Bases loaded

The baseball and softball equipment sales picked up in spring 1998 following a prolong slump. Retailers expect two-fold sales increases in sales for 1998 despite the drop in exports caused by the Asian economic crisis. The change is attributed to the women’s increased interest in fast pitch softball and the advent of new products such as aluminum bats with graphite inner cores and titanium leather batting gloves.

Following a category-wide slump, high-tech product is leading a diamond-sports rally.

Few sights evoke a more revered image of Americana than a Little Leaguer digging in his spikes at the plate or outfielders shagging fly balls. But in recent years the baseball and softball categories seemed to be gaining more notoriety for their stalling – indeed declining – participant base and for inventory backlogs clogging retail warehouses.

This spring, however, diamond sports appears to be emerging from its slump. Inspired by such high-tech products as aluminum bats with graphite inner cores by Easton, titanium leather batting gloves by Mizuno and a recreational market of would-be sluggers willing to purchase high-end training devices, team sports companies are projecting increases for the baseball/softball category.

And retailers are reporting that adult leagues and, in some cases, a heightened women’s interest in fast pitch softball, are stimulating spring sales. Moreover, top-of-the-line price points, such as $250 and $300 rawlings softball bats, are leading the market’s resurgence.

In fact, a number of U.S.-based firms anticipate double-digit increases in the domestic market this year, despite a woeful export market depressed by the economic problems of Asia, specifically Japan, where diamond sports sales are plummeting as much as 40 percent after nearly a decade of increases.

“We’re conservatively bullish,” claims Herb Markwort, president of Markwort Sporting Goods, noting that the company could post double-digit gains domestically. Led by sales of products such as its Stash eps glove, designed to minimize ball impact on sensitive areas of a player’s hand including the thumb, Markwort notes that the “high-end” performance market is responsible for the category’s gains.

That observation is echoed by many major baseball/softball companies.

“Finally the industry is clean on inventory,” asserts Jeff Fiorini, vice president of marketing for Mizuno USA’s diamond sports division. “People were tentative for a couple of years and inventories built up,” he adds, noting that over a two to three-year span the retail pipeline contained twice as much merchandise as needed. Dealers, he notes, had to “stop and assess” their inventory situations and clear out excess product, which they have done in the past few years. With that accomplished, the market may now look forward.

According to Steve Lombardi, Jr., CFO and third-generation member of family-owned Lombardi Sports in San Francisco, the “baseball [and softball] business is on the rise following a tough time in which the bat business,” in particular, had “started to dwindle.” With recent product introductions such as Easton’s Redline bat, the enhanced Redline Z-Core bat and the Monster Barrel bat, Lombardi says sales are reviving. Gloves are posting an increase, he adds, in the high single-digit range.

Moreover, Lombardi affirms, the store needs to maintain a credible baseball/softball department to continue to be regarded as an authentic sporting goods retailer. “The [baseball/softball] department is a small department – it’s a six-figure per year department,” explains Lombardi. “We have a lot of departments that are million-dollar departments. But diamond sports is viable.” With no official Little League teams in San Francisco, Lombardi says 90 percent of his diamond sports business is softball.

On Deck Circle

Women’s specific products are another area demonstrating slow but notable gains this spring, vendors say. Easton, for example, is expanding the depth of its women’s product offerings.

“From a product standpoint, there is more selection and variety,” explains Mark Talarico, Easton’s director of U.S. baseball and softball sales. “In the past we basically only offered a women’s sliding short along with bats.” Now, Easton’s line includes gloves, batters gloves, bags and women’s-specific fast-pitch catcher mitts. The company also hired a full-time women’s fast pitch promotions coordinator, Pam Newton, last year.

And with a wider variety of SKUs and price points offered, the women’s portion of the line now accounts for about five to 10 percent of Easton’s diamond sports business, and continues to grow, Talarico adds.

Three different women’s fast-pitch accessory bags will be available for shipping in August, with suggested retail prices of $25, $40 and about $70. And, Talarico says, “Instead of offering one price-point batters glove, we’ll offer three price points, with the [positioning] of good, better, best?’ The batters gloves will retail for about $8, $14, and $20 – approximately the same price points as the men’s line – with consumer interest, he notes, expected to be “at the high-end.”

The top of the market is likewise stimulating Mizuno’s sales. The company claims it is seeking to “change the ceiling of retail prices” in ball gloves, according to Fiorini. While aluminum bats are sustaining considerable price increases, gloves have not kept pace. With the launch of the Mizuno Pro Limited ball glove – carrying a suggested retail of $350 – Mizuno is marketing a glove with an estimated 50 percent higher retail price than current models, Fiorini says. Some batting gloves will retail for $50. In effect, he adds, Mizuno is seeking to “position [the brand] at the top of the pyramid.”

The strategy appears to be working. Approximately 10 percent of Mizuno’s line will be positioned for the elite market.

The kids that are playing ball seriously are also purchasing the high tech models – or any technology destined to improve their batting averages or fielding percentages. This quest is not only stimulating high-end titanium bat sales and glove purchases, but increasing sales of training devices.

Products such as Rawlings radar baseball – which calculates the time it takes to release a ball until it impacts a catcher’s mitt – are among the category’s top sellers Other training products, such as “pitch back” nets and batting T’s are likewise strong retail sellers.

“The consumer doesn’t mind spending more if it is an enhanced product and gives them an advantage,” says Carl Ferraro, executive vice president of Regent Sports, which has signed a licensing agreement with Spalding to market a new line of training accessories, including a “deluxe” return throw device carrying a retail price of $99. Says Ferraro, “If there is more value to the [product], the serious player will spend for it.”

‘Have it your way’ makes a comeback

Remember years ago when Burger King introduced the slogan, “Have It Your Way”? Recently, the company’s marketers have brought back this ditty from the ’70 in hopes that consumers who want to customize their fast-food orders will once again help BK take market share from the hamburger behemoth, McDonalds.

Although customization may seem a natural for food preparation, it is also in vogue in the manufacturing industry for customers who are willing to pay extra or wait longer for their special order. And we’re beginning to see a new age of “mass customization,” in which more manufacturers are tailoring their goods and services to customers’ needs.

“Mass customization is more than just a manufacturing process, logistic system or marketing strategy,” says Erick Schonfeld in his article, “The Customized, Digitized, Have-It-Your-Way Economy,” (Fortune, Sept. 28, 1998). “It could well be the organizing principle of business in the next century, just as mass production was the organizing principle in this one.”

The desire for customized colors on products has been growing over the last several years. “I’m convinced that mass customization will be a new paradigm, with opportunities for those who are innovative,” says James Davis, senior vice president and general manager at GretagMacbeth (New Windsor, NY), a color-measurement instrument manufacturer whose products are helping its customers meet their customers’ demands for more color choices.

Mass customization is already being done at many plants, thanks to sophisticated parts-tracking software and automated finishing systems. Unfortunately, unlike Burger King where the burger costs the same whether you get it “your way” or not, customized products are often more expensive. Manufacturers have to develop innovative production processes to reduce costs. For example, at BMW’s Spartanburg, SC, plant, car bodies are being painted in the order that the purchase order was received. The first car down the line might be white, followed by two red, one blue, one green, another blue, etc. The company developed a piggable piping system that eliminates the need to flush out paint lines with every color change.

Customization may also bring a higher environmental price tag. This month’s article, “Navistar’s Road to a ‘Green’ Finish,” describes the truck maker’s efforts to reduce hazardous air pollutants in its basecoat and clearcoat systems, necessitated because Navistar uses about 1,000 paint formulations to meet individual customer requirements. Each year, about 200 new colors are requested, resulting in a palette of more than 6,000 colors over the last several years. Is this customization in the extreme or a new trend in manufacturing?

Customization may be a production challenge, but companies are going to great efforts to provide it. Fortune’s Schonfeld says mass customization requires continual dialogue with customers and results in the ultimate customer-service ethic. With this in mind, maybe your company should investigate how to increase the customization of its products or services. In the next century, it may be the road to survival.

Vision drives results

Innovative initiatives by Whirlpool Corp and Becton Dickinson’s International Distribution Services have demonstrated how a quick-response perspective can enable the “mass customization” of products and services. Whirlpool developed a network of integrated logistics centers and a “Quality Express” transportation fleet to cut its order cycle period from two weeks to 24 hours.

Today’s most innovative companies are rapidly embracing mass customization. It gives them the freedom to incorporate greater variety and individuality into their products and services while maintaining profitable price points. That’s according to Mass Customization by B. Joseph Pine II.

In my last column, 1 noted the universal concern for dramatically improving (i.e., reengineering) business processes that tie supply chain partners together, particularly order management. Responses to that column confirm that companies of all stripes are targeting order management links for strengthening.

A fundamental method Pine cites for achieving mass customization is providing quick response (QR) throughout the value chain. The vision of QR is to have “the right product, at the right place, at the right time, at the right price,” which requires maintaining a supply chain perspective of company processes while linking them electronically. Readers have provided the following examples of how taking a QR path can lead to mass customization.

Maintaining a supply chain perspective. In the late 1980s, Whirlpool Corporation’s inability to meet service requirements of long-standing customers like dealers and contractors began to undermine business. Home centers and globalization threatened traditional distribution channels. Whirlpool senior management’s supply chain reengineering initiative linked plants with dealers and, ultimately, with consumers. Whirlpool’s vision was to supply any customer, any day, with as little as a single unit of product within 24 hours. That’s a tall order considering that more than three million units of 950 different models are produced annually in Whirlpool’s five major US plants and are inventoried in hundreds of dealer warehouses.

Using cross-functional teams, Whirlpool took a total supply chain perspective and challenged old axioms like a full dealer is a happy dealer.” The team identified an opportunity to leapfrog competition by integrating and outsourcing all regional logistics activities. Using a network of strategically located, integrated regional logistics centers and its “Quality Express” transportation fleet, Whirlpool slashed order cycle time from 14 days to 24 hours, significantly reduced costs, and took large quantities of inventory out of the supply chain. Furthermore, improved service levels have delighted customers, raising Whirlpool’s service rating to first in its industry. Whirlpool’s Quality Express program is an outstanding example of vision-driven supply chain reengineering.

Information cornerstone. Pine also states that the key to success in providing QR throughout the supply chain is making critical information available to all parties through constant communication linkages, common databases, and multi-functional and cross-functional teams.

Tom McDonnell, manager of information technology in Becton Dickinson’s (BD) International Distribution Services, shows us how this theory works. The company’s Worldwide Interco Logistics Information System (WILIS) closes information gaps in the supply chain and dramatically improves customer service.

For many years, BD’s overseas operations had difficulty competing. Maintaining safety stock and tracking orders through manufacturing, freight consolidation, loading, and shipping phases Of the replenishment cycle proved difficult. High inventories, poor service, and recurring “air shipments” were often blamed on information gaps. Like many companies, status reports, telephone calls, and faxes substituted for a tracking mechanism.

BD overcame its shortcomings by reengineering the process of communicating supply chain information. The result: the WILIS system which serves 83 overseas users – (mostly inventory planners, administrators, and traffic coordinators – who collectively make several thousand inquiries monthly from their desktop personal computers or terminals. WILIS makes BD personnel available 24 hours a day to customers anywhere in the world, substantially improving customer service while eliminating costs associated with premium transportation.

Whirlpool and BD are two among many good examples of supply chain innovation that would make excellent subjects for future discussions. I encourage you to send me details on your experiences as well as input on the following topics:

* What seem to be your company’s major stumbling blocks to improving your ability to customize goods and services? * What recommendations do you have for increasing the pace of change? * How has your organization taken advantage of technology and information to improve its logistics processes?

I know many of you have made great progress in these areas and I hope you will be willing to share your lessons learned.

Kallock is chairman and a founder of Cleveland Consulting Associates, the supply chain management practice of CSC Consulting, and is a national leader in the field of distribution planning and operations. He was awarded the Council of Logistics management’s Distinguished Service A ward, based on his 20-plus years of solving complex logistics problems for more than 200 major companies – both shippers and carriers. He has also lectured and published articles on the subject of reengineering business logistics, and is an expert in the use of information technology.

Mass Customization Key to Success

Competitive local exchange carriers (CLEC) will have to move to customer-centric business models and offer customizable services in order to survive. A recent FCC order declined to force ILECs to provide unbundled access to packet switches and DSLAMs, putting many CLECs at a disadvantage even as it encourages universal broadband deployment.

Shortening local loops helps ILECs at the expense of CLECs, who tend to focus on reselling basic services; the highest potential CLEC profit margins come ironically from facilities ownership. Successful CLECs will offer differentiated services that satisfy customers’ real needs, something carriers have failed to do to date. NO single service can satisfy all customer needs. Mass customization strikes a balance between empowering specific customer segments. Subscriber management in the network core is not a viable model when carriers seek to tailor service packages extensively, and future differentiation will begin at the network edge.

In the new regulated environment, CLECs need to evolve to a customer-centric business model.

ACLEC’s success is contingent upon its access to customers. It achieves this by interconnecting to the ILEC network through either colocation of equipment or access to UNEs (unbundled network elements). Access to UNEs is a more attractive option because it permits a CLEC to leverage existing infrastructure for rapid access to customers.

To further clarify its original interconnection directive, the FCC released an order, FCC99-238, which took effect in May. In the interest of encouraging the universal deployment of broadband services, FCC99-238 restates the commission’s policy on unbundling, but also exempts all new packet-based network infrastructure deployments from unbundling restrictions. Specifically, the FCC declined to impose an obligation on ILECs to provide unbundled access to packet switches and DSLAMs.

At first glance, the order’s clarification on loop and subloop unbundling is highly attractive to CLECs–especially the inclusion of xDSL-capable loops–because it strengthens the service provider’s ability to penetrate the broadband access market. However, as a result of this FCC directive, ILECs will likely accelerate ATM-based access infrastructure deployments that will not be subject to unbundling. In addition, ILECs are expected to mass-deploy high-bandwidth, broadband infrastructure that will extend their networks closer to the customer premises, effectively shortening the local loop and protecting packet-based network investments from arbitrage.

As surprising as this aspect of the order may be to those who have viewed the FCC as the greatest proponent of competition, the commission’s primary focus is to encourage universal broadband deployment–something that competition was expected to achieve but which, by and large, it has failed to effect.

Shortening the local loop is detrimental to the CLEC business model, especially because many CLEC operations are founded on reselling basic voice and data services. More significantly, according to the Strategis Group, CLECs are operating on an average of negative-71 percent gross margin, spending a significant amount of revenue to subsidize access charges and incurring steep capital costs for network buildout.

Ironically, the same research shows that facilities ownership gives CLECs the highest potential profit margins. This raises the question of how a CLEC can create a business model that is both manageable and profitable.

As the effects of the new regulation ripple through the market, the CLECs’ access costs will skyrocket as fewer network elements are made available to them. Furthermore, the acceleration of ILEC buildout will outrun that of facilities-based CLECs. To survive in this new environment, CLECs must recognize incremental revenue through the introduction of new services. At the same time, they must evolve their business model from one focused on network buildout to one that is truly customer-centric. The key will be achieving this goal while maintaining control over facilities.

Offering differentiated services is not a new concept, but many service providers marketing them fail to satisfy customers’ real needs. The cost of provisioning highly differentiated services severely limits the extent to which providers can offer their customers services of great value. As a result, differentiated services on the market today are primarily high-speed broadband services.

While services are critical to differentiation, not all customer needs can be satisfied by the same ones. For example, financial institutions require high, but short-term, bandwidth during the night for data transfer. A medical center frequently needs short bursts of on-demand bandwidth during the day to transfer patient files from one institution to another. Ideally, each of these customers should have access to:

  • On-demand bandwidth and guaranteed bandwidth allocation;
  • Guaranteed QoS for services to which they subscribe, based on their perception of need;
  • Per-use billing.

For CLECs, the key to success is mass customization of services–packaging services tailored to unique vertical small and midsize business markets without sacrificing the ability to rapidly deliver those services to a broad customer base. With mass customization, CLECs can afford to offer tailored services to each vertical market within a large addressable market base. That market could include small and midsize customers from vertical markets, such as the hospitality, legal and financial sectors.

Mass Customization

How can vendors and providers enable the mass-customization approach to service delivery? Mass customization is the ability to strike a balance between identifying and empowering segments of similar customers to allow them to select and customize their services dynamically, on-demand and cost effectively.

Current approaches to service differentiation rely on intelligence such as subscriber management in the network core. With this method, the access and customer portions of the network offer no intelligence. This forces the core to manage a great number of elements and logical functions at once, which results in a failure to provide security, scalability and QoS across the access network.

This model falters when carriers seek to differentiate their customers because each uniquely tailored service package represents a large additional core investment. As a result, the core becomes a behemoth of elements and functions that must be duplicated for every new service type.

Differentiation must begin at the network edge: the customer premises. But in today’s typical access network, traffic from tens of thousands of subscribers and applications is funneled toward a single POP. This funneling challenges the relatively few intelligent network elements in the core. It creates bottlenecks upstream and downstream and a heavy burden of provisioning per element.

To successfully achieve mass customization, four key capabilities are required in the access network, including:

  • The ability to provide quantifiable and granular QoS on a per-customer basis, starting from the customer premises;
  • The ability to streamline the provisioning of tens of thousands of PVGs (permanent virtual circuits) on a single network element;
  • The ability to provide application-level transparency and security across the network;
  • The ability to treat each customer as if the network is its own.

The access network must, therefore, be treated differently from the core for it to perform as demanded. The above capabilities are achievable with a network architecture like that shown in Figure 3. Such an architecture:

* Distributes intelligence to the customer premises, thereby balancing and scaling access network functionality and costs, and alleviating core bottlenecks;

* Provides a point of convergence for all network functionality, creating service-awareness, and streamlining operations and provisioning on a common platform.

A services-aware access network functions as a collection of virtual wires, extending core network services to an end user’s network or devices. This approach allows service providers to focus on marketing and selling services rather than becoming mired in the network infrastructure itself. It also minimizes provisioning and its associated costs, making mass customization and customer differentiation feasible in business terms.

The New CLEC Paradigm

Just a few years ago, low-cost long distance and high-speed Internet access were the creme-de-la-creme of CLEC’s offerings. Today, market demand for customized services and the rapid change in the regulatory environment means that service providers must look beyond simply providing a fat pipe.

As the definition of service moves into the realm of customized applications and real-time billing, so too must the approach to internetworking begin to focus on services rather than simply transporting a greater built of traffic. Today, broadband access is fast becoming a hindrance for CLECs. Improving the value of the services that can be enabled across these high bandwidth conduits is where the CLEC’s opportunity lies.

Understanding and architecting the access portion of the network for the services era is key to successfully delivering services from the core to the end user. The access network has unique requirements from the core and must be architected to support services. Providers that will become near-term leaders and enjoy long-term success will deploy a network solution that supports services-focused business plans.

Making Strides In Mass Customization

While custom-made apparel targeted at the mass audience has been on the market only for a few short years, those who have tried their hands at it have learned one important lesson.

While having a pair of jeans or a pair of shoes made to your exact measurements is nice, that isn’t the only factor that motivates consumers to buy custom items.

A major driver is control and choice.

“When we did our early experimentation with the Personal Pair program around 1994, we focused very narrowly on a niche market of women who found it hard to find jeans that fit,” said Sanjay Choudhuri, director of mass customization at Levi Strauss & Co., San Francisco. “From that came the learning that the real market is beyond women who are hard to fit — from a fit solution to a choice solution.”

That learning is reflected in the Original Spin program, Levi’s second venture at the custom-made jeans business, which it launched last year. While Personal Pair offered women a single style of jeans made to their measurements, Original Spin allows women and men to design their own jeans from a palette of choices that include three basic models, five leg openings, five colors and two fly styles.

“The consumer does want to display his individuality and put a stamp on what he wears,” Choudhuri explained.

For Levi’s, one challenge in developing the Original Spin program was coming up with enough options that consumers feel they are really getting a unique product, without making the design process so complicated that shoppers become frustrated or confused.

“All consumers want the illusion of unlimited choices, but they don’t really want unlimited choices when it comes down to it,” he said. “They can’t handle — or they don’t want to handle — unlimited choices. They count on us to help them navigate through it.”

The Original Spin shopping experience is fairly high tech compared with the typical jeans purchase. The consumer uses a computerized kiosk to select the options she wants, and after she finishes her purchase, her order is electronically transmitted to the Johnson City, Tenn., plant where Levi’s assembles its custom jeans. Delivery follows in two to three weeks.

But one key aspect of the shopping experience is decidedly low tech: the fitting. Rather than scanning the customer’s measurements, a salesperson whips out a tape measure, and then offers the shopper three or four test pairs (out of an assortment of 242) to try on.

That is a critical part of the apparel-buying process, customized or not, according to Jeffrey Silverman, a consultant working on mass customization.

“People are used to trying things on and buying things that they feel good in,” he said. “The whole try-on thing is a very real and big issue.”

Silverman has direct experience with the importance of subjectivity in fit: He blames the failure of The Custom Foot, a shoe chain he started in 1994 that went out of business last year, on over-reliance on technology. At the core of the Custom Foot concept was a machine that scanned shoppers’ feet and allowed the company to make shoes that precisely conformed to those dimensions.

When the six-store chain filed for bankruptcy in June 1998, Silverman, who had been ousted from his position at the head of that business a year and a half earlier, said, “The single biggest mistake that we made was misjudging the importance of subjectivity in shoe fitting.”

There is a difference between a product that is objectively made to the customer’s measurements and one that fits the way the person wants it to, Silverman found.

After jeans, Silverman said, he believes the next markets that would be ripe for mass customization are bras and women’s swimwear. In fact, he said that he has tried to convince a big player in the intimate apparel business, which he declined to name, to try its hand at custom bras.

Introducing custom product in that category, he said, “makes a hell of a lot of sense.

“It’s an area with a lot of sizes and inventory,” he said. “Whenever you see a product with a lot of sizes, it usually means there’s a fit issue.”

In the situation he referred to, he continued, “They were able to make a product in test cases that was very, very attractive and exciting to their customers, to the point that the test subjects called up and asked where they could get more.”

But the intimate apparel resource ran into roadblocks: it didn’t own factories or stores and didn’t expect to be able to convince any major retail accounts to provide space to an untested product offering.

“The next step would be to open one store, but how do you get a factory to make bras for one store?” Silverman asked rhetorically.

Those problems didn’t affect Levi’s venture because it owns factories and stores. It has Original Spin kiosks in 11 of its own retail units.

Department stores have also bought into the concept: There are Original Spin kiosks in Macy’s in San Francisco, Dillard’s in Dallas and Belk in Pineville, N.C., as well as at Canal Jeans in New York. Another kiosk is expected to open at Macy’s Herald Square in New York in the near future.

Choudhuri said that owning domestic factories has been a key part of Levi’s ability to enter the custom-jeans market.

And now, with about four years of experience under its belt, the jeans company is realizing an important new lesson about being in the custom business.

“It isn’t really about two discrete things, either buying off-the-shelf goods or custom-made goods, and the two never meet,” he said. “We feel that the line between the two will get blurry.”

Choudhuri said that shoppers’ approach to buying jeans could become more like their approach to buying cars: “You can get one off the lot or you can get custom options.”

Having the capacity to customize product, he continued, “will force us to think about how we deliver product to the consumer, how we present options to the consumer, how we communicate to the consumer.”

He said that one day Levi’s could get to the point where “some jeans may not be complete when we ship them, but have options that can be finally configured at the point of sale.”

And while the Original Spin program is not yet financially self-sustaining, Choudhuri said Levi’s expects it to become so in the next few years.

“We see it as a project that can sustain itself eventually,” he said. “We are in the investment mode, and will be for the first year or two years. But if this was a lifelong perpetual investment, we would think again about it.”

Going to the masses

Delivering high-quality products and services is no longer a principle that differentiates the best companies in any consumer-oriented industry, nor does it assure success or profitability. In this era of “eat or be eaten,” all serious players offer quality service and exceptional products. The new model for the future focuses on personalized, customer-sensitive creativity and the customer relationship. The fundamental shift is from a focus on “share of market” to “share of customer.”

Cliche though it may sound, American business is undergoing a fundamental paradigm shift. “Technology drives the paradigm,” said Martha Rogers at the American Institute of Graphic Arts’ (AIGA) Design 2 Business, conference last October in New York City. Rogers and co-author Don Peppers wrote Enterprise One To One (Currency Doubleday). Speakers at the conference, including John Kao, professor at the Harvard Business School and author of the new book, Jamming: The Art of Business Creativity (Harper Business, 1996), Larry Keeley, president of the Doblin Group, and Dr. Pehong Chen, CEO of BroadVision, emphasized themes of “mass customization” versus “mass merchandising,” and customer relationships above goods and services.

The transformation from the “Industrial Age” philosophy of products and services to the “Information Age” principles of customers, information and relationships shows that products and services come and go; only customers are real, said Rogers. Added Chen: This change manifests itself by shifting the focus from “product-centric to customer-centric.”

This concept is a quantum leap from the traditional targeted, regional and micro-marketing strategies that most managers have been using. In fact, this thinking may be the catalyst for the next generation of giants in all consumer-oriented industries. The Sears catalog has come and gone, IBM struggles to find a new identity, the big three auto makers are constantly reinventing themselves. What is the future of traditionally run businesses and industries?

It may just be mass customization. A segment of customers is willing to pay more for the products and services that they really want, delivered in the fashion they choose. Taking a “your wish is our command” approach with customers will yield “more transactions, more profit and a delighted customer,” say Rogers and Peppers.

“The more customer information a company has, the better poised they are to take advantage of database-driven printing,” says Leslie Figler, Marketing Communications Specialist for the new Digital Division of R.R. Donnelley. “They can unleash the full potential of their customer database by creating highly relevant, personalized messages that address an immediate customer need.”

Relevant personalized messages are filled with information of direct interest to customers, which is significantly different from the old, irrelevant method of simply mentioning a customer’s name and address in a letter, or on the ink-jetted cover of a catalog.

A new level of truly personalized customer-specific direct marketing is now possible because of advances in database and printing technology. This technology leads a fundamental shift in business models within the direct marketing industry, as well as a change in the way all marketers view the value of information and their customer relationships. Timely, useful and informative personalized marketing will result in the creation of powerful relationships with customers, depending upon the quality of customer information.

The objective of customized customer marketing is not new. The innovation lies in its ability to deliver cost-effective, fully customized offers via the Internet and printed direct mail.

Mass customization today

BroadVision Inc. has developed software applications for dynamic, personalized marketing and selling on the Internet, (, and Their system collects data regarding the online and off-line behavior of customers then tailors web pages and offerings based on that data. In this fashion, it is the customer that determines the interface and the offer, not the marketer.

BroadVision is working on the development of Web sites that change in appearance, and the inclusion of select, user-specific pages created with information compiled from a subtly acquired database. Chen is a proponent of “drip irrigation,” where data on specific customers is collected not only through online behavior but also from asking customers a few new questions upon each visit. Chen says this results in a far greater response than longer questionnaires get since there’s less time commitment for the user.

In late 1996, Hewlett-Packard announced plans to include BroadVision’s One-to-One software products as part of their Electronic Business Framework. “By capturing information from Internet users and generating content on-the-fly to reflect user profiles [this new software suite] exploits the Internet’s uniqueness as a one-to-one medium,” according to Bill Murphy, HP’s director of Internet marketing.

R.R. Donnelley & Sons, the largest printing company in the United States, has created a new digital division with unique printing capabilities that capitalize on the technology that makes mass customization possible. “Through a combination of database and digital technology, the company is able to automatically change text, graphics and photos anywhere within a document.” says Leslie Figler. Customers use proprietary Donnelley software to code sections of their offers to accept variable information in full color or black-and-white. The software will also vary the page count based on the amount of content in selected database variables. R.R. Donnelley reports response rates as high as 20 percent using this new technology.

Amoco Oil Company uses this technology in its business-to-business marketing, working directly with its jobbers to create customized newsletters for its heavy farm equipment lubricants customers. Each newsletter includes four out of 12 possible lubricant advertisements and text fully unique to the individual customer such as: Details from meetings with that customer, purchases made previously and specific incentive offers.

Dr. Pepper/7 Up also uses database-personalized digital printing. Dr. Pepper distributes its soft drinks through bottlers, each of which manages a different portfolio of brands. Using information from his bottler database, Dr. Pepper updated his distributors’ literature with digitally personalized printed pieces from R.R. Donnelley, entitled “Tools of the Trade.” Each kit included three catalogs: merchandising, premiums and point-of-sale, which were customized with photos, graphics and text blocks containing only the brands and information relevant to the individual bottler. Ultimately, 2,000 different versions of each catalog were printed and mailed, according to Richard Lee Hilton, senior merchandise manager for Dr. Pepper/7 Up.

The future for marketers

Previously, marketers crafted messages; today, marketers must create feedback, and then be responsive to what they learn. Rich Everett, manager of interactive communications for Chrysler Corporation describes the electronic media opportunity as “think and link” rather than the traditional media principle of “tell and sell.”

Technology now allows for the creation and delivery of truly customized offers. The value of information, and the creative and constructive use of that information, are indicative of the shift in business models facing American companies. Relationship marketing is a model that has been part of the marketing industry’s nomenclature for nearly a decade. It is only with the advent of new technology that the promise of this model can now be fulfilled to the benefit of marketers and customers alike.

The emphasis on understanding customer relationships is reinforced by Keeley, the pioneer of “strategic design planning.” He says that successful companies will evolve via “breakthroughs” in the development of high-quality “customer experiences.” Keeley discusses the effects of user-centered research and design which lead to breakthrough concepts, which in turn lead to brand leadership. From a position of brand leadership a company can develop extensions in product, channels and distribution. In this way, companies may ultimately create a “culture.”

It is only by understanding the reasons why customers make their purchases and the nature of the experience that purchase elicits, that marketers can fill their customers’ needs. Examples of companies that have created this type of culture include: Starbucks Coffee, Barnes and Noble, Smith and Hawken, and R.E.I. By creating comfortable “eco-systems,” cultures and communities, not only can companies increase loyalty, “they can actually increase the velocity of relevant innovation,” Keeley said. Entirely new products and services will evolve to fill the dynamic and interactive needs of customers through these new “communities.” The Internet will be only one medium used to exploit this concept.

Creativity and openness to innovation are required to explore new avenues in customer responsiveness, evolution of company-based culture and mass customization. Kao, a leading proponent of making creativity tangible, argues the need to create business environments and systems that encourage, nurture and quantify creativity. Kao believes that a form of improvisation, like a musical jam session, combines diverse talents and allows for and encourages innovation in challenging situations.

General Motors founder Alfred P. Sloan said, “there exists no resting place for any enterprise in a competitive environment.” This philosophy has never been more true. Information technology has blurred the difference between products and services; quality has become a level playing field. Successful marketers need to understand the needs, motivations and emotional experiences of their customers to succeed in this age. The technology exists currently to acquire, analyze and use this knowledge. It now requires creative, customer-responsive marketing to implement a strategy to profit from this information in the age for which it is named.

Web automation

Automakers such as Chrysler, Volvo and BMW are using next-generation technology to let savvy customers create their own car configurations and order them from dealers. BMW lets Internet surfers take virtual test drives, while a recent Chrysler promotion for the Plymouth Breeze had one in five buyers choosing specifications on the Web or in kiosks. Many corporations use the Web to market directly to affluent consumers, eliminating middlemen and even bypassing their own sales forces, and to automate ‘front office’ processes, such as product configuration and pricing. Car manufacturers are confident that new ‘mass customization‘ systems will help them respond to customer demand. Experts warn that defining software rules for customization is difficult and will require considerable re-engineering, but will pay for itself in bottom-line results. Tools for automating the front office include those from Trilogy and Calico Technology.

Henry Ford, who famously said, “the public can have any color [Model T] it wants, so long as it’s black,” surely wouldn’t have grasped the dynamics of Web commerce. Auto shoppers this summer are browsing virtual showrooms to customize a car to their demanding specifications, price it and then order it from a dealer–usually offline. And with trailblazing expectations, they will shop the Web on Sunday at 9:45 p.m. and hope to drive it off the lot on Monday.

For years, consumers have been able to order almost anything online on systems that–to put it mildly–lacked a tight connection between the front-end ordering interface and back-end product-fulfillment or inventory systems. With the 1998 model year on the horizon, Chrysler Corp., Volvo Cars and BMW of America are taking the lead, rolling out next-generation technology on Web sites(or in some cases, kiosks) to transform cyber tire kickers into savvy shoppers. BMW, for instance, invites Netizens to take a cyber test drive. In a recent Chrysler promotion involving the Plymouth Breeze, one in five buyers had “spec’d out” their desired car either on the Web, in kiosks or with the help of an operator who stepped them through the same process. Similar efforts are under way among cutting-edge companies in fields such as health care, industrial gases, office furniture, and computer hardware and software, where Web transactions are often business-to-business.

All these companies might have a better idea than, say, Ford’s one-size-fits-all mentality. But give Henry the Curmudgeon his due. If he were with us, the assembly line wizard might argue that automakers haven’t shown how Web automation is a high-payback investment. And, he might add, the idea of empowering customers to configure cars the way they want them is just a gimmick.

History might prove him wrong, however. Since 1995, consultants have predicted the rise of “mass customization” on the Web, using specialized, interactive sales tools, and recently the road signs point to success. Web E-commerce is expected to reach $10 billion in sales by the millennium, according to market researcher Meta Group Inc., in Stamford, Conn.

The age of cyber auto sales is rising at precisely the moment when there’s a critical mass of willing customers, the right software and motivated companies. First, according to user reports and software analysts, Web packages from companies such as Trilogy Inc., of Austin, Texas, and Calico Technology Inc., of San Jose, Calif., are capable of juggling complex business rules required for customizing vehicles or other sophisticated products. Once designed, these applications can, for example, track whether blue bucket seats are available with a taupe, six-cylinder minivan.

Corporations are also highly motivated to use the Web to market directly to affluent consumers, to eliminate middlemen and even to bypass their own sales forces. And companies are increasingly more receptive to automating long-neglected “front office” processes such as product pricing and product configurations. This is especially true at companies that have already re-engineered “back office” enterprise processes, including logistics and order processing.

Still another issue, of course, is profitability. U.S. auto makers are reportedly suffering from declining per-vehicle profit margins against fierce foreign competition. Auto makers are looking to shave distribution costs before stanching further price reductions. “The current automotive distribution system is woefully inefficient,” says Nicholas Lobaccaro, a Merrill Lynch & Co. vice president and automotive analyst in New York. “To the extent they can shift to build-to-order as opposed to ‘build and hope someone buys it,’ the [automakers are] doing a lot to encourage it.”

“The trend toward customization will increase prices,” says Joe Pine, author of “Mass Customization: The New Frontier in Business Competition” (Harvard Business School Press, 1993), in Dellwood, Minn. He believes consumers will be willing either to accept no price break or to pay a premium to avoid salespeople like Joe Isuzu.

Product choices

The car manufacturers are confident that the new systems will help them better respond to customer demand. “Down the road, it’s our belief that systems like this will help us react to what people are shopping for in a more effective way than we do now,” says Mike McKesson, a spokesman for Chrysler, in Auburn Hills, Mich. Both Chrysler and Volvo are using Trilogy’s SC Config for the Web, software that can produce an intelligent front end for an order-entry system.

At BMW’s site, you can customize a car and see how much it would cost, but you can’t consummate the purchase immediately, says Richard Brooks, a spokesman for BMW of North America, in Woodcliff Lake, N.J. The decision not to sell cars directly over the Web was more a question of company policy rather than actual technology, says Brooks.

Volvo this month is launching a Web site that enables shoppers to configure the car they desire over the Web, says Michael Forbes, CIO of Volvo Cars of North America, in Rockleigh, N.J. The customers will go to their nearest Volvo dealer to arrange financing and pick it up–from a few days to six weeks later. “[The buyers get] what they actually want, and we have better utilization of our car pipeline,” explains Forbes.

Although Trilogy and Calico may lack wide name recognition, they each have strong customer references. Calico’s Concinity product, for example, powers the most commercially successful Web site in the world–the $100 million-per-month home of No. 1 router vendor Cisco Systems Inc. In April, Microsoft Corp. Chairman and CEO Bill Gates demonstrated Concinity–and thus endorsed it–at a software developer trade show in San Francisco. Meanwhile, Trilogy, which has a broader and higher-end product line, is behind the soon-to-debut Volvo and Chrysler applications, plus Haworth Inc.’s digital furniture showroom. Trilogy also is gaining a reputation in high-tech circles for its laptop-based product configuration and pricing software, which will be deployed this year on computer slugged by tens of thousands of IBM, Digital Equipment Corp. and Hewlett-Packard Co. sales reps. Dr. Michael Hammer, the re-engineering guru, has put his stamp of approval on Trilogy, advocating Selling Chain in recent management seminars.

There is a catch to the promises of the software, however. “Defining the [software] rules will take a re-engineering effort,” contends Joel Serface, an analyst at Advanced Manufacturing Research Inc., in Boston. But it’s worth the effort. “The ability to give your customer what they want, when they want it, is going to be a differentiator in almost any industry,” says Serface.

Not just the Web

Undoubtedly, numerous high-tech IT shops share Serface’s sobering assessment, but are nevertheless charging ahead. Late this fall, Xerox Corp. will equip 1,000 laptop-toting members of its U.S. sales force with Trilogy’s SC Config software. “It’s all about making us easier to do business with,” says Graham Milligan, director of market management and selling processes in Xerox’s U.S. Customer Operations division, in Rochester, N.Y. “We’ve done a lot of work re-engineering our sales processes to take out individual [bureaucratic] steps.”

Trilogy consultants also share the workload. According to Trilogy, the consultants typically help a customer define the configuration model, loading customer-specific business rules and various data, such as information about car parts. Custom front ends also are available. For example, Haworth Inc., the office furniture giant, created its own three-dimensional visual interface to its catalog. Trilogy consultants also link Selling Chain to a customer’s Open Database Connectivity-compliant database or to SAP AG R/3, Oracle Corp. or Baan Co. enterprise resource planning applications.

Xerox’s Milligan says the biggest part of the implementation is establishing the rules. “Our challenge has been in developing the rules for the configuration engine,” he says. “There’s a process where you structure the rules before you enter them in the model.”

Alan Drummond, director of marketing for Trilogy’s Internet business unit, concedes that the initial customer applications typically require the assistance of a Trilogy employee. But, Drummond adds, “we’re not in the business of providing camp-out consultants. We give customers enough knowledge-transfer that they can do modeling themselves.”

Trilogy pricing comes in around $5,000 per laptop user, including server software and customization work. The Web version costs $200,000 per server. “Five thousand dollars a seat isn’t cheap,” says Mark Sherman, director of software banking, at San Francisco-based Robertson Stephens & Co., an investment bank. “But if you can, think of it as a trade-off for companies that won’t waste money shipping products that don’t suit their customers’ needs.”

For Chrysler’s McKesson, the investment is worthwhile because the Web offers “a way to market to customers we might not normally reach.” Still, one of the key questions that remains to be seen is whether customers who choose to configure their vehicles will mind waiting three weeks or so for product delivery. In an age of instant gratification, it’s still fairly easy to go down to the auto dealerships and test drive real–not virtual–cars.

Despite these concerns, Raj Joshi, a partner in Deloitte & Touche’s Consulting Group, in Dallas, argues that sales growth is the likely outcome of these rule-based systems. “A customer has more confidence in you as a vendor because you’re giving right and accurate answers,” says Joshi, whose company is a leading Trilogy system integrator.

Eventually, of course, most companies would like to match the success of Cisco, which has set up an extranet to enable its customers to make direct purchases of routers and other networking products. “It’s obviously the way the business is going,” says Xerox’s Milligan.

AMR’s Serface predicts that front-office software vendors such as Trilogy eventually will build applications centered around sales forecasting and demand creation. “Sales process transformation is an offensive move today,” adds Deloitte’s Joshi. “Tomorrow it will be defensive.” In that sense, automation is a concept even Henry Ford might appreciate.

Merrill Lynch’s Lobaccaro thinks so, too. “Given the poor customer satisfaction of the auto retail channel, to the extent that technology can replace the stereotypical car salesman, this might be a lasting trend.”

At a glance


Trilogy Selling Chain, SC Web: The Selling Chain is a suite of “front-office” sales and marketing tools for custom product configurations and instant price quotes, with links to “back-office systems” such as SAP AG’s R/3. SC Web is a rules-based server application that enables Web consumers to customize their product selections. Leading customers include IBM, Chrysler Corp., Volvo North America, Boeing Corp. and Xerox Corp. Customers outfit Selling Chain applications on sales reps’ laptops, LAN servers, Web sites and kiosks.

Differentiators: The Selling Chain software is about $5,000 per user. Customers rarely buy the Selling Chain applications without also contracting for consulting and integration work from Trilogy or a partner such as Deloitte & Touche. Trilogy has pursued a vertical-market strategy, primarily in automotive and computer-related industries

Calico Technology:

Calico Concinity 8.0: E-commerce software for interactive purchasing and sales configurations on the Web or on sales reps’ laptops. Leading customers include Cisco Systems Inc., U.S. Robotics Corp. and Cabletron Systems Inc.

Differentiators: The Concinity Mobile sales force solution is $2,500 per user; the developer tool, called Workbench, is $40,000 for the first user; and Concinity HTML, the Web server product, is $200,000 for unlimited use on a single computer. Unlike Trilogy, Concinity is not aimed at the high end of the field sales force automation arena. So far, most of its customers are in high-tech.

NOW branches into wood-frame sofas

Constantly looking for the next hula hoop–that’s how the president of NOW Products, Kevin Gallagher, describes his purpose in the lifestyle market. And the newest hoop for the manufacturer is wood-frame upholstered products.

NOW is aiming to retain its market position by developing more ready-to-assemble, dual-purpose items, staying within the low- to mid-price range, upgrading its lifestyle items, beefing up the juvenile line and emphasizing futons and frames, according to Gallagher. “We’ll stay with our image, the concept of dual purpose,” he said.

Next month, NOW will begin production on a ready-to-assemble line of sofa sleepers that will be made of form and frame in wood. They will come in four or five silhouettes and present only eight screws, making assembly easy for the consumer. The line is expected to retail for about $249 and give the manufacturer a greater presence in the ready to assemble market, according to Gallagher. NOW will feature the products at the April High Point Furniture market, he said.

At retail, NOW suggests displaying an assembled sofa with a hang tag stating that it is ready to assemble. The sleeper sofas will be shipped in cartons, which will allow more pieces per truckload and provide a savings on freight, Gallagher said.

“We will continue to offer what’s hot at the moment, hence our name,” Gallagher said of his company that began as a maker of beanbag chairs and waterbeds. “It’s our trademark.”

NOW’s lifestyle line includes futons and frames, beanbag furniture and upholstered chairs, as well as foam sofa sleepers and chairbeds for adults and children. The kids’ sofa sleepers start at $59 retail, and the chairbeds, which use Cohama Riverdale fabric designed by Gear, begin at $39.

Gallagher described NOW’s distribution as strong. It sells its foam products to retailers such as Levitz, specialty shops such as The Door Store and retailers such as HomeWorks at Foley’s and Lazarus with lifestyle departments. Beanbag chairs, which sell for $36 at JC Penney, also are distributed through Amway’s mail-order catalog.

“NOW chopped out a little hole in the market by being interested in working with the client, suggesting ways to go, then waiting for the client to accept or reject the idea,” one lifestyle retailer told HFD.

Lifestyle retailers applaud NOW’s flexibility in exploring new niches. They say the manufacturer offers a choice of designs that originates in Europe and fabric that is produced in the Far East. They suggest that NOW’s willingness to improve design and fabric could enhance sales, which are projected to reach $20 million this year.

But some specialty retailers say a downturn in the foam market, caused by higher costs and diminished quality, is forcing NOW toward the wood-frame sofa segment, which they say is more viable.

“The foam market has been tough,” another lifestyle retailer said. “The downturn has made NOW come up with futons and frames, and now a hard upholstered line.”

Gallagher said he does not recognize a downturn, however. NOW is introducing the wood-frame sofa line to provide retailers with a broader product mix, he said. Step-up RTA products that retail from $199 to $299 complement NOW’s promotionally priced foam line, he said.

Some retailers sell roomfuls of ready-to-assemble sofa sleepers because “there’s a symbiosis in the category between upholstery and RTA,” Gallagher said. NOW’s new RTA line, which JC Penney will sell, will offer a choice between contemporary styling with a flared arm and striped fabric, and a country-style, rolled arm featuring printed fabric with ruffled pillows.

NOW’s growth plans center on courting additional accounts and increasing business with existing account structure, which Gallagher said he sees as the most promising growth area.

Futons and frames, another of Gallagher’s hula hoops, are at the same stage as waterbeds seven years ago, the NOW president said. The beds occupy 8 percent of the firm’s business, but that share is said to be growing. “The consumer will see more of them at mass merchants like JC Penney and Levitz, and specialty stores like The Door Store,” Gallagher said. Hardwood futon frames are the only product NOW imports, from Malaysia.

NOW plans to show the futon and chairbed line at the San Francisco Home Furnishings Market that opens on Jan. 25 and expects to offer customers a warehouse program for futons and frames at plants in Fort Smith, Ark.; Compton, Cal.; Berwick, Pa.; and here, he said.

Gallagher said he tested the waters for children’s products at the High Point Furniture Market last October. The result: NOW’s latest kids’ sleeper comes in bright fabrics–one style printed with boats, one with bears. “Grandma would pay $100 for a sofa or $50 for a chair,” he said.

For the April furniture market in High Point, NOW will show juvenile sleepers in contemporary and country fabric that were developed from the adult line.

NOW Products is poised for success, according to Gallagher, because it offers good price, quality foam and fabric, service and a willingness to invest in enough raw materials inventory to give customers 10-day delivery. “The goods don’t sit for more than 24 hours in here,” he said. According to sales director Michelle Wosniak, NOW warehouses at least $1 million worth of fabric inventory.

Another unique aspect of Now is the “dual purpose” of its products, according to Gallagher. “Every item we develop will work twice. If it’s a bicycle, it will double as a bed. We believe in functional, dual purpose.”

One example is NOW’s popular adult chairbed. Gallagher said NOW moves more than one-half million of these products a year. They retail between $39 and $49. The dual-purpose concept especially satisfies the modern consumer, he said, because families are smaller, more mobile and more likely to furnish a second home.

NOW also believes in volume, Gallagher noted. If the company introduces six products at market and takes orders for two, it will drop the other four, he said– and dealers know that. “We have a strong rapport with our dealers. They know the capabilities of our factories.

“Our philosophy is that the (profit) margins aren’t great, so we keep overhead down” and volume up,” Gallagher said. Combined, NOW’s plants produce some 4,000 pieces per day.

“We understand our niche– $299 and below. That’s it,” he added.

NOW has come a long way since it began in 1970 as a beanbag chair manufacturer. Gallagher, then an employee, left but returned in 1978 to purchase the company, which had annual sales of about $400,000. Gallagher bought out his partners two and a half years ago.

Gallagher’s plans for growth are aggressive, calling for NOW’s annual sales to exceed $30 million by 1990.

Loyalty among sales reps is one factor that Gallagher said will help him realize his goal. Twenty-five of NOW’s reps have been with the manufacturer for five to eight years, a fact that Gallagher said makes him proud. “They’re not fly-by-night. They’re maintaining the same accounts,” he said.


Mass customization or mass confusion?

Manufacturing processes that emphasize the ability to quickly customize products to meet a customer’s particular needs has many benefits, but can be costly. Efficiency and obsolescence can be avoided by continually improving a process and its technology.

In the early 1920s the use of rigid, dedicated automation changed the face of America forever. By revolutionizing the economics of highvolume manufacturing, this new technology of mass production enabled industry visionaries like Henry Ford to transform the automobile from a toy for the rich–as it was conceptualized in Europe–to a ubiquitous necessity for the American masses.

Today, a new paradigm, mass customization, is entering the lexicon of manufacturing. Simply put, it is the ability of today’s manufacturing technology to bring down the cost of variety.

Anticipated in 1970 by Alvin Toffler’s Future Shock and named in 1987 by Stan Davis in Future Perfect, mass customization has gained a new voice in Mass Customization, The New Frontier in Business Competition, a book written by B. Joseph Pine II when he was a program manager at IBM Corp. (He is now president of a management consulting firm, Strategic Horizons Inc., Ridgefield, Corm.)

Mass customization is more than some oxymoronic marriage of craft-based production to mass production techniques. Instead, the term refers to a new way of conducting business to gain the ultimate competitive edge. Mass customization reaches the goal of customer satisfaction by harnessing the latest business methods and technology. Mr. Pine says the intention is to “create variety and customization through flexibility and quick responsiveness.”

He says a premier practitioner is Motorola Inc.’s Paging Products Group, Boynton Beach, Fla., but others are also achieving significant gains with the technique.

For example, at a Honeywell Inc. facility in Golden Valley, Minn., a single line produces three very different thermostat products that previously required three separate lines.

Honeywell designed the line to speed changeover time from one run to another. Worker productivity tripled, and changeover time has been reduced from 25 minutes to just two minutes. At the company’s Micro Switch Div. plant in Warren, Ill., hundreds of thousands of electromechanical switches are produced annually. Instead of mass-producing one design, the facility can efficiently produce variations to satisfy customer specifications. Production runs can vary from less than a hundred to several thousand.

New enabling technology continues to be introduced. One example is the Smart Distributed Systems (SDS) technology introduced by Honeywell’s Micro Switch Div. “It is the intelligent-sensor network that allows our industrial customers to mass customize,” says Ramon A. Alvarez, vice president and general manager. Sensors on the network communicate with each other and with central control devices. The system allows operators to quickly reconfigure a line from a central computer as necessary to customize products.

“It is our responsibility as providers of automation solutions to support our customers’ ability to be responsive to their customers,” Mr. Alvarez adds. Among the virtues of this emerging technology is its ability to allow rapid conversion of production facilities from one product to another.

If it is true that much of America’s past economic dominance came from mass production, then it is equally certain that future success will depend on using the principles of mass customization, believes Mr. Pine. He notes that “mass production became increasingly inappropriate for the increasingly turbulent market environment of the past 20 years. The seeds of mass production’s decline were always present within the system, but they have not and could not be easily seen or understood by its practitioners.”

In the mass-production model, both product and process change come very slowly to ensure fixed costs are recouped. Then every four or five years, mass producers must devise another new product to be mass-produced. That competitive reality was successful until the Japanese figured out that if they continually improved their processes they could achieve both lower costs and higher quality than the typical mass-producer.

“By embracing dynamic change [continuous improvement], the Japanese discovered they could gain a significant advantage over their competitors,” Mr. Pine says. “That was so different than the old ways of doing things that it took American producers a long time to figure out exactly what was happening. As a result, many of today’s ‘silver bullets’ are aimed right at continuous improvement, using such things as teams, total quality management, benchmarking, and customer-satisfaction measurements.”

Mr. Pine rates continuous-improvement/lean-production as more than an updated mass-production model, but much less than mass customization. He does see it as a necessary intermediate step that can help to break apart the vertical functional silos and other manifestations of mass production.

But while the vertical silos of the mass production model can be dismantled by team building, he warns that “horizontal” versions may appear in the teambuilding process. “Instead of ‘I don’t talk to you because you’re not in my function,’ a team at Toyota might say, ‘You’re not on my team, I don’t have to talk to you.’ In mass customization, the idea is to break down both the vertical and horizontal barriers to communication.”

With mass production, the tendency is to optimize functions, while the constant-improvement/lean production philosophy is attempting to optimize the team. Companies capable ofmass customization instead optimize the relationship with the customer.

Mr. pine doesn’t see hierarchy, command and control, functional silos, and such as necessarily bad. “They are exactly what you want to do when low cost and production efficiency are paramount over everything else,” he says. “The problem with these things is that mass production doesn’t work anymore as a strategic response for industries with turbulent competitive environments-those characterized by more demanding customers, quality consciousness, and accelerated product life cycles.

“That’s why organizations have to change from mass production, with its internal focus on nothing but efficiency, to constant-improvement/lean-production and finally to mass customization. At that stage, all of the characteristics of the earlier models such as efficiency and quality are no longer goals, but conditions necessary to even entering the game of competitive manufacturing. Since mass customization presumes manufacturing technique is already optimized, the focus of a manufacturing organization can be completely external.”

The ultimate benefit, says Mr. Pine, is that the manufacturer and the customer get deeply involved in a learning relationship. Instead of merely selling to a customer, a manufacturer employing mass customization is engaged in a two-way dialog. As customers discover how responsive a manufacturer can be, the relationship becomes impervious to competition.

That’s the ideal. However, the practice of mass customization is still in the early stages of the learning curve. “It is where mass production was in the early 1900s,” says Mr. Pine. And it is not the answer for all situations. “If you can sell everything you make, mass customization is irrelevant.

“For example, when Honda dealers had more buyers than cars, it was obvious they were winning the competitive battle without mass customization. Some customers may have even sacrificed their accessory preferences just to be able to buy one. But how long can such situations last? The capability for mass customization needs to be developed before a competitive crisis occurs .”

Although mass customization is a powerful competitive tool, it is not invulnerable. For example, it can be powerless when confronted with a new major dominant design that makes all previous versions obsolete. The ability of a buggy-whip manufacturer to mass customize will do little to help when carriages are replaced with automobiles.

Also, the ability to mass customize is not always a virtue. That was the discovery that Japanese electronics and automobile manufacturers made as they entered the recession.

“During the ‘bubble economy’ of the 1980s, Japanese executives placed a high priority on satisfying every possible consumer whim, regardless of how marginal its contribution to the bottom line might have been,” explains Masakatsu (Mark) Mori, managing partner in Andersen Consulting’s Tokyo office.

For example, before the recession, Nissan trumpeted its Intelligent Body Assembly System as the company’s approach to building “any volume, anywhere, anytime, of anything by anybody.” And it did. By one assessment it was an example of being able to mass-customize way beyond the ability of customers to absorb or even understand. When the recession struck, Kenichi Sasaki, managing director of Nissan Motor Co. Ltd., noted “the need to confront runaway technology and its associated costs.”

Mr. Pine sees two cost traps in mass customization, and both relate to complexity.

“One is the internal complexity that can arise when the amount of product variety being sought is beyond the ability of the organization to handle it efficiently,” he says. “Either the technology is not there yet to permit mass customization on a low-cost basis, or the implementation may be faulty.”

But adding more features to a product doesn’t necessarily add to internal complexity. For example, General Motors Corp.’s new Lumina and Monte Carlo come with many more features than their pro. decessors, yet utilize several hundred fewer parts and take a third less time to assemble.

The other cost trap is external complexity–where the range of choices overwhelms the customer, creates market confusion, and serves only to delay customer decisions. A better idea, says Mr. Pine, is to offer customization within a cost-effective universe of possibilities. Then, to facilitate ordering, the man ufacturer provides configuration and design tools (See the Harley-Davidson example above.)

Although Mr. Pine believes mass customization i. today’s best way of harnessing the latest organize tional and technological knowledge to achieve customer satisfaction, he also says it is no more than that. He is convinced that the end of business history has not been reached. There is more to come.


Harley considers a plan to let customers customize.

If mass customization is designed to strengthen the vendor-customer link, then why would a company at the apparent peak of success–one so successful that orders are backlogged into 1995, with customers already reserving the 100th-anniversary models due early in the next century–be studying the concept?

The answer, obviously, is that the company, Harley-Davidson Inc., recognizes the value of this almost mystical bond with its customers. The company knows all too well that such bends are precious and must be carefully nurtured.

Still vivid in Harley.Davidson’s memory is the way its market share went from almost 100% in 1973 to 23% by late 1982 after Japanese manufacturers introduced lower-priced, higher-quality motorcycles. In 1981, at an Andersen Consulting seminar on Japanese productivity methods, Harley-Davidson learned about a different way to manage. The company teamed with Andersen Consulting on a just-in-time pilot project aimed at setup reduction and supplier relationships. The efforts quickly brought results, and the pilot became the basis for a new vision for the company, one involving fundamental changes in operations.

So, today, when the company is ahead of the pack, customer satisfaction remains the prime goal, says Thomas E. Arenberg, the Andersen Consulting industrial-products partner working with Harley-Davidson. One of his projects is directed toward problems brought on by the company’s success. For example: “What can you do to attract a rider into a Harley store and window shop when the company’s production is sold out? Also part of the puzzle is how to develop a learning relationship with ‘rubbies’ [rich urban bikers], a new affluent market sector that knows little about Harleys, except that it is neat to own one.”

A prototype solution now under study at the company is a multimedia configuration and design tool for customers that can help them customize a Harley within the universe of the factory’s production capability. Placed in a dealer’s information kiosk and at the sales closing desk, the multimedia presentation would enable uninformed customers to learn about the mystique of customizing their bikes with genuine Harley accessories. “What we’re trying to do is close the door on competitors so that all the shopping is done at once,” says Mr. Arenberg. “Not only closing the deal, but also the financing, and selection of accessories and clothing.” Utilizing a user-friendly touch screen, customers can easily familiarize themselves with the product possibilities, including colors, the range of product variations, and how they can further customize their selection with genuine Harley accessories.

Mass Customization comes to food

General Mills, P&G Web sites make consumers product developers.

You’ll find only 50,000 items in a typical supermarket. But if you visit General Mills’ new cereal customization site,, your preferences could steer you toward any of more than 1 million blends of cereal alone. At, the new custom coffee site of Procter & Gamble Co.’s Millstone brand, more than 36 billion individual “tasteprints” are theoretically possible, allowing for plenty of coffee choices even if everyone on earth logged on for a cup of joe.

After years of trying to streamline supermarket retailing by trimming slow-moving stock-keeping units, two heavy hitters are embracing variety in a big way. The new wrinkle: direct-to-consumer Web sites that tailor products to individual tastes.

While mass customization has been an intriguing intellectual parlor game among some food and beverage executives for at least a decade, General Mills and P&G are finally putting it into practice–at least on a limited basis. And while neither company is painting mass customization as a force that will fundamentally change the industry, both are hoping to turn their fledgling ventures into full-fledged businesses.

Dell Computers turned direct-to-consumer Web-based customization into one of the most respected names in the technology industry. But other industries have been slow to follow its online customization model. Maybe with good reason.

“I think (customization) may make sense in specialty foods,” says Sheryl Tullis, brand manager for and other Millstone interactive ventures. “It doesn’t make sense to customize a lot of commodity-type products. But it does make sense if people are willing to pay more for something that’s an integral part of their lives. Coffee is just one of those categories that people are really passionate about. They have to have it–maybe physically–but even more for social needs. You have to have it for comfort.”

Tullis is perhaps the most seasoned veteran in the young and so-far tiny world of interactive food customization. She was involved with the original, low-key launch of Millstone’s customized coffee in 1997, a mail-order program that evolved to the brand’s Web site, Millstone pioneered the online mass customization concept in packaged goods two years before P&G launched the better-publicized, a high-end beauty-care e-tailer that, like Millstone, customizes products based on consumer responses to questions.

Millstone’s first venture into online mass customization was ahead of its time in more ways than one. Its complexity restricted access to a relatively elite group even among the Web savvy of 1997. P&G relied on Shockwave’s Flash technology at a time when many Web users didn’t have the necessary plug-ins or the wherewithal to download them easily. Those who found the software’s complexity meant slow-loading Web pages.

P&G shut down the original Millstone customization project after about a year but didn’t give up on the idea. Tullis and her team, spilt between the Seattle area around Millstone’s roastery and P&G’s Cincinnati headquarters, worked on a revamp.

“We were (originally) doing a direct-to-consumer program, and we added the Internet part on very late in the game. We never really fully explored the Internet possibilities. When I stopped the test, what I realized was that… my systems and order processing were set up for legacy systems that weren’t going to allow us to have the speed and flexibility we needed to really have a personal program. So, I kind of shelved it for a while, waited…and went back out when I could get new partners to help me with the interactive piece.”, the new version of Millstone’s custom coffee, teams with, which plays a role both in marketing and fulfillment, rather than selling coffee totally direct to consumers. “One of Millstone’s philosophies is trying to build the Millstone brand through retailers,” Tullis says. “So we’re not going to neglect the Krogers of the world. And we also want to start looking at more of the specialty retailers–people who can build our brands. So even though we’re exploring direct-to-consumer, we’re also exploring working with retailers and handling it that way.”

PersonalBlends also does away with the continuity model, similar to Kraft Foods’ Gevalia gourmet coffee brand, in which consumers sign up to receive regular shipments. and aren’t just about picking from a list of options and features, a la Dell Computers. Instead, both sites offer product recommendations based on consumer responses to questions about their preferences. PersonalBlends, for example, asks about visitors’ taste preferences in chocolate and salsa as a way of developing coffee “tasteprints.” asks about individual health concerns, including cardiovascular health, osteoporosis prevention and diabetes.

Thus, PersonalBlends offers consumers the chance to store a number of tasteprints and tweak settings on existing blends in follow-up orders. Likewise, allows visitors to create several blends and tinker with them on their return visits.

Tullis also noticed early on that consumers were interested in developing blends to give as gifts, so Millstone reconfigured its site to allow for gift cards and wraps by early December. General Mills has noted a similar interest in customized food gifts. Among early brand names chosen by consumers was “Jen’s Way to Pete’s Heart,” purchased by a woman for her significant other.

General Mills launched its test of in November and began opening its virtual doors to a broader group of e-mail registrants in late December. General Mills still describes MyCereal as a test, but says early results are encouraging.

“The initial response has exceeded our expectations,” says General Mills spokesman Greg Zimprich. “We’re processing a lot of orders and getting good feedback at this point.”

MyCereal bills its site as offering “cereals that don’t exist until you create them,” and part of the creativity people are showing is with the names. One woman, who has a cereal blend high in calcium in hopes of preventing osteoporosis, dubs her product “Chocolatey Calci-YUM.” A schoolchild has a blend branded “Better than School Lunch.”

Both P&G and Big G charge premiums for their customized foods. MyCereal charges about $1 per one-serving bag, plus shipping and handling. Millstone PersonalBlends charges $9.99 per 12-ounce bag, plus shipping and handling, or about 69 percent more per ounce than bulk coffee sold in stores.

But while the idea of custom foods may sound appealing, doubts remain about the practicality.

“I don’t know how profitable it can be for the manufacturers,” says Robert Rubin, analyst with Forrester Research, who heads the company’s Netquity joint venture with Information Resources Inc. “It has lower margins than the box in the grocery store, and I don’t know if the market is actually that big…. There are also a lot of supply chain issues that would have to be ironed out before you could do it on a large scale.”

Plus, Rubin feels the consumer appeal may be fundamentally off. “I just feel that people who want to buy things online are trying to save time,” he says. “I guess I have a problem in the perceived value….I don’t think individual food and beverage products have the kind of relevance that would make it worthwhile for people to (customize).”

For their part, P&G and Big G don’t know how big the market is either, but they remain committed to finding out. Tullis estimates 20 percent of coffee drinkers buy premium brands but isn’t sure how many of them will take the extra step to customize.

PersonalBlends may also help P&G develop some new products for conventional retail distribution and balance consumer need for variety with supply chain efficiency demands for fewer products on the shelf.

“We’re trying to get more people access to Millstone and great gourmet coffee,” Tullis says. “Where we can do it through retailers that’s great. But retailers can’t really carry the Internet SKUs that we have for custom blends.

Procter is really focused on category management, and we want to help our retailers … so we want to find a way to deal with variety and not have to use so much shelf space.”

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