Brand Familiarity and Product Knowledge in Customization

This paper challenges the assumption commonly used in the theoretical literature on customization that consumers always get their ideal varieties when they purchase a customized product. The author adopts Hotelling's horizontal differentiation model with two firms competing for a continuum of consumers. Each consumer has a most preferred variety and possesses a certain level of category-specific knowledge. Initially, the firms produce standard products located at the end points of the variety interval. Suppose one of the firms offers customization. Consumers familiar with the brand can easily transfer their needs into appropriate characteristics of this brand. Consumers unfamiliar with the brand have difficulty in expressing their preferences. Category-specific knowledge is crucial here. Knowledgeable consumers are more capable of analyzing information than less knowledgeable ones, and the products they design better match their preferences. The game runs as follows. First, the firms simultaneously decide whether to offer customization, then engage in price competition. The author shows that while customization makes the products less differentiated, the frictions introduced into consumer co-design activities relax price competition. As a result, customization by one of the firms occurs in equilibrium

Competitive Effects of Mass Customization

Earlier theoretical literature on mass customization maintains that customization reduces product differentiation and intensifies price competition. In contrast, operations management studies argue that customization serves primarily to differentiate a company from its competitors. Interactive involvement of the customer in product design creates an effective relationship with the firm, relaxing price competition. This paper provides a model that incorporates consumer involvement to explain the phenomena described in the operations management literature. Two firms on the Hotelling line compete for a continuum of consumers with heterogeneous brand preferences. An exogenously given fraction of consumers is potentially interested in customization. Consumer benefits from customization are the rewards from a special shopping experience and the value of product customization (better fitting product); these benefits are higher for consumers located closer to the customizing brand. When a consumer purchases a customized product, he incurs the waiting cost. The firms decide whether to offer customization, then engage in price competition. I show that customization increases the "stickiness" of a consumer to the customizing firm, leading to less intense price competition. As mass customization becomes more efficient (the lead time goes down and/or the sunk costs decrease), customization by one or both firms occurs in equilibrium. I perform comparative statics analysis with respect to the fraction of consumers potentially interested in customization

Customization in an Endogenous-Timing Game with Vertical Differentiation

We study customization in a duopoly game in which the firms' products have different qualities. Whether customization choices are made simultaneously or sequentially is endogenously determined. Specifically, the customization stage of the game involves two periods. Each firm either selects its product type in period 1 or postpones this decision to period 2. We show that both quality and endogenous timing play important roles in determining the equilibrium outcome. Customization occurs only if the quality difference is sufficiently large. Endogenous timing sometimes enables the firms to achieve an outcome that is Pareto superior to that if they were to make their customization choices simultaneously. Although the higher quality firm is more likely to customize, endogenous timing sometimes enables the lower quality firm to obtain an advantage that it would not have under simultaneous customization choices

The Value of “Bespoke”: Demand Learning, Preference Learning, and Customer Behavior

“Bespoke,” or mass customization strategy, combines demand learning and preference learning. We develop an analytical framework to study the economic value of bespoke systems and investigate the interaction between demand learning and preference learning. We find that it is possible for demand learning and preference learning to be either complements or substitutes, depending on the customization cost and the demand uncertainty profile. They are generally complements when the personalization cost is low and the probability of having high demand is large. Contrary to usual belief, we show that higher demand uncertainty does not necessarily yield more complementarity benefits. Our numerical study shows that the complementarity benefit becomes weaker when customers are more strategic. Interestingly, the substitute loss can occur when the personalization cost is small and the probability of having high demand is large, when customers are strategic.postprin

Implementing web customization of 3D interior home design

It is common nowadays for consumers to customize their products according to their preferences before purchasing. However, home customization is currently rarely adopted in Malaysia. Custom homes are known as unique houses that are built for specific customers according to their own preferences. These specially built houses allow users to have control over the layout and design of their house so that each and every unit of the house will be different depending on the client‟s wants and needs. This is to ensure that the user‟s needs are fulfilled and they will be satisfied with their future house. All this would increase customer satisfaction and improve usability of the new house. Therefore, this project endeavors to implement a website where people can easily customize the internal layout and design of their house using a web application. To implement this system, Unity3D is used to create the application. Upon completion, the system will be evaluated for its usability through qualitative study

Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel

This paper examines the value of abnormal inventory and the channels through which firms decrease abnormally high inventory or increase abnormally low inventory for a sample of 976 United Kingdom (UK) manufacturing firms over the period from 2006 to 2015. Using GMM regressions, the results show that (i) an optimal inventory policy exists; and (ii) firms that are able to converge at this optimal inventory level byeither decreasing abnormally high inventory or increasing abnormally low inventory to improve operational and stock performance. Importantly, the results show that trade receivables and trade payables are the channels through which firms achieve efficient inventory management

Fat Products

The economics literature generally considers products as points in some characteristics space. Starting with Hotelling, this served as a convenient assumption, yet with more products being flexible or self-customizable to some degree it makes sense to think that products have positive measure. I develop a model where ?rms can o¤er interval long 'fat' products in the spatial model of differentiation. Contrary to the standard results pro?ts of the firms can decrease with increased differentiation - there is a standard effect of lowering the incentive to cut prices, but there is also an incentive to provide more content sometimes resulting in lower profits. Consumer welfare increases unambiguously with respect to the standard model of Salop. I also find that it is profitable for firms to commit as an industry not to make fat products. If one firm is a leader and another is a follower, the leader accommodates the follower by settling for less pro?ts if differentiation is small.self-customizable products, flexible products, product differentiation

A Strategic Analysis of Canada Post\u27s Parcel Ecommerce Growth Strategy

Canada Post is a market leader in the business to consumer residential delivery of parcels in Canada. There is an increasing demand for residential delivery due to the worldwide growth in ecommerce sales. This paper presents a strategic analysis of the opportunity for Canada Post to increase its breadth and depth in the parcel delivery industry in Canada. The analysis will review the parcel industry, the ecommerce opportunity, an internal review of Canada Post, develop and evaluate four strategic alternatives and recommend a strategy for Canada Post. Canada Post’s current environment and capabilities suggest that to maintain its position of market leader it must put an emphasis on the development of new technologies and improve efficiencies and reliability. Investment in technology and transformation of the organization are the keys to success if Canada Post is to be successful at mitigating the risk of erosion of its competitive advantages in the marketplace