By understanding the four basic approaches to customization,managers can tailor their products

to meet their customers' unique needs at a low cost.

Four Fa

IF Cus nation

Virtually all execu-tives today recognizethe need to provideoutstanding service to customers. Focusing on thecustomer, however, is both an imperative and a po-tential curse. In their desire to hecome customerdriven, many companies have resorted to inventingnew programs and procedures to meet every cus-tomer's request. But as customers and their needsgrow increasingly diverse, such an approach has be-come a surefire way to add unnecessary cost andcomplexity to operations.

Companies throughout the world have embracedmass customization in an attempt to avoid thosepitfalls and provide unique value to their customersin an efficient manner. Readily available informa-tion technology and flexible work processes permitthem to customize goods or services for individual

by fames H. Gilmore and B. Joseph Pine II customers in highvolumes and at a rela-tively low cost. But

many managers at these companies have discov-ered that mass customization, too, can produce un-necessary cost and complexity. They are realizingthat they did not examine thoroughly enough whatkind of customization their customers would valuebefore they plunged ahead with this new strategy.

James H. Gilmore and B. Joseph Pine II are the foundersof Strategic Horizons, a management consulting firmin Cleveland, Ohio. Pine is the author of Mass Cus-tomization: The New Frontier in Business Competition(Harvard Business School Press. 1993} and a coauthor of"Do You Want to Keep Your Customers Forever^" (HBRMarch-April 1995) and "Making Mass CustomizationWork" (HBR September-October 1993). The authors'E-mail address is shllp@aol.com.

HARVARD BUSINESS REVIEW (anuary-February 1997 91

MASS CUSTOMIZATION

That is understandable. Until now, no frameworkhas existed to help managers determine the type ofcustomization they should pursue.

We have identified four distinct approaches tocustomization, which we call collaborative, adap-tive, cosmetic, and transparent. When designing orredesigning a product, process, or business unit,managers should examine each of the approachesfor possible insights into how best to serve theircustomers. In some cases, a single approach willdominate the design. More often, however, n:ian-agers will discover that they need a mix of some orall of the four approaches to serve their own partic-ular set of customers.

Defining the Four ApproachesLet's summarize what characterizes the ap-

proaches and the conditions under which eachshould he employed.

Collaborative customizers conduct a dialoguewith individual customers to help them articulatetheir needs, to identify the precise offering that ful-

fills those needs, and to make customized productsfor them. The approach most often associated withthe term mass customization, collaborative cus-tomization is appropriate for businesses whose cus-tomers cannot easily articulate what they want andgrow frustrated when forced to select from a pleth-ora of options.

Paris Miki, a Japanese eyewear retailer thathas the largest number of eyewear stores in theworld, is the quintessential collaborative custom-izer. The company spent five years developing theMikissimes Design System (to be called the EyeTailor in the United States), which eliminates thecustomer's need to review myriad choices when se-lecting a pair of rimless glasses. The system firsttakes a digital picture of each consumer's face, ana-lyzes its attributes as well as a set of statementssubmitted by the customer about the kind of lookhe or she desires, recommends a distinctive lenssize and shape, and displays the lenses on the digi-tal image of the consumer's face. The consumer andoptician next collaborate to adjust the shape andsize of the lenses until both are pleased with the

Gaining Access to Nev/ Markets

As the concept of a mass market gained currency acentury ago with the success of such giants as Sears,A&P, Coca-Cola, and Ford, all too many managers lostsight of a simple fact known for ages by every butcher,cobbler, and corner grocer: everycustomer is unique. Economies ofscale in manufacturing and distri-bution brought down the price ofmass-produced goods so muchthat all but the most well-to-docustomers were often willing toforgo their individuality and settlefor standardized - but very afford-able-goods.

Still, the uniqueness of individ-ual customers never went away; itwas just subsumed in the averagesof countless bell curves in everymarket-research study ever per-formed. The concept began coming back into viewwhen companies discovered segmentation in the1950s and niche marketing in the 1980s. The rise ofmass customization in the 1990s has been both a re-sponse to and, with the pioneers' success, the impetusbehind the now commonplace notion of segments ofone: every customer is his or her own market segmentwith specific requirements that must be fulfilled. And

so it seems that we have come to the end of a 100-yearprogression.

Or have we? In fact, the journey does not end withevery customer being his or her own market. The next

step, a widespread recognitionthat multiple markets reside with-in individual customers, will turnthe entire notion of markets andcustomers completely inside out.

The idea that every customer isin different markets at differenttimes and different places is notas heretical as it initially mightsound. For instance, newspaperpublishers have long recognizedthat most of their customers havemore leisure time on Sundays toread the paper and accordinglyhave filled that edition with a

greater number and wider variety of stories. Similarly,airlines, hotels, and car-rental companies find that thedesires of their clients differ greatly depending onwhether they are traveling for business or for leisure-and differ yet again when they combine the two. Oneexecutive at a major airline remarked, "We've evenfound that the needs of business travelers differ de-pending on whether they are going to or coming from a

92 PHOTOS BY CHRISTOPHER MAKOS

look. In similar fashion, consumers select from anumber of options for the nose bridge, hinges, andarms in order to complete the design. Then they re-ceive a photo-quality picture of themselves withthe proposed eyeglasses. Finally, a techniciangrinds the lenses and assembles the eyeglasses inthe store in as little as an hour.

Adaptive customizers offer one standard, but cus-tomizable, product that is designed so that userscan alter it themselves. The adaptive approach isappropriate for businesses whose customers wantthe product to perform in different ways on differ-ent occasions, and available technology makes itpossible for them to customize the product easilyon their own.

Consider the lighting systems made by LutronElectronics Company of Coopersburg, Pennsylva-nia. Lutron's customers can use its systems tomaximize productivity at the office or to createappropriate moods at home without having to ex-periment with multiple switches each time theydesire a new effect. Lutron's Grafik Eye System, forexample, connects different lights in a room and

allows the user to program different effects for,say, lively parties, romantic moments, or quietevenings of reading. Rather than repeatedly havingto adjust separate light switches until the rightcombination is found, the customer can quicklyachieve the desired effect merely by punching inthe programmed settings.

Cosmetic customizers present a standard prod-uct differently to different customers. The cos-metic approach is appropriate when customers usea product the same way and differ only in how theywant it presented. Rather than being customized orcustomizable, the standard offering is packagedspecially for each customer. For example, the prod-uct is displayed differently, its attributes and bene-fits are advertised in different ways, the customer'sname is placed on each item, or promotional pro-grams are designed and communicated differently.Although personalizing a product in this way is,frankly, cosmetic, it is still of real value to manycustomers. (Witness the billions of dollars that con-sumers spend each year on such products as embel-lished T-shirts and sweatshirts.)

meeting." In the apparel industry, a given customercould be in the market for casual wear at one time andfor business attire at another. And with "casual Fri-days" becoming increasingly common, many peoplemust at least on occasion enterthat new market known as "busi-ness casual."

Indeed, acknowledging that in-dividual customers constitutemultiple markets gives new mean-ing to the term market that ap-proximates its original concep-tion: the bringing together of acustomer and a provider to fulfillthat customer's unique needs asthey exist at the present time andunder the current circumstances.Only those companies that taketheir approach to customizationdown to this level will gain access to the multiplemarkets within each of us.

How can companies tackle this task? If the techno-logical wherewithal exists, the easiest approach wouldhe to design a product that could adapt to whatevermarket its user happened to be in-such as a car trans-mission that can be sporty for tooling down the coastor smooth for taking the in-laws out to dinner. For fre-

quently purchased goods and services, a companycould work with individual customers first to identifythe markets they potentially could be in at differenttimes and in different circumstances and then to

maintain a distinct profile foreach possibility. News providers,for example, could collaboratewith customers to understandhow much news and what typeeach wanted to read dependingnot only on the day of the weekbut also on that day's particularevents and on each customer'sconstantly rotating field of inter-est. An airline could likewisemaintain suhprofiles that high-light each customer's changingpreferences (for instance, pre-ferred drink when going to a meet-

ing - Pepsi with lime; preferred drink when comingfrom a meeting-Scotch on the rocks).

A real opportunity arises here because even the cus-tomers themselves may not realize these distinctions.Many people in many situations will discover thingsabout themselves only in a collaborative dialoguewith a trusted supplier. Together, customer and sup-plier will create the multiple markets within.

CRYSTAL COURTESY OF ROGASKA GLASSWORKS 93

At Paris Miki,customizing therepresentationof the eyeglassepermits customersto participate inthe design stage.

The Planters Company, a unit of Nabisco, chosecosmetic customization when it retooled its oldplant in Suffolk, Virginia, in order to satisfy theincreasingly diverse merchandising demands of itsretail customers. Wal-Mart wanted to sell peanutsand mixed nuts in larger quantities than Safewayor 7-Eleven did, and Jewel wanted different pro-motional packages than Dominick's did. In thepast. Planters could produce only long hatches ofsmall, medium, and large cans,- as a result, cus-tomers had to choose from a few standard packagesto find the one that most closely met their require-ments. Today the company can quickly switch be-tween different sizes, labels, and shipping contain-ers, responding to each retailer's desires on anorder-by-order basis.

Transparent customizers provide individual cus-tomers with unique goods or services without let-ting them know explicitly that those products andservices have been customized for them. The trans-parent approach to customization is appropriate

when customers' specific needsare predictable or can easily bededuced, and especially whencustomers do not want to statetheir needs repeatedly. Transpar-ent customizers observe cus-tomers' behavior withtmt directinteraction and then inconspicu-ously customize their offeringswithin a standard package.

Consider ChemStation of Day-ton, Ohio, which mass-eustom-izes a product that most of itscompetitors treat as a commod-ity: industrial soap for such com-mercial uses as car washes andcleaning factory floors. After in-dependently analyzing each cus-tomer's needs, ChemStation cus-tom-formulates the right mixtureof soap, which goes into a stan-dard ChemStation tank on thecustomer's premises. Throughconstant monitoring of its 80-to-1,000-gallon tanks, the companylearns each customer's usage pat-tern and presciently delivers moresoap before the customer has toask. This practice eliminates theneed for customers to spend timecreating or reviewing orders.They do not know which soap for-mulation they have, how much isin inventory, or when tbe soap

was delivered. They only know-and care-that thesoap works and is always there when they need it.

Challenging the Mass-Market Mind-SetAlthough each of the four companies has imple-

mented a strikingly different customization strat-egy, all share an orientation that challenges theconventional concept of markets and products. Asmass production took hold in the hearts and mindsof managers during the past century, the definitionof a market shifted from a gathering of people forthe sale and purchase of goods at a fixed time andplace to an unknown aggregation of potential cus-tomers. Today as markets disaggregate, the defini-tion is changing again: customers can no longer bethought of as members of a homogeneous marketgrouping. In fact, the concept of markets needs tobe redefined still further as customization becomesmore commonplace. (See the insert "Gaining Ac-cess to New Markets.")

94 EYEGLASSES COURTESY OF CHRISTIAN ROTH FOR OPTICAL AFFAIRS, NEW YORK

MASS CUSTOMIZATION

Instead of focusing on homogeneous markets andaverage offerings, mass customizers have identifiedthe dimensions along which their customers differin their needs. These points of common uniquenessreveal where every customer is not the same. Andit is at these points that traditional offerings, de-signed for average requirements, create customersacrifice gaps: the difference between a company'soffering and what eacb customer truly desires.

To be effective, mass eustomizers must let thenature of these sacrifice gaps drive their individualapproaches to customization. Paris Miki under-stood that consumers rarely have the expertise todetermine which eyeglass design best fits their fa-cial structure, desired look, and coloring, and there-fore chose to collaborate with customers to helpidentify their largely unartieulated needs. Lutronadopted adaptive customization because it knewthat no two rooms have the same lighting charac-teristics and that both individuals and groups useany given room in multiple ways. Planters realizedthat each of its retail customers varied in how itwanted to receive and merchandise standardpeanuts, so cosmetic customization was its favoredchoice. And ChemStation understood that al-though each of its customers had unique formu-lation and delivery needs, none of tbem wanted tohe bothered with either the day-to-day proeeduresor the formulation of such a mundane part of itsbusiness as soap.

Altering the product itself for individual cus-tomers provides the most clear-cut means ofcustomization. But adept mass customizers realizethat customizing the actual product is only oneway to create customer-unique value. Customizingthe representation of the product-or how it is pre-sented or portrayed to the customer-can be effec-tive as well. In fact, separating the product from itsrepresentation can provide a useful framework forconsidering which forms of customization arc mostappropriate for a given business. (See the exhibit"The Four Approaches to Customization.")

A cosmetic customizer changes only the repre-sentation of the product-the packaging in the caseof Planters. Collaborative customizers change theproduct itself in addition to changing some aspectof the representation. Paris Miki ehanges both theeyewear and its digitized representation-the shapeand placement of the eyeglasses on the customer'son-screen image, the display of information aboutthe particular lens, and the adjectives used to de-scribe the desired look. A transparent customizeruses a standard representation to mask the cus-tomization of the product. ChemStation's standardstorage and dispensing tank, emblazoned with the

company's logo, conceals the fact that ChemSta-tion customizes the soap and its delivery. Finally,adaptive customizers change neither the productnor the representation of the product for individualcustomers; instead, they provide the customer withthe ahility to change both the product's function-ality and its representation to meet bis or her par-ticular needs, Each Lutron customer programs alighting effect by adjusting bars that represent theintensity of each light in the room; the customerthen ean label the particular lighting effect.

Companies customize representations whenthey use design tools such as the MikissimesDesign System to alter their products' descriptions.The following components also can change theform of an offering for individual customers:

Packaging: containers for shipment; bar codes,labels, and other materials-bandling information,-instructions; and storage and dispenser features.

Marketing materials: sales brochures, flyers,videotapes, and audiotapes; and client referencesand customer testimonials.

Placement: where, when, how, and to whom theproduct is delivered; position while on display or inuse; and delivery frequency and special handlingprocedures.

Terms and conditions: purchase priee; paymentand discount terms; promotions, warranties, andguarantees; ordering policies; and after-sale serviceproeedures.

Product names: brand names; cobranding (thepresentation of two brands together); elub member-ships; and privileges for frequent customers, suchas frequent flier programs.

The Four Approaches to Customization

change Transparent Collaborative

O

no change

no change change

Representation

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MASS CUSTOMIZATION

Stated use: advertised purpose and operahility,-and perceived advantages, conveniences, or otherbenefits to the user.

Choosing the Right ApproachThe four companies that we focus on identified

the critical customer sacrifice gaps in their busi-nesses and then carefully identified not only whatbut also when to customize in an effort to create thegreatest customer-unique value at the lowest possi-ble cost. Paris Miki customizes during the design ofeyeglasses, whereas Planters customizes on pack-ing lines during production; ChemStation cus-tomizes during both production and delivery,whereas people customize Lutron's product duringeach individual use. Instead of taking a hit-or-missapproach, these four companies customized onlywhere it counted.

Let's explore how to determine which types ofcustomization are appropriate for a given business.

Collaborative customizerssuch as Custom Foot

conduct a dialogue withcustomers to help them

articulate their needs.

Collaborative Customization. The customer's in-ability to resolve trade-offs on his or her own hasled Paris Miki and other companies in industriesas diverse as apparel, windows, news services, andindustrial valves to collaborative customization.Customers in these industries have to make one-time decisions based on difficult and multidimen-sional trade-offs - trade-offs such as length forwidth, comfort for fit, or complexity for function-ality. This either/or sacrifice gap built into theonetime decision points toward the need to workdirectly with individual customers in order todetermine together the customized goods or ser-vices they require. Customizing the representationpermits customers to participate in the design stageand play with the possibilities available to them.

Take the customer's struggle to find the righteyeglasses. Paris Miki decided that the best way tohelp customers discover their unknown needs andresolve the inherent trade-offs associated with buy-ing glasses was to allow each one to explore and

manipulate a digitized represen-tation of the potential final prod-uct. With this sophisticated de-sign tool, trained opticians nowassist customers in discoveringthe perfect, unique look that theywould not otherwise have identi-fied or found.

Collaborative customizationalso works effectively in the shoeindustry. Many buyers of mass-produced shoes have to sacrificea perfect fit on one foot to avoida fit that is too tight or too looseon the other. Furthermore, no mat-ter how broad the selection is ina traditional shoe store, customershave to make trade-offs among anumber of superficial design ele-ments when selecting a pair ofshoes - for example, one pairmight have the rounded toe andhigh heel that the customer islooking for but does not come inthe right width or has a rubberinstead of a leather sole. Beforeopening the Custom Foot inWestport, Connecticut, in March1996, founder Jeffrey Silvermanrealized that only a collaborativeapproach could address this cus-tomer sacrifice gap.

As in a traditional shoe store,the Custom Foot customer exam-

96 SHOES COURTESY OF MANOtO BIAHNIK

ines physical samples to determine which style heor she desires-but there the similarity ends. In-stead of the usual process of having people try onseveral pairs to find one that fits adequatelyenough, results from a digital foot imager, measure-ments taken by band, and one-to-oneconversations with each customeryield a guaranteed fit for each foot. Asalesperson then helps the customerchoose from a few select design ele-ments to determine the final specifi-cations for the pair of shoes, whichare custom-made primarily in Italy.

Mass producers frequently addnew features that seek to improvethe functionality of existing offer-ings, such as more types of fasteners on fabric, addi-tional locks and latches on windows, and moregauges and gadgets on manufacturing equipment.Such features generally provide increased value toindividual customers, but in many instances theyare not enough. Companies-or, worse, customersthemselves - are forced to modify the product:clothing is tailored, shoes have pads inserted, win-dows are remolded, and equipment is realigned.Collaborative customization replaces sueh back-end solutions with front-end specifications.

It is not surprising, then, that most collaborativecustomizers focus on design. The design stage,however, is not the only place in the value chainwhere companies can apply this approach. In thecase of collaborative delivery services, customersspecify exactly where, when, and how to' placegoods, which then drives the entire flow of workprocesses. The personalized placement of mealsand groceries by such shopping services as Peapodof Evanston, Illinois, and Takeout Taxi of Hcrndon,Virginia, is a thriving business today. Unlike massdistributors, which attempt to optimize productsupply by forcing customers to come to them, thesecollaborative customizers not only deliver theproduct to the customer but also customize that de-livery. In effect, there is no supply chain anymore;instead, a demand chain is created.

Mass producers scatter a product among as manyoutlets as possible in the hope that enough cus-tomers at enough locations will find the productsufficiently acceptable for it to generate a profit. In-ventory is built in anticipation of potential, yet un-certain, demand. Forecasting becomes the criticalactivity; but, as everyone knows, even the best fore-casting models fall short. Even if most companiescan accurately forecast their total finished-goods-inventory requirements, they always err in tbeirprojections of exactly which goods will be needed

HARVARD BUSINESS REVIEW fanuary-February 1997

at which locations and at what times. Collabora-tive customizers, in contrast, minimize costs bynot keeping inventories of finished products. In-stead, they stock raw materials or component partsand then make finished products only in response

of takingapproacJi, successiul companies

customize their goods andservices only where it counts.

to the actual needs of individual customers. Tbeytransport a given product only to those placeswhere they know it is needed.

Adaptive Customization. Rather than providecustomized offerings, adaptive customizers createstandard goods or services that can easily be tai-lored, modified, or reconfigured to suit each cus-tomer's needs without any direct interaction withthe company. Each customer independently deriveshis or her own value from the product because tbecompany has designed multiple permutations intoa standard, but customizable, offering. It is theproduct itself, rather than the provider, that inter-acts with customers.

Sometimes the technology permits each user toadapt the product-sueh as the control panels andembedded microprocessors in Lutron's productsthat enable customers to create different lightingsettings. In other instances, however, the technol-ogy automatically adapts the product for individualcustomers. When so-called fuzzy logic or other sen-sory agents are built into such products as razors,washing machines, and software applications, theembedded technology plays the active role.

If the intrinsic uniqueness of each customer's de-mands spans an enormous set of possibilities, someform of adaptive customization is imperative. Takethe customers that Lutron serves. With the excep-tion of eookie-cutter buildings such as franchiserestaurants, every customer's environment is un-remittingly different. Each room's shape, decor, andwindow placement vary. In addition, weather con-ditions that affect external light change from day today and hour to hour, as does the composition ofpeople in the room and the way those people use it.Companies that make adaptive mattresses, carseats, and stereo equipment similarly accommo-date diverse users wanting to experience the offer-ing, differently at different times.

97

MASS CUSTOMIZATION

Adaptive customization is the approach of choicealso when users want to reduce or eliminate thenumher of times they have to experiment with allthe possible configurations to get the product toperform as they desire. After users of Lutron'sGrafik Eye System have made the effort to pro-gram a variety of lighting settings, they can selectany one of them quickly and effortlessly at anytime. Similarly, Peapod has eliminated the "sort-through" sacrifice inherent in going to a physicalgrocery store filled with more than 30,000 prod-ucts. Its PC software and on-line service allow cus-tomers first to store the personal shopping liststhey use to select their purchases and then to accessproduct information through various sorting meth-ods (such as by price, brand, or nutritional content}.

Collaboration is the right approach when eachcustomer has to choose from a vast number ofelements or components to get the desired func-tionality or design. But when the possible combi-nations can be built into the product, adaptive cus-tomization hecomes a promising alternative forefficiently making many different options availableto each customer. For example. Select Comfortof Minneapolis, Minnesota, designs and manufac-tures mattresses with air chamber systems thatautomatically contour to the bodies of those wholie on them. Users can select the level of firm-ness they desire, and couples can select differentlevels on each side of the bed.

In most cases, adaptive customizers transfer tocustomers the power to design, produce, and deliv-er the final goods or services. Electronic kiosks thatpermit customers to produce their own sheet mu-sic, labels, business cards, greeting cards, and other

Adept mass customizers haveidentified the dimensions alongwhich their customers differ intheir needs.

printed materials on the spot illustrate how adap-tive customization can put the power to design andmanufacture the product directly into individualcustomers' hands. Similarly, America Online givesits subscribers the ability to create their own stockportfolios that list only the particular equities andfunds they own or wish to track. In addition, it of-fers them a service that automatically delivers arti-cles from various financial publications on the in-

vestments in their portfolios, saving them consid-erable time as well as newsprint-stained hands.

Cosmetic Customization. A company shouldadopt the cosmetic approach when its standardproduct satisfies almost every customer and onlythe product's form needs to be customized. In doingso, the company visibly demonstrates that it under-stands the unique ways in which each customerlikes the standard product to be presented. In somecases, companies can easily tailor their processes toinclude simple information about tbe customer-assimple, in fact, as his or her name-without the dia-logue associated with collahorativc customization.

Planters knows from daily interaction with itscustomers that the merchandising philosophies ofa warehouse-cluh store or a convenience store differfrom that of a supermarket. It knows that differentretail chains' stores allocate a different amount ofshelf space to a given product and locate that prod-uct differently on the shelf. It even knows whiehstores plan to feature peanuts on end-aisle displayson a particular weekend. Planters used these in-sights to develop a customized packaging capabil-ity-one that allows each retailer to order the partic-ular product it wants to stock.

Planters understood that its customers had beensacrificing how they wanted to receive and displaymerchandise. Accordingly, it carefully identifiedthe range of the retail chains' different packagingrequirements and then installed new packaginglines that could tailor the package's size, promo-tional information, and other nonproduct featuressuch as the number of cans wrapped in cartons.

Like Planters, most cosmetic customizers focustheir efforts at or near the end of the value chain.

Hertz Corporation's #1 Cluh GoldProgram effectively uses cosmeticcustomization to increase the valueof its otherwise standard rental cars.After signing up for the service. GoldProgram customers still receive thesame basic vehicle, but they bypassthe line at the counter and are takenby shuttle bus to a canopied areawhere they see their own name inlights on a large screen that directs

them to the exact location of their ear. When cus-tomers arrive at the stall, the car's trunk is open forluggage, their name is displayed on the personalagreement hanging from the mirror, and, when theweather demands it (and local laws permit it), thecar's engine is running with the heater or air condi-tioner turned on.

In creating its Gold service, Hertz excelled atidentifying which of its existing processes it did

98 HARVARD BUSINESS REVIEW January-February 1997

not have to change, which newprocesses it had to add, and whichexisting processes it could elimi-nate. It changed reservations, carpreparation, and returns. It addedthe processes for identifying GoldProgram customers as they get onthe bus, assigning vehicles whilecustomers are en route, and pre-paring rental agreements automat-ically. And it eliminated extrane-ous counter interaction and thetime-consuming processes thatprovided customers with instruc-tions about their car's location.By doing only and exactly whateach customer required. Hertzdiscovered that its Gold servicewas actually less costly to providethan its standard service.

When performed well, cosmet-ic customization replaces piece-meal and inefficient responses tocustomers' requests with a cost-effective capability to offer everycustomer the exact form of thestandard product he or she wants.Both Hertz and Planters werecareful not to add processes willy-nilly, which would have resultedin unnecessary complexity andcosts. The same cannot be said ofthe way many mass producershave responded to fragmentingmarkets. For example, in response to warehouse-club stores' demand for, say, packages containinglarger quantities of cereal or additional cans of tunafish, more than one consumer goods manufacturertoday ships cases of products to third-party compa-nies, which in turn take the products out of thecases, shrink-wrap the items in the quantities de-sired by the club stores, repack the items in a case,and finally ship them on to the stores. The fact thatcosmetic customization is easy to pursue does notmean that everyone implements it efficiently.

Transparent Customization. Transparent cus-tomizers fulfill the needs of individual customersin an indiscernable way-changing the product forthem but in such a way that they may not evenknow that the product has heen customized. In-stead of requiring customers to take the time to de-scribe their needs, transparent customizers observebehaviors over time, looking for predictable prefer-ences. Of course, this attribute requires a businessto have the luxury of time to deepen its knowledge

By doing only and exactlywhat each customer

required. Hertz discoveredthat its Gold service was

less costly to provide thanits standard service.

of customers and to move progressively closer tomeeting individual preferences. To become a trans-parent customizer, a business also must have astandard package into which its product's cus-tomized features or components can be placed.Transparent customization is the precise oppositeof cosmetic customization, with its standard con-tent and customized package.

Businesses ripe for transparent customization arethose whose customers do not want to be botheredwith direct collaboration. For example, to avoid an-noying customers with an endless barrage of sur-veys on preferences, Ritz-Carlton established a lessintrusive means of learning about individual needs.It observes the preferences that individual guestsmanifest during each stay - preferences for, say,hypoallergenic pillows, classical radio stations, orchocolate chip cookies. The company then storesthat information in a database and uses it to tailorthe service that each customer receives on his orher next visit. The more someone stays in Ritz-

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MASS CUSTOMIZATION

Cariton hotels, the more the company learns, andthe more customized goods and services it fits intothe standard Ritz-Carlton room - increasing theguest's preference for that hotel over others.

ChemStation likewise gathers information aboutits customers without their direct collaboration.George Homan, president of ChemStation, origi-nally defined his husiness proposition as eliminat-ing a form of environmental waste: the 55-gallondrums that were used to deliver industrial soap andthen were discarded in local landfills. After in-stalling ChemStation tanks at numerous customersites, however, Homan discovered that the real ben-efit to those customers was eliminating their con-cern ahout a necessary hut peripheral aspect of theirbusinesses: choosing the proper soap and managingits supplies.

Each customer's purchasing agent, of course, istold that ChemStation's chemists adjust such fac-tors as pH level, enzyme concentration, foaminess,color, and odor to match the customer's particularneeds. But ChemStation determines those needsthrough its own analysis rather than through col-laboration with the customer, and ChemStationalone determines the scheduled frequency of deliv-ery. Soap users develop their own particular habits.For example, customers' employees often use moresoap than is necessary - adding that extra globseems to be a universal habit. Rather than struggle

Many companies combine twoor more approaches in order tomeet individual customers'specific needs.

to educate every user about the proper quantity touse, ChemStation may install equipment that regu-lates the flow of active ingredients or that dilutesthe mixture of detergent and water hy the appropri-ate amount (while, of course, giving the purchasingagent the reason for the concomitant price reduc-tion). Only ChemStation knows the precise for-mula each customer uses and the reasons for its se-lection, which has the added benefit of keepingcustomers from educating the competition.

The ChemStation tank is the standard packagethat contains the customized goods [the soap) andservice (the delivery of the soap). Customers neverthink about the soap getting there, just about its al-ways being there. By constantly monitoring inven-

tory levels in its tanks, ChemStation can learn howoften customers will need more soap and can deliv-er it so that they always have the proper amount,saving them the bother of having to monitor sup-plies and place orders. Because there is no need tonotify customers when deliveries are to he madeor even that they have been made, ChemStationis able to construct very cost-effective deliveryroutes. The customer simply reviews its usage andpays the invoice at the end of each hilling period.

Combining Multiple ApproachesEach of the four customization approaches used

alone challenges the mass production paradigm ofoffering standard goods or services to all customers.Many companies, however, combine two or moreapproaches. For example, Lutron, predominantlyan adaptive customizer, nonetheless collaborateswith customers to match the color of its productsto their walls or to integrate its lighting controlswith their security systems. Similarly, Planters,primarily a cosmetic customizer, periodically col-laborates with retailers to change the mix of nutsthey receive.

The key is to draw on whatever means of cus-tomization prove necessary to create customer-unique value. Datavision Teehnologies Corpora-tion, a San Francisco producer of marketing

materials, effectively combinesthree of the approaches: coUahora-tive, cosmetic, and transparent. Thecompany takes input from multiplesources to mass-customize materialsfor marketing such products as fi-nancial plans, vacation packages,corporate health care programs, andcars. It draws from a vast library ofmaterials in order to produce videosthat are coupled with print informa-

tion to create messages tailored to individuals' spe-cific needs.

Datavision produces the customized videotapeswith a computer-controlled process that employslaser disc players, graphics generators, and videorecorders. A detailed profile of each customer's in-terests and past purchase history drives the process.The system links each element of the customer'sprofile with specific video, voice-over, music,graphics, and other text segments. It then automat-ically assembles the script and presentation mod-ules. Each videotape is assigned an identificationnumher that is used to print customized packagingmaterials, including cassette labels, mailing labels,and other printed materials accompanying the

100 HARVARD BUSINESS REVIEW |anuary-February 1997

videotape. The process can mass-customize indi-vidual videotapes in small quantities as well as inbatches of tens of thousands.

Datavision has produced several marketing pro-grams for automobile manufacturers. Wbenevercustomers call a client's toll-free number for infor-mation on a specific car model, the telemarketingemployee works with them to identify the car at-tributes they find most important and to learn whatcompeting models they also are considering. Thisinteraction carries over to the videotape that cus-tomers receive. The opening segment provides achecklist of the specific car attributes mentioned inthe telephone conversation, complete with a voice-over reminding customers of their stated remarks.If Jane Jones mentions an advanced engine as an im-portant attrihute, then her video might include acomputerized graphic of the engine with a high-tech music track and a voice-over on the engine. IfRohert Smith regards the power train as an impor-tant attribute, his video might include a sports mu-sic track and information on the car's horsepowerand torque.

Datavision's interaction with customers to iden-tify the aspects of the product that matter most tothem is collaborative customization. The selectionof the video clips and their sequencing, the voice-over, and the music-all of which are based on whatthe company can easily glean from each conversa-tion-are transparent customization. Datavision

uses cosmetic customization when the customer'sname appears on the tape's label and in tbe openingtitles: "This video presentation produced especiallyfor Jane Jones." The customer's name is not spokento avoid making mistakes in pronunciation,- but asthe name appears on the screen, the narrator saysthe tape was made "for you," "for you and your hus-band," or "for you and your wife," depending on theinformation the customer provided. It is the combi-nation of the three approaehes that produces an ef-fective and relevant marketing message.

The four approaches to customization provide aframework for companies to design customizedproducts and supporting business processes. Theydemonstrate the need to mix the direct interactionof collaborative customization, the embedded capa-bilities of adaptive customization, the forthrightacknowledgment of cosmetic eustomization, andthe careful ohservation of transparent custom-ization into one's economic offerings. Customersdo not value merchants who recite monolithicmantras on customer serviee; they value-and buy-goods and services that meet their particular set ofneeds. There is a time to conduct a dialogue withcustomers and a time to observe silently, a time todisplay uniqueness and a time to embed it. Busi-nesses must design and build a peerless set of cus-tomization capabilities that meet the singularneeds of individual customers. ^

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CARTOON BY GEORGE DOLE ' 101