The Right Stuff: America's Move to Mass Customization

Policy Reports | Economy

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

The Value of Extra Value

Whether companies are seeking to expand sales or just stay in business, mass customization enables producers to snare buyers by offering extra value. It's no surprise that consumer satisfaction lies at the core of this phenomenon; what consumers want always shapes market economies. Econ 101 professors have taught this straightforward notion since Adam Smith published The Wealth of Nations in 1776. Markets serve as complex information machines that collect and communicate buyers' needs, tastes, desires and whims. Producers that do the best job of catering to consumers gain market share and make greater profits. Burger King got it right in its advertising slogan: Have it your way!

Companies prosper by delivering what customers want. This conventional view of consumer sovereignty is correct - as far as it goes. What's missing is a description of how meeting buyers' needs and wants evolves over time. Americans have always preferred customized products, but they couldn't always afford them. Now, companies are finding ways to deliver exactly what we want at prices competitive with those of mass production.

Until the Industrial Revolution, producers catered to consumers one at a time. Sophisticated machine tools hadn't been invented, so every product had to be handmade. A tailor, for example, would measure each customer and ask about style, fabric and fit, then stitch a suit or dress to the exact pattern. When shoes, furniture and all other goods were made to order, customers could always buy just what they wanted - if they could afford it. The drawback of production by artisans was high cost. The typical American was lucky to possess one suit of clothes and one pair of shoes.

Industrialization changed that. Machines began to make our clothes, shoes, furniture, kitchen utensils and an array of new products, sweeping America into an era of mass production. Producer and consumer rarely came into contact. Goods were made in factories, shipped over great distances and sold in department stores. Mass production dictated large runs of identical products. Consumers sacrificed the luxury of personal attention for affordability. Taking what came off the shelf, though it might not be a perfect fit, was the best choice because it was cheap. The Industrial Age brought lower prices. ust as important, each worker produced more, justifying a bigger paycheck. Today, just about all U.S. households possess cars, television sets, telephones and plenty of other everyday conveniences - all made possible by mass production.

"What is increasingly shaping today's economy is not the raw power of machines but the subtle power of knowledge."

What's increasingly shaping today's economy isn't the raw power of machines but the subtle power of knowledge. Information Age technology - primarily the computer - has erased yesterday's edict that customization must carry a high price. Mass customization offers consumers the best of both worlds. It embodies the good qualities from the era of hand production - custom design and individualized service. And it retains the most significant gain from the era of mass production - low cost.

Mass production was about producing more stuff. Mass customization is about producing the right stuff.

Customization for the mass market isn't just economists' jargon for variety. The difference lies in which side of the market calls the shots. Variety represents producers' best guess about what consumers will buy. Companies tweak their designs, hoping what they offer is close enough. Even when companies rely on market research, they're still aiming at broad groups of consumers. Variety has delivered great benefits in recent decades, but it is mass production's response to the fact that everybody's tastes differ. Even at its best, variety is an imperfect substitute for true customization, which eliminates the need for guesswork. Companies that customize don't make anything until they know precisely what the customer wants.

One size fits all? Not anymore. What served as a good slogan for mass production doesn't cut it in today's world.

Read Article as PDF