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

# Journal of Market-Focused Management, 5, 309 – 330, 2002 2004 Kluwer Academic Publishers, Boston Manufactured in The Netherlands Success Factors for Mass Customization: A Conceptual Model THIJS LENNART JAAP BROEKHUIZEN t.l.j.broekhuizen@bdk.rug.nl PhD Candidate, University of Groningen, Faculty of Management and Organization, Department of Marketing, P.O Box 800, 9700 AV Groningen, The Netherlands KAREL JAN ALSEM k.j.alsem@eco.rug.nl 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 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 masscustomization literature provides many insights into its origins, formats and approaches, it does not provide a coherent framework to assess the viability of a successful masscustomization 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 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 and Mick, 1998), pay more attention to delivering services (Groănroos, 1997), and try to build lasting relationships with their most profitable customers instead of focusing on acquiring new customers (Peppers and Rogers, 1997; Reichheld, 1996) In the last three decades, many mass producers have tried to better meet consumer needs by increasing variety and brands However, Kotler (1989) and Piller et al (2000) noted that an increasing number of companies within various industries are incapable of addressing diverse consumer needs by merely using a variety strategy because the number of varieties required to address these needs is enormous and results in unit cost increases that are too substantial for demanding and price-conscious customers (Piller et al., 2000) In addition, excessive availability of choice also results in frustration as it complicates buying decisions (Cox and Alm, 1999) Therefore, it is becoming necessary to produce exactly what customers want 310 BROEKHUIZEN AND ALSEM Mass customization has the potential to solve these problems, by delivering to customers 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, Kumaresh and Mercer, 2001; Zipkin, 2001) The primary reason for the low adoption rate of mass customization is the requirement for significant change to existing business models Furthermore, some industries not lend themselves to mass customization because their customers have homogeneous needs, and/or not want customization These industries can be served effectively with a variety strategy or a mass production strategy For example, Unilever and Procter & Gamble concluded that the costs of supporting a large number of brands and line extensions are prohibitive, resulting in the elimination of a significant number of brands and products.Rapid advances in information and manufacturing technology and management methods have provided companies with unprecedented opportunities But for many companies the question remains: ‘‘will the pursuit of mass customization be successful?’’ We have developed a model that tries to answer this question Our main objective is to identify the key success factors of mass customization and to map these into a coherent model This paper starts with a literature review 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 our conceptual model In the final section, we conclude by presenting an evaluation of our model What is Mass Customization? Definition of Mass CustomizationDefinitions of mass customization vary Mass customization is often confused with direct deliveries, maximum product variant delivery, e-commerce, one-to-one marketing, or personalization of communication flows We will provide a practical definition before investigating the success factors Mass customization is distinct from the strategy of delivering as many product variants as possible More specifically, it concerns delivering the desired product – on a mass scale – after the expression of needs has taken place (Piller, 1999) Variety provides customers choice, 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, they must be involved in specifying characteristics of the product during design, fabrication, assembly, or use As a result, mass customizers need to develop a mechanism that elicits 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 conditions 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) They mainly focused on the supply side, i.e the technological progress and supply shocks SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 311 (e.g., the oil crisis of the 1970s) Today, however, research and practice focus on the dynamic demand side Thesupply side appears to be under control, but the fragmented markets, which are characterized by demanding consumers, are not (Gilmore and Pine, 2000; Moynagh and Worsley, 2002; Piller, 1998) In order to emphasize the importance of the dynamic demand side, this paper uses a consumer-oriented definition From a consumer perspective, the objective of mass customization is to provide superior customer value by producing goods and delivering services that meet individual customer needs with near mass production efficiency (Tseng and Jiao, 2001) Mass customizers determine customer needs and attempt to rapidly respond by providing a customized product offering that costs slightly more than standardized, mass-produced products (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 which the 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 individual customer’s needs, serve as a means to build long-lasting relationships with each customer.’’ As such, Piller emphasizes that mass customizers can gain a competitive advantage by learning from their customers and fulfilling customer wishes more exactly at every interaction level to build profitable customer relationships (Pine, Peppers and Rogers, 1995; Peppers and Rogers, 1997) We believe that ‘learning relationships’ are important, but they are not always critical to the success of mass customization In circumstances where the time gap between repurchase is substantial, it is seldom possible to capitalize on knowledge gained from the individual consumer Classifications of Mass Customization hlstroăm and Westbrook, 1999) There are many methods to achieve mass customization (A Each method can be categorized by 1) the degree of organizational transformation that is required and 2) the mass customization approach The degree of transformation required refers to the initial point in the manufacturing process where customers can alter their products (i.e point of customer involvement), whereas the mass customization approaches relate 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 and Mintzberg, 1996), also known as the ‘‘decoupling point’’ (Alfnes and Strandhagen, 2000) The earlier customers influence the fabrication or assembly processes, the higher the impact will be on the end product and the more significant the required organizational transformation (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 While the 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 the offering Companies can change the ‘packaging’ of the product (cosmetic approach), the 312 BROEKHUIZEN AND ALSEM Table Levels and approaches of mass customization Stages Approaches Types of products Design Fabrication Assembly Additional services Usage Collaborative, Transparent Collaborative, Transparent Collaborative, Transparent Cosmetic Adaptive Tailor-made products Tailor-made products Modular products Customized additional services Adaptive products product itself (transparent approach), both product and packaging (collaborative approach), 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 the four sacrifices customers face when purchasing products By acting on the sacrifices customers make each time, the customer sacrifice, i.e., the gap between what a customer settles 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 unnecessary trade-offs The ability of a customer to collaborate on the design of a product – changing both the product and the representation – circumvents this ‘either-or’ sacrifice It is the most pervasive approach and dialog with customers is needed The second approach, the transparent approach, deals with the ‘repeat-of’ sacrifice and allows customers to avoid annoying, repetitive tasks by changing the product without the customer’s explicit knowledge This approach is particularly suitable for serving convenience-oriented customers, 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 to the customer’s requirements The Ritz-Carlton Hotel, for example, provides the preferred newspapers and drinks of individual guests based on data collected during prior stays The customer preferences are stored in a database and are used to tailor the offering for subsequent visits The third approach, the cosmetic approach, deals with the ‘form-of sacrifice’ and is appropriate when customers are satisfied with the functioning of the product, but not with the form Many users of cellular phones are content with the basic functions, but desire cosmetic changes to their phones The adaptive approach helps customers to solve the ‘sort-through’ sacrifice by allowing them to satisfy their needs without sorting through numerous options For example, some automobiles remember a driver’s seat position and favorite radio stations when they insert their unique car key By examining individual customer sacrifices, methods can be developed to improve customer satisfaction by closely meeting individual customer needs (Hart, 1995; Pine and Gilmore, 1999) Table shows that both classifications are related: the earlier customers can alter production, the better their wishes are met In other words, the uniqueness of the offering 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 at the 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 SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 313 more likely to deliver value, as opposed to complicated product adaptations Managers must find an optimal balance between the additional customer value created and the investments required to allow customization on a mass scale In order to determine the feasibility and success of mass customization, we believe it is useful to use both classifications As such, the additional value created (i.e., nature of customization) and the necessary organizational changes (i.e., initial point of customer involvement) are incorporated Literature Review Literature on mass customization has mainly focused on two areas: 1) the factors influencing companies to shift from mass production to mass customization (Kotha, 1995; Pine, 1993) and 2) the implementation of mass customization (cf Pine, Victor, and Boynton, 1993) Relatively little attention has been paid to the success factors for mass customization Some authors have addressed success factors (Pine, 1993; Hart 1996; Kotha, 1995; Piller, 1998), but they have not defined a coherent and detailed framework for 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 buying mass-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 We agree with Piller and Schaller (2002) that mass customization (apart from this superiority) is able to enhance customer loyalty by enabling the foundation of relationships through customer knowledge However, this is only the case when the frequency of purchasing is high Perceived customer value plays an important role in achieving sustainable competitive advantage (e.g., Bolton and Drew, 1991; Holbrook, 1994; Woodruff, 1997); it relates to the consumer perceptions of relative performance (Parasuraman, Zeithaml and Berry, 1985) The literature has often described perceived customer value as a trade-off between quality and price However, others have indicated that value is more than perceived product quality divided by price (Kerin, Jain and Howard, 1992) They argue that the shopping experience itself plays a key role in creating value In fact, value is based on consumer 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 and costs (Chen and Dubinsky, 2003) The success of mass customization thus depends on how customers perceive the additional costs and benefits of mass customization In order to outperform mass production, the perceived costs related to the configuration process must be offset by the benefits Apart from monetary costs, customers also endure nonmonetary costs, like 314 Table Classifications of success factors Author(s) Focus Customer factors Product factors Demand factors - Luxury level of the product The need to make the move to mass customization can be determined by assessing the marketturbulence 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 - Price awareness - Quality awareness - Fashion awareness - Level of pre- and post-sale service levels Hart (1995, 1996) The attractiveness of mass customization can be determined by analyzing the five main pillars Customization sensitivity - Customer sensitivity towards customizations 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 factors Organizational factors 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 Culture and organization design - Focus on knowledge creation and development of manufacturing capabilities - Focus on zero mistakes in all activities - Each plant’s manufacturing tasks and competitive Structural factors - Level of buyer power - 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 Industry settings - High degree of product proliferation and new product introductions BROEKHUIZEN AND ALSEM Pine (1993) Market factors SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 315 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 motivated workers - Access to substantial in-house engineering expertise and manufacturing capabilities - Long-term investment in advanced manufacturing and information technologies - Existence of a marketing department that can excite consumers about individualized product offerings Intra-organizational coordination - Achievement of integration across function while maintaining excellence within each function Inter-organizational coordination - Access to supplier network in close proximity - Development of interconnected information network with selected group of trained retailers First mover advantage - The absence of a wellentrenched mass customizer 316 BROEKHUIZEN AND ALSEM time and effort, and psychological burdens, like uncertainty (Berry, Seiders and Grewal, 2002; Zeithaml, 1988) When customizing their product, customers generally experience monetary (price premium) and nonmonetary costs (additional time and effort, and uncertainty) On the other hand, instrumental and hedonic benefits can also be identified Customers are expected to receive better fitting products (higher perceived quality) and a more 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 inventory, lower obsolescence, less inventory handling and management, and fewer out-of-stock items resulting in higher profit margins However, tthe benefits of migrating a massmanufacturing (push) system to a build-to-order (pull) system remain unclear in many industries, such as the automotive industry (Agrawal, Kumaresh and Mercer, 2001) The price premium will be largely determined by the product’s adaptability, companies can reduce over time through efficiencies The time and effort spent on configuration and delivery can seriously lessen the total shopping experience Today’s time-starved customers often favor convenience over shopping Zero lead times throughout the supply chain therefore have to be sought Especially in low product involvement purchasing situations (e.g., fast moving consumer goods), 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 to configure their product, but they are unwilling to wait for more than a couple of days to receive it These constraints require products that can be delivered quickly, and this constraint in turn places enormous demands on manufacturing, logistics and information systems Customers also bear additional psychological costs by experiencing uncertainty With build-to-order customizations, customers not receive an off-the-shelf product They must trust that the product delivered will be consistent with their ordered specifications Apart from guarantees, trust may be instilled by a strong brand image, especially when the organization/brand embodies innovative and customer-oriented features Another way companies can reduce uncertainties is through the visual presentation of the specified end product using computer-based interfaces and demonstrations The uncertainty factor may increase when customers not possess sufficient product knowledge to specify the characteristics of the product that most closely matches their needs (Huffman and Kahn, 1998; Piller and Schaller, 2002) Under these situations, they need assistance with the selection of options (Moynagh and Worsley, 2002) In certain cases, customers may also experience uncertainty when configuring modular products, as they must calculate an end price based on the selected components (for additional information on optimizing modular pricing, see Liechty, Ramaswamy and Cohen, 2002) Additionally, due to the limited transparency of customized products, customers may experience difficulties in judging whether the end product represents good value The perceived costs of a repurchase can be reduced if they can be made without the hassle of re-expressing individual needs Possen, a tailor-made fashion provider, maintains a database of individual client measurements to facilitate a repurchase If a customer SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 317 maintains his/her weight, a repurchase can be made without taking new measurements Apart from additional costs, customers also experience hedonic and instrumental benefits when customizing their offering One factor that appears to be central to the creation of perceived value is the shopping experience (Kerin, Jain and Howard, 1992) The experience of configuring one’s own product can be enjoyable (e.g., configuring customized eyeglasses with the help of Mikissimes Custom Design System) because of the entertainment value and the enhanced customer control (Huffman and Kahn, 1998) But most importantly, customers will be more satisfied, because the customized product or service fits their needs more closely In general, the success of mass customization resides 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, quality awareness, etc.) The structural factors relate to marketplace conditions such as buyer power, dependency on economic cycles, and the level of competition Each factor is attributed a weight, based on its significance A score exceeding a certain threshold represents an indicator favorable to mass customization Although this tool includes some uncommon 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 of success based on their competencies Hart (1996) identified five key factors for the opportunity analysis of mass customization Apart from two industry factors (customization sensitivity and competitive environment), he mentioned three organizational dimensions: business improvement potential, process technology feasibility, and organizational readiness He stressed the fact that mass customization appears to be a promising alternative when 1) the technology required is at hand, 2) the customers are sensitive to customization, and 3) the business improvement potential is high Moreover, companies should act quickly if competitors introduce the concept Although these five factors are comprehensive, they are expressed in general terms and the results of the analysis provide little guidance for managers Kotha (1995) also addressed the issue of success factors related to the pursuit of mass customization In contrast to Pine (1993), he showed the compatibility of these two seemingly contradictory terms He made the most significant contribution in identifying critical success factors for pursuing both mass production and mass customization 318 BROEKHUIZEN AND ALSEM simultaneously According to Kotha (1995), the necessary conditions for a successful implementation of mass customization can be categorized as follows: Industry and competitive conditions Culture and organizational design Resources and capabilities 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 information throughout the entire company, the match of manufacturing capabilities with competitive priorities within the product/market environment, and the importance of zero errors and short lead times Thus, companies must be designed to handle information flows quickly, learn from the flows, and enable customization in dedicated productions environments 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, interorganizational and intra-organizational coordination, largely coincide with networkrelated skills and abilities required Because of the broadness of the concept and the high demands on the skills sets involved, the pursuit of mass customization usually involves coordination and collaboration with suppliers and retailers In his model, Kotha (1995) stressed the importance of the organization’s capabilities; three out of four factors are organization related While we feel that Kotha’s model is of significant value, we believe that the external factors are relatively underrated It is our objective to integrate the success factors identified in prior research into a more complete framework Since the success of mass customization is dependent on the alignment 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 used factors that are relevant to strategic marketing decisions (Aaker, 1998; Jain, 2000; Kerin, Mahajan and Varadarajan, 1990; Lehmann and Winer, 2002) Based on the literature, we identified the following factors: A) Customer factors B) Product factors C) Market factors D) Industry factors E) Organizational factors Customer Factors As clarified by Kakati (2002, p 91), ‘‘understanding customers’ needs is the starting point of success, not the dizzying possibilities of technology to produce variety that SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 319 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 increasing the probability of success Pine (1993) cited that heterogeneity in customer needs fragments the market (by means of a reinforcing feedback loop) into niches that are characterized 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 customer needs 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 mass customization literature Most customizations require some effort from customers to express their needs and appeal to the customers’ patience (waiting period) In other words, customers must invest before they reap the benefits, and this constraint requires a certain 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 rather settle for an off-the-shelf product Consumer willingness to pay a price premium represents the foundation for the recovery of the additional expenses The price premium should be in line with the additional value created Sometimes mass customizers even succeed in delivering products and services that cost less than mass-produced ones, but this is rarely the case To ensure that the price is not too high, mass producers should start with customizing products with the biggest margins; this is an area in which customers are least price sensitive To the price-sensitive segment, price is an important criterion for value judgment (Chen and Dubinsky, 2003), and it is unlikely that this segment will prefer products that cost more Today customers are more likely to opt for mass-customized products because the basic functions of products no longer fulfill consumer needs More luxurious products increasingly have to account for self-esteem and self-actualization (Maslow, 1954) This has resulted in more ‘wannahaves’ and other non-physiological products entering the market (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 unconsciously expressed consumer needs has led to increasing opposition to relationship marketing (Fournier, Dobscha and Mick, 1998) Many politicians and customers are fighting for more restrictive legislation regarding dissemination and/or selling of personal data As a result, it is becoming more difficult for companies to learn from their customers In summary, we believe that the probability of success increases when customers have more 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 320 BROEKHUIZEN AND ALSEM H1b: Consumer involvement positively affects the probability of success H1c: Consumer willingness to pay a price premium positively affects the probability of success H1d: Consumer privacy concerns negatively affect the probability of success Product Factors ‘‘Products should be customizable,’’ according to Da Silveira, Borenstein and Fogliatto (2001, p 4) We submit that there are four product factors that impact the success of mass customization: the purchasing frequency, the luxury level of the product, the visibility of the product, and product adaptability First, products and/or services that are purchased frequently enable producers to learn from their customers, and build ‘learning relationships’ Learning relationships lend themselves to the enhancement of customer loyalty If a customer wants to start a new relationship s/he must first re-educate the new provider in areas where the original provider is already familiar (Peppers and Rogers, 1997) This represents a barrier for customers to switch to new providers In particular, transparent customizations (changing the products, but leaving the representation unchanged) are more likely to succeed when purchasing frequency is high because companies can learn from their customers to optimize their offerings Moreover, when customer data are easily retrieved, customers can re-order their customized products without re-expressing their needs, thereby reducing the consumer perceived costs Second, luxury products, which by nature tend to be more distinctive, higher priced, and unique, are more likely to be customized than products that fulfill basic needs, such as commodities (Pine, 1993) According to Addis and Holbrook (2001), luxury products, which tend to be hedonic in nature, are more suited for mass customization as the configuration and consumption (i.e., the consumption experience) of mass-customized products relate to the subjective dimensions of fun and pleasure In addition the shopping experience for luxury goods is a key element of the perceived value Companies offering luxury products should recognize the importance of delivering a pleasurable shopping experience Third, products that are displayed publicly are more likely to offer variation in product representation, similar to that offered by cosmetic and collaborative customization In today’s ‘‘Experience Economy’’ (Pine and Gilmore, 1999), customers often want to own a product linked to their individual needs, and they often use products to publicly express themselves Companies can capitalize on this, as it is increasingly important for modern customers to express their lifestyles through products and services (Moynagh and Worsley, 2002; Pine and Gilmore, 1999) Additionally, as Rogers (1995) identified ‘observability’ as one of the five key determinants of the diffusion rate of innovations, visibility will enhance initial sales growth Thus, the level of visibility is likely to enhance success by enabling customizations in representation and by and promoting customizations publicly SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 321 Finally, the product adaptability may impact the probability of success While the luxury level and visibility of the product influence the need for customization, adaptability impacts the costs involved to customize the product As the costs of performing customizations decrease, the potential market volume increases, because more price-sensitive segments may be persuaded As cited by Hart (1996), it is much easier to customize services as opposed to physical goods This is dealt with in more detail by Peters and Saidin (2000) They assert that although modularization of services is relatively easy to achieve, mass customizers face difficulties in offering superior customer value in comparison to mass-produced offerings For example, services can be tailored to customer needs on a mass scale at low prices using IT resources, but implementation is often difficult and requires tremendous effort (Peters and Saidin, 2000) Once again, companies should look at the additional value they can create with help of mass customization compared to mass production In general, the easier products can be tailored to customer needs, the less costly customizations are This in turn can create customer value through lower pricing The preceding discussion leads to the following hypotheses: ‘‘Everything else being equal, products with higher levels of purchasing frequency, luxury, visibility, and adaptability are more likely to be successfully mass customized’’ H2a: Purchasing frequency positively affects the probability of success H2b: Product luxury level positively affects the probability of success H2c: Product visibility positively affects the probability of success H2d: Product adaptability positively affects the probability of success Market Factors There are two main market characteristics that influence the use of mass customization, including the current level of market variety (due to product proliferation and competitor intensity) and retailer willingness and ability When market variety is high, customers are often confronted with superfluous choice and the need arises to offer products that exactly meet individual demands (Cox and Alm, 1999; Huffman and Kahn, 1998) Product proliferation generally takes place when the rate of technical progress is high (Kotha, 1995), and when markets become more saturated (Pine, 1993) When the pace of technological change is high, product life cycles are relatively short which leads to an increased proliferation of product varieties (Kotha, 1995) As markets evolve, companies become more capable of addressing customer needs with precision by offering more product varieties to serve the market Moreover, while customers become more familiar with the product or service, they are more capable of addressing and expressing their individual needs In saturated markets, where competitor intensity is generally high and margins are relatively low, companies often face difficulties in differentiating themselves from competitors Here, mass customization might offer a competitive 322 BROEKHUIZEN AND ALSEM edge and enhance profit margins Adidas introduced a new line of shoes (‘mi adidas’), which can be customized based on fit, functionality and design, to differentiate its brand from other manufacturers (Piller and Schaller, 2002) Thus, the use of mass customization seems to be appropriate in settings where market variety (and competitor intensity) is high If manufacturers prepare to sell their mass-customized products through retail channels, they must also assess the retailer willingness and ability Acknowledging the importance of the shopping experience, success is not only dependent on what is delivered, but also how it is delivered Retailers may be hesitant to participate for fear that, because manufacturers may skip over them in the future, as they start selling directly and try to build close relationships with their customers On the other hand, retailers may want to differentiate themselves and engage in mass customization Although many retailers may be willing to participate, they are currently not prepared to engage in co-designing products with customers Masscustomized products often require substantial personal support, and significant demands are placed on the competencies of the sales staff These concerns are unlikely to be addressed in the short term (Piller and Schaller, 2002) because the competency of the sales staff is often limited, and turnover is often high (Piller et al., 2000) Merchants are generally averse to significant staff development investment at retail level Adidas tried to overcome this problem by sending its own team of experts into retail stores for special events However, the company acknowledged that this solution was far too expensive to implement on a large scale (Piller and Schaller, 2002) Based on this, we propose the following: H3a: Market variety positively affects the probability of success H3b: Retailer willingness and ability positively affect the probability of success Industry Factors Apart from the influence of customer/product/market factors, major trends within industries also influence the complexity of, and the need for, performing customizations We identify three main trends that influence the probability of success, namely the growth of the information communication technology, E-Commerce, and the growth of flexible production technology As manufacturers, retailers, and other value chain entities must be part of an efficiently linked information network (Da Silveira, Borenstein and Fogliatto, 2001; Kotha, 1995), the growth of information communication technology plays a major role in reducing the costs of information between the parties of the value system Lower investments are required to build effective information systems that are able to deal with operational communication complexities Knowledge is developed and shared faster and at a lower cost, resulting in increased efficiency and effectiveness through the inter-active perfection of business processes A closely related factor is the use of electronic commerce (defined as the selling of products via electronic channels); this enables manufacturers to produce exactly what customers want after their order has been configured E-commerce can increase the prob- SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 323 ability of success by significantly reducing the costs of the configuring process for both the consumer and manufacturer (Piller, 2002) The consumer can be supported by means of interactive illustrations and text, while the costs remain low for the manufacturer because these processes are automated Moreover, companies may further reduce costs as built-to-order products mandate lower (pre-production and post-production) inventory levels, fewer backorders, and fewer slow-moving products Apart from cost reductions, Internet sales protocols involve the collection consumer data, a key element of successful mass customization To avoid channel conflicts, companies may reassure retailers that they will only use electronic channels for selling mass-customized products and that these sales will not cannibalize retail sales Online buyers also benefit from using the Internet as they generally seek freedom, control, and fun (Wolfinbarger and Gilly, 2001) They can achieve this by customizing their products online (Addis and Holbrook, 2001) The growth of flexible production technology has a positive effect on the ease of initiating mass customization Customizations can be more easily performed at lower costs by means of developments in, for example CIM (Computer Integrated Manufacturing), CAD (Computer-Aided Design) and CAM (Computer-Aided Manufacturing) Meredith (1987) mentions that the use of these Advanced Manufacturing Technologies (AMT) is justified by their inherent capability to alter the economies of manufacturing and remove barriers to product variety and flexibility Flexible production technology growth generates opportunities to perform more complex customizations, while keeping cost levels relatively low We believe that industry factors affect the probability of success and propose the following hypotheses: H4a: Information communication technology growth positively affects the probability of success H4b: E-commerce growth positively affects the probability of success H4c: Flexible production technology growth positively affects the probability of success Organizational Capabilities While the external factors determine the need to make a transition, the internal factors demonstrate the capacity of companies to capitalize on market opportunities In order to contribute to success, organizational capabilities should be directed at delivering the desired products quickly, inexpensively, and via a convenient and enjoyable configuration process To achieve this, companies must first realize high levels of manufacturing technology and flexibility The production system should be sufficiently agile to deliver the desired product quickly (Kidd, 1994) It should incorporate individual customer demands (Jagdev and Browne, 1998), and it should be cost-effective by concentrating on the activities that create the most value, while minimizing waste Modularity is a means to achieve this flexibility by enabling simpler and lower-cost product manufacturing But it is not an absolute requirement because true mass customization involves tailor-made products and services (cf Da Silveira et al., 2001) Although the ease of 324 BROEKHUIZEN AND ALSEM producing customized products largely depends on the type of product, some companies can meet the challenge better than others due to superior flexibility of production processes If organizations offer customized, tangible products, additional demands are placed on the flexibility of the logistics and distribution system Kotha (1995) emphasized the need for close proximity to a supplier network to deliver raw materials efficiently and quickly with the support of an effective information system Today many companies outsource manufacturing to low-cost, overseas suppliers This overseas manufacturing unfortunately leads to longer delivery times and thus requires more patience on the part of the customer It is essential in the manufacturing of modular products (e.g computers) to implement and manage the precise transportation of inbound materials and products to shorten delivery times (Gooley, 1998) Large investments are required to develop logistics systems capable of coordinating the delivery and transportation of materials and products on short notice, while also maintaining comparable cost levels When companies decide to offer built-toorder customized products, they generally engage in direct deliveries, using external logistics providers to distribute the product to their customers Another success factor is the level of customer information dissemination According to Reichwald, Piller and Moăslein (2000), information can be viewed as the most important factor in the implementation of mass customization, as the introduction of the concept leads to a sharp increase in the amount of information flows An information system involves two major elements: operations flows and customer knowledge From an operational perspective, the information system must quickly convert customer needs to direct production, assembly, and logistics while minimizing lead times and errors For example, sales representatives at Motorola ascertained customer needs and transmitted one or more designs directly to the factory By using bar codes, the manufacturing system was able to undertake all the necessary steps to produce the customized pager (Pine, Victor, and Boynton, 1993) The second information-related element, customer knowledge, is of great importance in creating better customized products, and it also contributes to making the configuration process more satisfying We clearly differentiate customer knowledge from the operations perspective because the skills to elicit and interpret customer needs are different In order to fully capitalize on the knowledge gained, the information flows of manufacturing, marketing, and engineering must be integrated into a cohesive, collaborative system to develop products that closely meet consumer needs (Hart, 1996) The marketing staff should look for ways to close the gap between the ideal and the current product or service, and discuss customization requirements with engineers and process managers to determine feasibility In order to better determine customer needs, the marketing department must implement a cost-effective and convenient assessment system to ascertain customer needs The key to achieving customer satisfaction is to ensure that customers are equipped to handle a variety of options (Huffman and Kahn, 1998) Customer choices represent important marketing information because it is a direct reflection of current market demands It assists the marketing staff in better understanding current needs, trends, and may even predict future needs Efficient use of customer data can create barriers in support of the retention of customers who not like the hassle of repeatedly expressing their needs and requirements to providers For example, Possen (made-to-fit fashion) and Adidas (customized shoes) retain size measurements to facilitate re-ordering SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 325 A major success factor is whether the company is able to be the pioneer Pioneers of mass customization are likely to benefit from the first-mover advantage (Da Silveira, Borenstein and Fogliatto, 2001; Hart, 1996; Kotha, 1995) For example, Dell pioneered the computer industry with its business model that allows customers to design their own computers (Margretta, 1998) The importance of being a pioneer is especially high for markets where long-term relationships can be built based on learning relationships (Peppers and Rogers, 1997) When these learning relationships are absent, consumer switching costs tend to be low, and low-cost competitors may copy the strategy In these situations, it seems that only the most pervasive forms (if feasible) seem to result in a sustainable competitive advantage, as the development of the required skill set takes considerable time Two critical organizational success factors for companies that migrate mass customization are available resources and organizational readiness Available resources can be a constraint because significant investment is required to make the production process more flexible, and to acquaint customers (pull-effect) and trade (push-effect) with the concept This is particularly true in markets where customers not have sufficient knowledge or face difficulties in defining a product that fits their needs Even after the initial investment, additional expenditure is required for maintaining and perfecting systems Organizational readiness is also important (Hart, 1996) The organization must possess complete consensus regarding the execution and implementation of the mass customization strategy A senior management buy-in is essential Larger companies are more likely to have a significant mass-production focus and therefore the migration process tends to be more complex This means larger investments, and a requirement for significant financial returns because the investment in the current and the new infrastructure must be recouped (Piller, 1999) In these situations, the transition will often be gradually phased in (Pine, 1993) The following propositions indicate the relationships between the organizational capabilities and the probability of success: H5a: The company’s level of production technology and flexibility positively affect the probability of success H5b: The company’s level of logistics and distribution system flexibility positively affect the probability of success H5c: The company’s level of customer information dissemination positively affect the probability of success H5d: First-mover advantage positively affects the probability of success H5e: The available resources and company’s readiness positively affect the probability of success The framework presented in Figure shows the key factors that influence the success of mass customization 326 BROEKHUIZEN AND ALSEM Figure Conceptual model of success factors for mass customization Conclusions Delivering customer value is a mission-centric endeavor and many companies are considering a migration to mass customization It is not always a sound strategy and companies must have ways to evaluate its potential The purpose of this paper is to present a coherent framework that incorporates the main key success factors for mass customization In order to determine the success, we propose that companies analyze whether mass customization enhances the customer perceived value relative to mass-produced offerings In doing so, we recommend they look at both the potential value they can create for customers and the necessary organizational changes needed SUCCESS FACTORS FOR MASS CUSTOMIZATION: A CONCEPTUAL MODEL 327 This paper contributes to the marketing literature in two ways First, based on an extensive literature review, it provides a parsimonious and coherent framework that can be used to determine the probability of success of mass customization Second, we postulate the importance of linking the success of mass customization with perceived customer value Accordingly, we can increase our understanding of how customers evaluate masscustomized offerings Thus, in order to define whether mass-customized products provide superior customer value – in comparison to mass-produced offerings – the additional costs and benefits of customizing products must be made explicit and analyzed This paper also has pragmatic value for managers who can use the framework to identify whether there is support for the move to mass customization by systematically investigating the highlighted external and internal success factors For them, the framework’s strength lies in its communicative power, since this framework facilitates structured discussion It can be used as a tool to encourage other managers and employees to support and perfect a certain strategies and processes As with many other decision-support tools, our framework attempts to make the decision process more transparent, but it can never replace the professional skills of experienced managers The present work is exploratory in nature, and only proposes testable hypotheses Consequently, further research is needed to ascertain whether the posited hypotheses hold and to determine the relative importance of the success factors This could be done by analyzing companies that have made successful and unsuccessful attempts at mass customization When researching case examples, it is important to incorporate the mass customization approaches used The results may indicate which approach is most suitable under given circumstances Clearly, there are some limitations to our framework Given its exploratory nature, the degree to which it is an indicator for success needs to be empirically tested Although this framework aims to be comprehensive, it can be true that other factors need to be included As our framework was primarily developed based on a mass-manufacturing and retail distribution model, it needs to be determined if it is applicable to other industries (e.g., service industry) It is anticipated that the current paper will help stimulate future research into the success factors for mass customization We consider the linking of perceived customer value with the success of mass customization an important area of research References Aaker, D A (1998), Strategic Market Management, 5th Edition, New York: John Wiley & Sons Addis, M., and Holbrook, M B (2001), ‘‘On the Conceptual Link between Mass Customisation and Experiential Consumption: An Explosion of Subjectivity,’’ Journal of Consumer 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ALSEM Table Levels and approaches of mass customization Stages Approaches Types of products Design Fabrication Assembly Additional services Usage Collaborative, Transparent Collaborative, Transparent... SWOT analysis is logical To ensure that our framework is comprehensive, we used factors that are relevant to strategic marketing decisions (Aaker, 1998; Jain, 2000; Kerin, Mahajan and Varadarajan,