Some assumption in marketing is that a consumer realizes higher utility when the product better matches the consumer preferences. Therefore, when costs and efforts to achieve this match are sufficiently low, firms with some monopolistic power may reap higher profits by providing better-matching products. Product customization and product proliferation are two popular strategies for improving the preference-product match, with most Public Relations and Marketing firms actively pursing both. Firms pursing product customizations first invites each individual consumer to reveal her preference and then produces and delivers a product with the closest match possible. Firms that pursing product proliferation does not hold such one-to-one dialogs with consumers, it offers many variants and the costumers choose the most appealing product. Product proliferation is observed in many markets.
Customization, Competition, and Firm Profitability
Does marketing customization make profitability for firms?
Even though customized products increase consumer utility, firms do not always gain from adopting mass customization, frequently because customization reduces product differentiation in a competitive context. If firms do not pursue customization but its competitors do, then the former would probably become worse off. In product categories today, the technological ingredients underlying product customization are relatively natural and readily accessible to all firms. This implies that adopting customization cant ensure competitive advantage and studies show that pursing customization may lead to a prisoner’s dilemma. Are customizing firms ever be able to escape the curse of the consumer’s dilemma? According to NYU Stern Business School researchers decide that the answer is yes. When firms differ in the timing of adopting customization, the early adopter may achieve an advantage. If the product being marketed, and has multiple attributes of keen interest to consumers, then firms may relax prices which attribute to customize.
What are the constraints and challenges in mass customization?
Even though it is economy viable for firms to tailor attributes valued by the consumers and not costly to customize, Firms in many industries customize only a fraction of the product attributes valued by the consumers and not costly to customize, firms in may industries customize only a fraction of the product attributes and allow limited options for each of these attributes. However, technological advances any lower these costs. Customization can even prove harmful for goods being marketed, which becomes an object of goods to project an image of exclusivity. In competing exclusivity with customized products, firms may lose all differentiation advantages, and they may therefore not want to eliminate their standard products.
The researcher’s findings question two important assumptions of product personalization and customization. The first assumption is that consumer preferences are stable or evolve in a predictable fashion. Reference stability is critical for personalization because previous choices are used to predict future choices. The second assumption is that preferences revealed by consumer choices truly maximize utility. A customer heavily weighs price in their product choices. A second possibility is that product information was presented in a way that made price comparisons easy and this accented the importance of price.
The danger of product customization is that customers may realize after designing their ideal product that their actual preferences correspond more closely to standardized products. Customer uncertainly about their preferences is less likely to be an issue in business-to-business settings, where buyers have greater experience and expertise.