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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | DECEMBER 14, 2000 MANAGEMENT Service So Good It's an "Experience" Marketing guru B. Joseph Pine sees mass production giving way to "mass customization." What does he mean? Just send a package via UPS
This time, the shift is from mass production to what he calls "mass customization" -- adapting goods or services to match the unique desires of each customer while delivering them quickly, and at a competitive price. It's what Dell Computer does when it manufactures the PC only after the customer orders it, configuring it to his exact specifications. It's what LensCrafters does when it makes the eyeglasses a customer needs, on site, in one hour. One niche in this move toward mass customization is what Pine calls "the experience economy." The Star movie complex in Southfield, Mich., for example, charges 25% more for a ticket because it has a fun-house theme, as well as stores and restaurants. Likewise, Starbucks can charge what once would have seemed an outrageous price for a cup of coffee because of the "theater" it provides -- a carefully designed, aesthetic environment with soothing music, eye-pleasing delicacies, comfortable seats, and the sounds and smells of the machines brewing your mug of low-fat latte. Looking beyond the horizon -- past the mass customizers and experience providers -- Pine sees companies getting into the business of customer transformation. To illustrate: If you sell a treadmill, you are selling a piece of equipment. If you sell a membership to the gym that bought the treadmill, you're selling a service. If the gym provides a personal trainer, aerobics instruction, rock music, a roof deck with rock garden and fountain, a sauna, and a masseuse, it is selling an experience. If the gym charges the client not for a gym membership but according to how much weight he loses or how many inches he adds to his biceps, it is selling transformation. But first things first. Most companies are still back here in the goods or services business, slowly breaking away from the one-size-fits-all concept, which actually fits fewer and fewer of today's customers. In time, Pine predicts, about 50% of all businesses will be mass customized -- though closing the gap between theory and reality won't be easy. In an interview with Business Week writer Theresa Forsman, Pine, co-author, with James H. Gilmore, of The Experience Economy (Harvard Business School Press, 1999) and co-founder of Strategic Horizons, a "thinking studio" in Aurora, Ohio, talked about his ideas. Edited excerpts of their conversation follow: Q: Is mass customization simply a high level of service? A: If you provide great service, it's going to be a customized service. It's already ubiquitous in some industries, and you don't even realize it. FedEx, the post office, and UPS all do it. How is it that I can put a package outside my front door and have it be at another front door halfway across the country for $10? They have a modular system that allows them to move all packages -- and my specific package -- to a specific address....Other examples are Dell and LensCrafters. More industries need to figure out how to do it. But just as mass production never got rid of craft production, mass customization won't completely replace mass production. Q: One example of mass customization that seems ripe for success is grocery shopping. With the Net, customers can place their orders online and have them delivered to their homes. In your introduction to the book, Markets of One: Creating Customer-Unique Value through Mass Customization, [co-edited with James H. Gilmore, Harvard Business School Press, 2000] you cite one such service, Streamline.com, which recently went out of business. Others in that niche have failed, too. Why? A: Partly, it's an economic issue. They need to charge more so they can make a profit. Online grocery shopping is a great concept, and it will work. In any industry moving toward mass customization, most of the early leaders will fail. In the transition from an agricultural economy to mass production, at the turn of the century, there were dozens of cereal makers and dozens of auto makers in Michigan. Now, how many are there? Those who figured out how to do it well were able to buy out their competitors. Most companies who try mass customization are going to fail. The one company that really figures out the online grocery-shopping and individual-delivery service will buy the others out and put in a system. Q: Why will so many fail? A: The easiest mistakes to make with mass customization are differentiating the service along dimensions that people don't value enough, poor execution of the customization, and overwhelming the customer with too many choices. An example of the first kind of mistake occurred at Nissan in the early 1990s. It offered 70 different ashtrays -- that was engineering gone amok. Q: Is Amazon.com's collaborative filtering, in which they recommend books based on past purchases, an example of mass customization? A: It's cosmetic. It's like putting initials on a bathrobe. Most Web-site customization is cosmetic. Q: When does customization go beyond the cosmetic? A: Launch.com allows the user to customize his own radio station. He specifies the songs he wants played and how often. That's collaborative customization, in which the business and customer have joint control over the design tool. It's generally better than cosmetic collaboration. Then there's transparent customization, where the service provider customizes the product for you but doesn't tell you what it's doing. It observes your behavior and then gives you what you want, as in a top hotel. Finally, there's adaptive customization, in which the customer controls the design tool, or the tool is imbedded into the product itself. A familiar example is a car, in which the seat, steering wheel, mirrors, and other features are adjustable and, in some cases today, programmable. Q: Why is it so difficult for some businesses to customize? A: Each of those types of customization has a danger. With cosmetic [customization] -- Amazon suggesting books -- you assume to know what people want, which some people don't like. With collaborative customization, it's bothering people. I check into a hotel, I have all these choices, but it means I have to tell them I want nonsmoking, a feather pillow, an extra blanket -- they should know this already. With transparent collaboration, when the hotel remembers my preferences, the problem again is presuming. Just because I ordered it that way last time doesn't mean I want it that way this time. With adaptive customization, which puts the tools in the hands of the consumer, it can be confusing. Q: So businesses need to offer customization, but there are all these pitfalls. A: There's no generic solution, but if you know about the easiest mistake to make with each kind, just be clear that you don't make that mistake. Q: Who's doing it right? A: My favorite example is Progressive Insurance, based in Cleveland. Where they really shine is in the claims-adjustment process. They outfit their claims adjusters in SUVs. When you call from the site of your accident, a claims adjuster is dispatched to the site. He'll give you a cell phone and coffee, call a tow truck, and arrange for a rental car to be delivered. He has a computer in the van, so he knows everything about your car and your policy. They have worked out agreements with a network of repair shops, so he assesses the damage and the cost, and you get a check on the spot. Your car is towed and you drive away in the rental -- that's an experience. When you mass customize a service, you turn it into an experience. Q: This talk about catering to the individual customer is a great theory. But many consumers think service in this so-called service economy is only getting worse. There's a big gap between what is promised by technology and business today and what is delivered. A: You have a number of reasons for that. One is called full employment -- business has had to lower the qualifications for the people it hires. The other reason for poor service is poor execution. In the transition to customization, people haven't figured out how to do it well. Somebody will. In virtually every industry, somebody will figure it out. Q: Any advice to customers in the meantime? A: Don't put up with poor service. Don't give businesses the benefit of poor service. Leave, and let them know why you are leaving. Be very demanding.  By Theresa Forsman in New York Edited by Robin J. Phillips  | | |
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