MASS CUSTOMIZATION:SALES AND MARKETING FOR MASS CUSTOMIZATION

1. SALES AND MARKETING FOR MASS CUSTOMIZATION

In the majority of industries and sectors, customer satisfaction is a powerful factor in the success of products and services. In the era of mass production, customers were willing to constrain their choices to whatever was available, as long as the price was right. However, customers today are liberated and better informed. This leads them to be choosy about their purchases and less willing to compro- mise with what is on the shelf. Meeting customer requirements requires full understanding of cus- tomers’ values and preferences. In addition, it is important that customers know what the company can offer as well as their possible options and the consequences of their choices, such as cost and schedule implications.

Design by Customers

The setup time and its resulting economy of scale have been widely accepted as the foundation for the mass production economy, where batch size and lead time are important instruments. Conse- quently, the popular business model of today’s firms is design for customers. Companies design and then produce goods for customers through conforming a set of specifications that anticipates cus- tomer’s requirements. Often the forecasting of end users’ requirements is developed by the marketing department. It is usually carried out through aggregating the potential needs of customers with the consideration of market direction and technology trends. Given the complexities of modern products, the dynamic changes in customers’ needs, and the competitive environment in which most businesses have to operate, anticipating potential customers’ needs can be very difficult. Chances are that fore- casting will deviate from the reality by a high margin. Three major economic deficiencies are often encountered.

Type A is the possibility of producing something that no customers want. The waste is presented in the form of inventory, obsolescence, or scrap. Although a significant amount of research and development has been conducted on improving the forecast accuracy, inventory policy, increased product offerings, shortened time-to-market, and supply chain management, avoiding the possibility of producing products that no customer want is still a remote, if not impossible, goal.

Type B waste comes from not being able to provide what customers need when they are ready to purchase. It often presents itself in the form of shortage or missing opportunity. The costs of retail stores, marketing promotion, and other sales expenditures on top of the goods themselves will dis- appoint the customers who are ready to purchase. The cost of missing opportunities can be as significant as the first type.

Type C deficiency results from customers making compromises between their real requirements and existing SKUs (stock keeping units), that is, what is available on the shelf or in the catalogue. Although these compromises are usually not explicit and are difficult to capture, they lead to customer dissatisfaction, reduce willingness to make future purchases, and erode the competitiveness of a company.

To minimize the effect of these deficiencies, one approach is to revise the overall systems design of a manufacturing enterprise. Particularly with the growing flexibility in production equipment, manufacturing information systems and workforce, the constraints of setup cost and lead time in manufacturing have been drastically reduced. The interface between customers and product realization can be reexamined to ensure that total manufacturing systems produce what the customers want and customers are able to get what the systems can produce within budget and schedule. Furthermore, with the growing trends of cultural diversity and self-expression, more and more customers are willing to pay more for products that enhance their individual sizes, tastes, styles, needs, comfort, or ex- pression (Pine 1993).

With the rapid growth of Internet usage and e-commerce comes an unprecedented opportunity for manufacturing enterprise to connect directly customers scattered around the world. In addition, through the Internet and business-to-business e-commerce, manufacturing enterprise can now acquire access to the most economical production capabilities on a global basis. Such connectivity provides the necessary condition for customers to become connected to the company. However, by itself it will not enhance effectiveness.

In the last decade, concurrent engineering brought together design and manufacturing, which has dramatically reduced the product development life cycle and hence improved quality and increased productivity and competitiveness. Therefore, design by customers has emerged as a new paradigm to further extend concurrent engineering by extending connectivity with customers and suppliers (Tseng and Du 1998). The company will be able to take a proactive role in helping customers define needs and negotiate their explicit and implicit requirements. Essentially, it brings the voice of customers into design and manufacturing, linking customer requirements with the company’s capabilities and extending the philosophy of concurrent engineering to sales and marketing as part of an integrated

product life cycle. Table 3 summarizes the comparison of these two principles for customer-focused product realization.

The rationale of design by customers can be demonstrated by the commonly accepted value chain concept (Porter 1986). The best match of customer needs and company capability requires several technical challenges:

1. Customers must readily understand the capability of a company without being a design en- gineer or a member in the product-development team.

2. Company must interpret the needs of customers accurately and suggest alternatives that are closest to the needs.

3. Customers must make informed choices with sufficient information about alternatives.

4. Company must have the ability to fulfill needs and get feedback.

To tackle these challenges, it is necessary that customers and the company share a context-coherent framework. Product configuration has been commonly used as a viable approach, primarily because it enables both sides to share the same design domain. Based on the product configuration approach, the value chain, which includes the customer interface, can be divided into four stages:

1. Formation: Presenting the capability that a company can offer in the form of product families and product family structure.

2. Selection: Finding customers’ needs and then matching the set of needs by configuring the components and subassemblies within the constraints set by customers.

3. Fulfillment: Includes logistics, manufacturing and distribution so that customer’ needs can be satisfied within the cost and time frame specified.

4. Improvement: Customers’ preferences, choices, and unmet expressed interests are important inputs for mapping out the future improvement plan.

Formation and selection are new dimensions of design for customer. They are explained further below.

Helping Customers Making Informed Choices: Conjoint Analysis Design by customers assumes customers are able to spell out what they want with clarity. Unfortu- nately, this is often not the case. To begin with, customers may not be able to know what is possible. Then the system needs to pull the explicit and implicit needs from customers. Conjoint analysis is a set of methods in marketing research originally designed to measure consumer preferences by as- sessing the buyers’ multiattribute utility functions (Green and Krieger, 1989; IntelliQuest 1990). It assumes that a product could be described as vectors of M attributes, Z1, Z2, . . . , ZM. Each attribute can include several discrete levels. Attribute Zm can be at any one of the Lm levels, Zm1, Zm2, . . . , Zm,Lm, m E [1, M ]. A utility functions is defined as (McCullagh and Nelder 1989):

Usually, a large number of attributes, discrete levels, and their preference indices is required to define the preferred products through customer interaction, and thus the process may become over- whelming and impractical. There are several approaches to overcoming this problem. Green et al. (1991) and IntelliQuest (1990) have proposed adaptive conjoint analysis to explore customers’ utility with iterations. Customers are asked to rate the relative importance of attributes and refine the trade- offs among attributes in an interactive setting through comparing a group of testing profiles. Other approaches, such as Kano diagram and analytic hierarchy process (AHP), can also be applied to refine the utility value (Urban and Hauser 1993).

With the utility function, Uml, customers can find the relative contribution of each attribute to their wants and thus make necessary tradeoffs. Customers can finalize their design specifications by maximizing their own personal value for the unit price they are spending.

Customer Decision-Making Process

Design by customers allows customers to directly express their own requirements and carry out the mapping to the physical domain. It by no means gives customers free hand to design whatever they want in a vacuum. Instead, it guides customers in navigating through the capabilities of a firm and defining the best alternative that can meet the cost, schedule, and functional requirements of the customers. Figure 13 illustrates the process of design by customers based on a PFA platform. In the figure, arrows represent data flows, ovals represent processes, and variables in uppercase without subscript represent a set of relevant variables. This process consists of two phases: the front-end customer interaction for analyzing and matching customer needs, and the back-end supporting process for improving the compatibility of customer needs and corporate capabilities. There are two actors in the scenario: the customers and the system supported by the PFA.

Phase I: Customer Needs Acquisition

1. Capability presentation: In order to make informed decisions, customers are first informed of the capabilities of the firm, which is in the form of the spectrum of product offerings, product attributes, and their possible levels. By organizing these capabilities, the PFA provides a sys- tematic protocol for customers to explore design options.

2. Self-explication: Customers are then asked to prioritize desired attributes for their requirements according to their concern about the difference. Customers must assess the value they attach to each attribute and then specify their degree of relative preference between the most desirable and the least desirable levels. The results of this assessment are a set of Wm reflecting the relative importance of each attribute.

Utility exploration: Based on Wm, the next task is to find a set of d (0) that reflect the desirability of attribute levels. Response surface can be applied here to create a set of testing profiles to search for the value of desirability of each selected level. The AHP can be used to estimate d (0) . Substituting Wm and d (0) in Eq. (9), the utility of each attribute level can be derived.

Phase II: Product Design

Preliminary design: With d (0) and Wm, U (0) can be calculated with Eq. (8). A base product (BP) can be determined in accordance with a utility value close to U (0). Base product selection

can be further fine-tuned through iterative refinement of Uml.

2. Customization: Customers can modify the attributes from Z to Z + ;lZ through the customi- zation process of adding building blocks. Z will be adjusted, and the utility will be recalculated, until the customer gets a satisfactory solution.

3. Documentation: After it is confirmed by the customers, the design can be delivered. The results include refined Z and ;lZ and customized BP and ;lBP. These will be documented for the continuous evolution of PFA. Over time, the PFA can be updated so that prospective customers can be better served. This includes changes not only in the offerings of product families but also in production capabilities so that the capabilities of a firm can be better focused to the needs of its customers.

In practice, customers may found this systematic selection process too cumbersome and time consuming. Research in the area of customer decision-making process is still undergoing.

4.4. One-to-One Marketing

With the rapid transmission of mass media, globalization, and diverse customer bases, the market is no longer homogeneous and stable. Instead, many segmented markets now coexist simultaneously and experience constant changes. Customers cast their votes through purchasing to express their preferences on products. With the fierce competition, customers can easily switch from one company to another. In addition, they become less loyal to a particular brand. Because a certain portion of customers may bring more value-added to the business than the average customers, it is imperative to keep customer loyalty by putting customers at the center point of business. Such a concept has been studied by many researchers (e.g., Greyser 1997) Peppers and Rogers (1997, p. 22) state: ‘‘The 1:1 enterprise practices 1:1 marketing by tracking customers individually, interacting with them, and integrating the feedback from each customer into its behavior towards that customer.’’

With the growing popularity of e-commerce, customers can directly interact with product and service providers on a real-time basis. With the help of system support, each individual customer can specify his or her needs and make informed choices. In the meantime, the providers can directly conduct market research with more precise grasp of customer profiles. This will replace old marketing models (Greyser 1997). At the beginning, the concern is the capability of manufacturers to make products—that is, it is production oriented. Then the focus shifts towards the capability to sell products that have already been made—that is, it is sales oriented. Later on, the theme is customers’ preferences and how to accommodate these preferences with respect to company capabilities—that is, it is marketing oriented. With the paradigm shift towards mass customization, manufacturers aim at providing best values to meet customers’ individual needs within a short period. The closed-loop interaction between clients and providers on a one-to-one basis will increase the efficiency of match- ing buying and selling.

Furthermore, the advent of one-to-one marketing transcends geographical and national boundaries. The profile of customers’ individual data can be accessed from anywhere, and in turn the company can serve the customers from anywhere at any time. Nonetheless, it also creates a borderless global market that leads to global competition. To be able to sustain, companies are putting more attention on one-to-one marketing.