Mass-customisation in
marketing: the consumer
perspective
Ahmet Bardakci
Faculty of Economics and Administrative Sciences, Pamukkale University, Denizli, Turkey
Jeryl Whitelock
School of Management, University of Salford, Salford, UK Keywords Marketing, Mass customization, Consumer research
Abstract This paper addresses the issue of mass-customisation from the point of view of consumer demand.It aims to develop a framework to examine the demand side of the mass-customisation equation which will allow researchers to identify whether a market of customers who are ready for mass-customised products exists.In doing so it considers in particular three ``inconveniences'' of mass-customisation: the increased price of customised products; the delay in receipt of custom-made products; and the need for customers to invest time in specifying their preferences before the product can be produced.
Introduction
Over the last decade the marketing literature has witnessed the emergence of new marketing ideas along with technological improvements in response to fragmented demand patterns in the market. The basic premise for most of these ideas is meeting individual demand patterns individually. Although the methods of operation differ, the common denominator of all these
approaches can be summed up by the concept of customisation.
The marketing process concerns itself with determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors (Kotler et al., 1996). Market segmentation represents a rational and precise adjustment of product and marketing effort to market requirements (Smith, 1956). Individual segmentation, or mass-customisation, is the most recent and, perhaps, the ultimate type of market segmentation model. Also called ``finer segmentation'' (Davis, 1996; Kara and Kaynak, 1997), this new concept sees each customer as a segment and treats each customer separately by fulfilling his/her unique needs and desires (Wiggins, 1995; Pine et al., 1995). Davis (1996, p. 177) states:
. . . mass-customisation of markets means that the same large number of customers can be reached as in the mass market of the industrial economy, and
simultaneously they can be treated individually as in the customised markets of pre-industrial economies . . . The ultimate logic of ever-finer differentiation of the market is markets of one, that is, meeting the tailored needs of individual customers and doing so on a mass-basis.
As such, marketing's traditional connections such as focus groups, market research, consumer surveys and other tools for probing customer needs and wants are no longer sufficient (i.e. McKenna, 1995; Horovitzand Kumar, 1996; Thomas, 1997). Rather, mass-customisation as an emerging
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Customisation
Traditional connections
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An executive summary for managers and executive readers can be found at the end of this article
Customer lifetime value (LTV) is another question to consider. LTV is the expected future profits, net of costs, of a customer's transactions, discounted at some appropriate rate back to its current net present value (Peppers and Rogers, 1997). LTV is important because without knowing each customer's value it is not possible to treat different customers differently. Calculating LTV shows that loyal customers guarantee large amounts. For example, car dealer Carl Swell estimates that each of the customers that venture for the first time into one of his dealerships' showrooms represents a potential lifetime value of over $300,000. Similarly, General Motors found that a loyal customer is worth $400,000. The average loyal supermarket customer is worth $3,800 annually. A moderate frequent flyer who travels between the coasts in the USA once every other month will generate $20,000 or more in revenues for the airline over a five year period. In a business career, such a customer could easily generate more than $100,000 in revenue for the carrier (Peppers and Rogers, 1993; pp. 37-8).
Although calculating the LTV is very difficult without knowing non-sales benefits (for instance the importance of word of mouth recommendations), calculating the basic LTV enriches comprehension of the importance of retention rate. Knowing a basic LTV value can also guide practitioners in allocating the customer retention and acquisition budget (Davidson, 1997). Figure 2.Decision framework to assess customers' readiness for
mass-customisation Customer lifetime value
JOURNAL OF CONSUMER MARKETING, VOL. 20 NO. 5 2003 473
