Customer Customization on the Rise

Companies are increasingly allowing consumers to customize the precise configuration of products. For example, Dell and Nike offer consumers the opportunity to customize computers and sneakers to fit their individual preferences. The methods these companies use to guide consumers through the customization process influence the product features they choose and their willingness to buy the finished product according to a new study.

The study 'Contingent Consumer Response to Self-Customization Procedures' by Ravi Dhar of the Yale School of Management, Ana Valenzuela of the Zicklin School of Business at Baruch College and Florian Zettelmeyer of the Haas School of Business at the University of California, Berkeley, compares how consumers respond to the two most common methods companies use to aid them in customizing products: by-attribute and by-alternative.
The by-attribute method allows consumers to create a product by selecting their preference level for each product feature. For example, on the Dell Web site, customers can build a computer by selecting, one-by-one, their preferred monitor size, memory, and other features. In the by-alternative method consumers choose their preferred option from a set of fully configured products. For example, Gateway allows customers to select from a number of computer packages with features that range from low to high in price and quality.

Through a series of experiments in which participants customized products and services including laptops and insurance, the authors found that consumers tend to choose middle-of-the-road product features when they customize a product one attribute at a time. In contrast, they are more likely to select high and low end features when they customize a product from a display of fully configured options.

"Customizing one attribute at a time makes consumers resolve the uncertainty of the right attribute level by making a compromise or choosing an intermediate level," says Dhar, director of the Yale Center for Customer Insights at the Yale School of Management.

Customers also find it easier to make choices by-attribute than by-alternative, and as a result, they are more satisfied with the customized product they create and are more likely to purchase it instead of abandoning it in their online shopping cart.

"The method used to customize changes not only what consumers end up buying but also whether or not they buy at all," says Dhar.

The research findings can help marketing managers predict the choices consumers will make when customizing a product, which will allow them to keep adequate stock levels on hand based on how consumers are most likely to configure a product. It can also inform pricing decisions. For example, if consumers are more likely to choose products at the high or low end, companies should include profitable product configurations at these extremes.
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