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In 2001, Apple revolutionized the electronics industry.
Apple launched the iPod. Now, it's interesting to recall how many
product variant of the iPod were there? There were basically two memory sizes, but
every iPod looked the same. It was white and looked exactly like this.
Ten years later, Apple is making good chunk of their money by selling iPhones.
Now, again, there are multiple memory options available.
But chances are, that your iPhone is exactly the same that I have.
The casing around the iPhone makes one interesting case of delayed
differentiation. But in most cases, you see that very
successful products often time do not require customer choice.
In this session, we'll talk about how customers often times can be overwhelmed
by choice. Even if we have perfect flexibility, we
don't have any of the problems we encountered previously in the production
and for distribution in our operation, there are good reasons to limit customer
choice. A number of years ago, my friends and
colleagues, Taylor Randall, Carl Orrick, and I, were involved in an interesting
study for computer maker, Dell. We're looking at the customization
strategy. Dell has brilliantly overcome the two
earlier weakness of mass customization discussed in this module.
Very short set up times, and an amazing make to order distribution system.
We were interested to what extent customers are actually able to make good
choices when buying Dell computer online. Now, it is important to keep in mind that
consumers don't really care about the technical details about the computer, but
they buy the computer to maximise their consumer utility.
This is driven by things such as the portability of the computer, it's the
price, the performance it has when it plays video games, and a couple of other
dimensions. When customizing the product, they have to
put together a combination of processor, display, memory and a couple of other
options, including the video card, that will optimize their utility.
This is a really hot problem. There are thousands and thousands of
combinations in which you can put together the various Dell models.
Will consumers be able to find the computer that is right for them?
That was the purpose of our study. So, here's what we have done in our study.
We took a number of consumers who were in the market of purchasing a Dell laptop.
We had them sit behind the computer and configure to the Dell user interface the
computer that they felt was right for them.
They made choices for the computer, the platform, the disc drives, the processors,
the graphics cards, the memory and all the other things that you can choose online.
Once the choice was complete, we took them to a separate room.
In this room, we had put together a whole assortment of Dell computers.
We see here my colleague, Carl Orrick, explained to one of our consumers in the
study, the implications of her choice. We showed them, look, here is a computer
that you just ordered. How did you like it?
And, we did something else that was interesting.
We showed them the other computers that they didn't order but they could have.
We asked them, now that you see all of the options available, different sizes,
different weights, different screen resolutions, and different graphic arts,
are you happy with your choice? To our great surprise, a large number of
people wanted to change their choice. They felt, that really they could have
done a lot better by choosing a computer that was more right for them.
This was especially in effect for consumers who hasn't had a lot of computer
experience. So, you see in the study here, that even
if on the production process side, we can get you exactly the product that you want
and we have overcome the limitations that we discussed in this model such as set up
and demand fragmentation. This is still a barrier with respect to
variety. That barrier is on the consumer side.
Even with perfect flexibility in the process, even if you are able to change
from product A to product B at no cost and infinite speed, even then, you might
consider limiting your product variety. The reason for that is customers
oftentimes have a hard time judging which product is right for them.
And when you expose them to too much variety and to too much choice, they get
nervous, and ultimately abstain from purchase.
So, yes, technology such as mass customizations, the latest trends in 3D
printing, they will revolutionize the supply side of product variety.
However, the demand side will always remain an issue.
Will customers really want more choice? And, are they willing to pay for it?
That's a whole other story.