.
Abstract: In today's fast-changing competitive environment, strategy is no longer a matter of positioning a fixed set of activities along that old industrial model, the value chain. Successful companies increasingly do not just add value, they reinvent it. The key strategic task is to reconfigure roles and relationships among a constellation of actors - suppliers, partners, customers - in order to mobilize the creation of value by new combinations of players. What is so different about this new logic of value? It breaks down the distinction between products and services and combines them into activity-based "offerings" from which customers can create value for themselves. But as potential offerings grow more complex, so do the relationships necessary to create them. As a result, a company's strategic task becomes the ongoing reconfiguration and integration of its competencies and customers. The authors provide three illustrations of these new rules of strategy. IKEA has blossomed into the world's largest retailer of home furnishings by redefining the relationships and organizational practices of the furniture business. Danish pharmacies and their national association have used the opportunity of health care reform to reconfigure their relationships with customers, doctors, hospitals, drug manufacturers, and with Danish and international health organizations to enlarge their role, competencies, and profits. French public-service concessionaires have mastered the art of conducting a creative dialogue between their customers - local governments in France and around the world - and a perpetually expanding set of infrastructure competencies.
2,168 citations
"Does mass customization pay? An eco..." refers background in this paper
...The result is a system of co-creation, i.e. a company–customer interaction (social exchange) and adaptation for the purpose of attaining added value for both the supplier and the customer (Milgrom and Roberts 1990, Normann and Ramirez 1993)....
[...]
TL;DR: In this paper, the authors survey the history of an alternative view of value creation to that associated with industrial production, arguing that technical breakthroughs and social innovations in actual value creation render the alternative -value co-production framework - ever more pertinent.
Abstract: This paper surveys the history of an alternative view of value creation to that associated with industrial production. It argues that technical breakthroughs and social innovations in actual value creation render the alternative - a value co-production framework - ever more pertinent. The paper examines some of the implications of adopting this framework to describe and understand business opportunity, management, and organizational practices. In the process, it reviews the research opportunities a value co-production framework opens up.
947 citations
"Does mass customization pay? An eco..." refers background in this paper
...From a supplier’s perspective, the customer is seen as a production factor fulfilling tasks that in a massproduction system are done internally (Ramirez 1999)....
[...]