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Published: 6/16/04
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The Challenge of Customization: Bringing Operations and Marketing Together

Overindulgent Customization
It’s difficult to prevent such over-promising. Leslie H. Moeller, a Booz Allen vice president based in Cleveland and leader of the firm’s Customers, Channels, and Markets services, says that customization can be a bit like eating too much; you do it because “it feels good when you’re doing it. Then you wake up one day and you’re 80 pounds overweight.”

“Choice complexity can actually lead to value destruction: One packaged goods company was expanding revenue at 7 percent a year, but was accomplishing this only by boosting its per unit costs by 6 percent a year.”
Moeller argues that customization missteps often occur because sales and marketing frequently lack information about “the calories” (i.e., the cost of creating more variety and introducing more complexity). Quantifying the costs of such variety-binges might sound simple, but often these complexity costs are “hidden,” in higher overhead, higher supply chain costs, or greater discounting.

Such over-customization can eventually lead to a weaker position in the market, with the firm pushing an excessively complex product to a bewildered customer. “At the end of the day, consumers often get more complexity than they want,” says Moeller. He cites one recent study where 50 percent of respondents said that they postponed a purchase of an electronics product because the product was too complicated. Wharton marketing professor Jerry Wind concurs that too many options can paralyze the consumer. “If customers have too much choice, they cannot make a decision; they freeze,” he says.

The problem is not just lost sales. The firm that has indulged in too much variety and is facing a competitor offering just the right variety can end up with a serious competitive disadvantage. Keith Oliver cites an example from a recent Booz Allen study: Chrysler’s Dodge Ram is available with 1.2 million different variations. The Toyota Tundra sports a much smaller 22,000 possible configurations. Yet, Oliver says, “Toyota doesn’t appear to be penalized by having less variation and customization.” In fact, Ram is losing share while the Tundra is gaining share. According to Oliver, Toyota’s frugal approach to managing variety gives it a tremendous cost advantage over Chrysler. Between greater line efficiency and fewer variations, he says, Japanese automobile manufacturing labor costs are 80 percent lower than those in Detroit.

“The companies that do well with customization often have well-developed cross-functional teams.”
At its most extreme, choice complexity can actually lead to a value-destroying business model that’s a bit like the old vaudeville joke about the salesman who “loses on every sale but makes it up in volume.” Moeller recalls a packaged goods client whose top sales manager on its Costco account hadn’t realized the true costs of the packaging that the warehouse grocery giant demanded. Booz Allen analysts discovered that an account that appeared to be expanding revenue at 7 percent a year was accomplishing this feat only by boosting its per unit costs by 6 percent a year.

Historic Conflicts
Most U.S. firms have historically had a culture in which operations and sales and marketing are adversaries rather than partners. This makes getting the right information to the right people at the right time a challenge.

“Not only is there a tension between the functional objectives, in many instances they are in fact 180 degrees opposite,” Oliver says. Marketing wants short lead times and huge variety; manufacturing wants long lead times and limited variety. “Operations actually needs to design the changes, they need people to make sure that the bill of materials gets to the right place in the production line, that they actually made what was promised,” says Egol.

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