Does mass customization pay? An economic approach to evaluate customer integration

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 production 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 postponing some activities until an order is placed, (2) from more precise information about market demands and (3) from the ability to increase loyalty by directly interacting with each customer. By examining and structuring the economic principles of mass customization the paper will give insights into the benefits, but also the constraints of a mass customization strategy. Keywords: Mass customizationflexible manufacturingcustomer integrationeconomiescost and profit drivers Acknowledgements We would like to thank R. Reichwald, TUM and M. Tseng, HKUST, for their valuable comments on earlier versions of this paper. We also thank two anonymous reviewers for their valuable input. The research presented here was supported by grants from the Deutsche Forschungsgemeinschaft (DFG) for SFB 582, a National Collaborative Research Centre on Mass Customization at TUM. FRANK PILLER directs the Research Group Mass Customization and Customer Integration (www.mass-customisation.de) at the TUM Business School of the Technische Universität München, Munich, Germany, and teaches in the MBA programme of TUM. His research interests are customer integration, mass customization and personalization, and technology and innovation management. KATHRIN MOESLEIN is a Research Associate at the Advanced Institute of Management Research at the London Business School, London, UK, and a senior Research Fellow at the TUM Business School. Her research focus is on technology and innovation management, organizational communication and strategic change. CHRISTOF M. STOTKO is a lecturer at the TUM Business School and works as project manager within a national collaborative research centre on mass customization (www.sfb582.de). In this function he is focusing on customer interaction processes and economies of mass customization.