The Right Stuff: America's Move to Mass Customization

Studies | Economy

No. 225
Tuesday, June 01, 1999
by W. Michael Cox & Richard Alm


Introduction

1Henry Ford's first great contribution to America was the Model T, which rolled off the assembly lines at his Highland Park, Mich., plant at the rate of one every 24 seconds. At the time, it was an amazing display of industrial efficiency. By streamlining automation in his factories, Ford advanced an era of mass production that built his fortune and brought the automobile within reach of an emerging middle class. But while the miracle of mass production delivered the goods, it didn't adapt easily, so all Model T's looked alike. Ford's approach can be summed up in what he said about the car's exterior: "The consumer can have any color he wants so long as it's black."

"There has been an explosion of choice in the marketplace."

Ford's take-it-or-leave-it attitude wouldn't cut it in today's economy. Americans are blessed - some might say overwhelmed - by an ever-expanding variety of goods and services. Just since the early 1970s, there's been an explosion of choice in the marketplace.2

  • The number of new vehicle models has risen from 140 to 260, soft drinks from 20 to more than 87, TV channels from 5 to 185, over-the-counter pain relievers from 17 to 141.
  • The U.S. market offers 7,563 prescription drugs, 3,000 beers, 1,174 amusement parks, 340 kinds of breakfast cereal, 50 brands of bottled water.
  • Whole milk sits on the supermarket shelf beside skim milk, half-percent, 1 percent, 2 percent, lactose-reduced, hormone-free, chocolate, buttermilk and milk with a shelf life of six months.

Today's consumers have access to more book titles, more movies and more magazines. Ford's company still makes black cars for buyers who want them, but it also offers 46 other colors - toreador red, jalape-o green, Atlantic blue, mocha frost, autumn orange, teal and more.

"Today Ford still makes black cars -- but also offers 46 other colors."

Giving Consumers What They Want. This proliferation of products, models and styles isn't capitalism run amok. Variety shouldn't be dismissed as a trivial extravagance. It's a wealthy, sophisticated society's way of improving the lot of consumers. The more choices, the better. A wide selection of goods and services increases the chance each of us will find, somewhere among all the shelves and showrooms, products that meet our requirements.

Over time, the American economy has been giving us more of what we want. Just look at what's happened in automobile design since Ford made his declaration about the color of cars.3 Until 1914, Model T's were available in red, blue, green, gray and black. The move to all black was a concession to mass production that made the car a commodity of sorts, but standardization wasn't a winning strategy in the long run. By 1927, competition forced Ford to rethink variety. The Model A came in several body styles and an array of colors. With each decade, Ford gave consumers more choices, so that by 1955 the company offered five model series: mainline, customline, Fairlane, station wagon and the two-passenger Thunderbird convertible. Buyers could select upholstery and optional equipment.

The possibilities for doing a better job of meeting consumers' wants still weren't exhausted. Ford and other automakers started designing products for market niches. In 1964, Ford introduced the Mustang, an inexpensive, sporty vehicle for young drivers. The 1980s brought the Taurus and Sable, cars for middle- and upper-middle-income families. As Ford prepares for the next millennium, it's introducing custom ordering, which allows buyers to specify what they want. Ford's Internet site offers six models of the Explorer - each with choices for power train, exterior, interior, audio, wheels, tires and other options. All told, there are more than 2.5 million possible combinations for the vehicle.

The trend toward customization isn't confined to the automobile industry. From clothing to computers, businesses are working to become more consumer friendly. They do it to gain new sales and stay competitive. They do it because pleasing the customer isn't just about producing more stuff. It's about producing the right stuff.

What Is the Right Stuff? It's more of what we do want and less of what we don't want. The economy provides more of what we do want by customizing products to our particular tastes. It eliminates what we don't want through preventive products. Vaccines, childproof caps, safety gear on cars and antipollution devices are valuable for the misfortunes they avert. Preventive goods and services are often taken for granted - until they're needed. They raise living standards by replacing treatment with immunity, repair with safer design, helping protect consumers from some of life's tragedies.

"Personalized goods and services are increasingly available to middle-class consumers."

The rich have always enjoyed the luxury of custom-made products. Now, though, personalized goods and services are increasingly within the budgets of middle-class consumers. Computers, the Internet, DNA research and other technologies are forging a whole new paradigm that makes possible the delivery of custom-designed products to the masses - at ever lower prices. The descriptive phrase for the phenomenon is mass customization. "Once you know exactly what you want, you'll be able to get it just that way," says Bill Gates, founder of software giant Microsoft. "Computers will enable the kinds of goods that are mass-produced to be custom-made for particular customers."4

The economy's progression to customization isn't a fad. It arises from the free market's relentless drive to bring what we buy closer to what we want. What we buy yields a lot more utility when it exactly matches our needs, and Americans are reaping enormous benefits as new tools help business cater to markets of one. We're getting more for less, helping keep inflation in check.

Defying Traditional Measures. There's just one glitch in this otherwise serendipitous story: traditional measures of the economy may not reflect how much our living standards are improving. Conceived in an era of mass production, the nation's gross domestic product (GDP) and productivity statistics may ably count more stuff, but they give little credit for right stuff. Mass customization and prevention - just like variety - deliver their gains in important but subtle ways, so GDP and productivity statistics fail to capture the extent of our progress.


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