To survive in today’s marketplace, a company cannot afford to choose between low costs on the one hand, and high quality, innovative technology, quick delivery, or high variety on the other. A hybrid strategic approach is needed, teaming high quality or the latest technology with a strong cost position.

Mass customization is the perfect way to bridge the gap between cost pressures and customer-specific requirements. This strategy combines customer-specific products
and services with the efficiency of mass production. The customer who previously bought a standard product can now walk away with a tailored solution. Similarly, companies that traditionally produced custom-made solutions can still manufacture to order, but on a large scale, thanks to powerful new processes and product structures. Naturally, this cuts costs. Furthermore, mass customization provides the basis for successful customer relationship management (CRM) through direct interaction with each customer. Used effectively, mass customization holds considerable potential:

1. Differentiation through individuality: Products that are created specifically for a customer do not face price wars. The emphasis is shifting from price to value, and research shows that a customer who previously bought a standard product is often prepared to pay up to 100 percent more for a personalized product. Despite higher production costs, therefore, the margins for mass-customized goods are often greater than those for comparable standardized goods.

2.  New ways to cut costs: Direct interaction between a company and each of its customers makes production more efficient and drives down costs. The “on demand” principle prevents inaccurate forecasting of final products and reduces high inventory costs. On the manufacturing side, inventory is restricted to raw materials and components, some of which are also procured to order. Elimination of finished product stock can dramatically lower storage costs. Moreover, less surplus stock means less depreciation when models become outdated. For example, in the fashion industry, a considerable E300 million (approximately U.S.$370 million) is wasted each year on unsold products and inaccurate planning. This figure underscores the huge cost-saving potential of mass customization.

3.  Long-lasting customer retention: A further benefit of customer- specific services is improved customer satisfaction and retention. Personal interaction between the manufacturer and individual customers is vital if the company is to gather customer-specific information and translate it into tailor-made products. This interaction forms the basis for a long-term customer relationship.

By Frank Piller:  The Importance of Customer Centricity:CRM STRATEGIES