Mass Customization Revisited

Technology has resurrected the 'Chinese restaurant' theory.

A few weeks ago, I had a fascinating conversation with Joe Pine, author of the book Mass Customization (1993, Harvard Business School Press). It seems five years after the book was published, the Internet, the Web, and digital communications have enabled the principle to become useful even beyond his imagination. Technology is making customized products more commonplace whether through online ordering systems for customers or improved manufacturing systems. Mass customization is an old idea in many respects. The Chinese restaurant menu system is a good example. Most of the ingredients are nearly prepared, and held in what is now called "postponement," until a patron orders a specific meal. Then the cooked meat, cooked vegetables, sauces, and spices are blended to order and combined with the choice of noodles or rice. As I told Joe, I also discovered this approach about 10 years ago at Huffy Corp. We built hundreds of different bicycles from a handful (about 10) of different frames and forks, several (six or seven) different handlebars, and a few (seven or eight) different wheels. Each was set up in manufacturing cells to run from very flexible (raw material -- flat or tubular steel, etc.) to very finished, or at least semi-finished, very fast. Then when we began to decorate them, add options, accessories, and cosmetic touches, and the number exploded to many hundreds of models. This allowed us to sell what were almost identical (in physical parts configuration and production cost) bikes to Wal-Mart, Kmart, Target, Sears, Toys "R" Us -- and yet they could compete against each other with nuances of their unique proposition for the customer: Wal-Mart -- value; Kmart -- low price; Target -- style; Sears --technical reliability; Toys "R" Us -- youthful fun and variety. You see, we weren't really selling bikes; we were selling customized fun, fitness, travel, and enjoyment. We were selling a means to an experience. Do that well, and you can command a premium price even in the most bloodthirsty of markets -- as long as you stay a few steps ahead of the copycats and give the customer exactly what they want. Barnes & Noble and Borders stores don't attract me to buy books -- I can do that easier on amazon.com. But they do offer a unique experience that is enjoyable -- a cup of latte, comfortable seats in which to browse through a few of the more eclectic new books, and a pleasant environment that varies by section of the store. Mike Campbell, CEO of Regal Cinemas, is doing that by installing mini-amusement parks with large movie theater complexes. The idea is to offer family fun, one-stop shopping, and the option to choose the specific experience. Durable goods, absent the "enjoyable experience" and "mass customization" elements, is a deflating, low profit market due to the existence of latent overcapacity globally. It is a structurally undesirable business to be in -- unless you can find the "experience" to add to the customized hardware. Then it becomes nicely profitable again. As more and more consumer products companies fail to realize that, their margins decline, and they no longer earn their cost of capital. Even massive consolidation (as Sunbeam tried to do) is only a stopgap solution. Theodore Levitt said it over a decade ago in The Marketing Imagination (1983, Free Press) -- there is no such thing as a commodity except in the mind of the seller or buyer. The expanded or enhanced product is what matters to people these days -- at least if you want to charge more for it than the per-pound cost of the converted materials. The best example I can think of is Oakley sunglasses. Material cost is negligible. They are selling the experience, the feeling, and the stylish look -- not the hardware. As pressures on out-guessing what the consumer will want next continue to mount and the lost value of deflating inventory continues, more people will discover "postponement" and "mass customization." Michael Dell discovered this idea and built a multi-billion-dollar, highly profitable computer company based on it. Now the rest of the world is waking up to this "new" business model and trying to emulate Dell. Whether they can or not remains to be seen. Only so many Chinese restaurants can survive in any given market.

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