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Product Strategy: The Advantages Smart Customization Offers

The advantages of Smart Customization are more visible in the manufacturing industry—owing to fairly speedy cash recoveries when factory costs are aligned to customer value.  It is becoming an integral pillar to Product Strategy in many organizations.

However, services sector can also benefit from smart customization, but this demands relatively closer interactions with customers and more flexible systems for providing offerings.  Service sector is more complexity ridden, yet offers more opportunities.

Successful Smart Customization necessitates balancing the cost of complexity against the value of variety and comparing the benefits of sales growth against the buildup of overhead and indirect costs.  It entails a multi-divisional management system to rationalize a company’s operations by sharing common resources among the organization’s many divisions.  Customization involves a comprehensive review of all the business streams—e.g., customer segments, demands, and servicing—evaluating all functions and channels, delivering more to clients who need the highest interaction, but maintaining highest quality for all.

Smart customization helps the organizations thrive in the market.  To take full advantage of Smart Customization, organizations must focus on 3 sources of improved performance:

  1. Understand the sources of value from customization
  2. Focus on the right customization
  3. Tailor business streams to provide value at minimal cost

Let’s discuss the 3 sources in detail now.

Understand sources of value from customization

Competition forces the companies to increase customization, differentiation, and segmentation.  This is often done without comprehending the sources of value from customization, carefully planning, or contemplating the environmental and external forces in play.

In the wake of intense competition, most organizations create additional value through more differentiation and more segmentation—extending their existing offering range further, adding new specifications to products, and creating brand extensions.  Sooner or later, rivals jump in to capture the lost market share by adding more variety and segmenting the market further.

Most firms try to accomplish Smart Customization without essentially transforming their production and delivery systems.  This adds to the problem of complexity and there comes a point where further customization efforts begin to raise costs and shrink margins, nullifying the value gained from differentiation.  These actions initiate an unnecessary “customization competition” between companies, and eventually they fail to keep both growth and costs in check.

Focus on right customization

Companies often tend to provide similar service and support to transactional customers and for customers with deeper needs—adding to unwarranted costs.

A thorough interpretation of the requirements of different customer segments and identification of the unique requirements from the common requirements is essential to generate superior performance and customization revenue.  But there is a need to differentiate between the “Order Qualifiers” and “Order Winners” (the two categories of products and services) first:

  • Order Qualifiers are the offerings that are not the real drivers of growth, but are, actually, the bare minimum offerings required by the firms to keep competing with the rivals.
  • Order Winners are those offerings that meet a customer’s most critical needs.  These offerings can differ across segments, yet some needs are shared across segments.

Companies need to focus not just on more customization, but on right customization.  Right customization entails developing a clear understanding of order winners across different segments and introducing customized offerings that capture share and deepen strategic relationships.  Getting the customization right is critical to sustainable competitiveness of an organization.

Tailor business streams to provide value at minimal cost

To serve each segment profitably, smart customizers match their segmentation strategies with delivery mechanisms designed specifically to serve them—“tailoring the business streams”—to provide the highest value at low costs.  Tailored business streams entail segmenting flows to satisfy different customer needs pertaining to cost, value, speed, and quality.  Tailored business streams contain people, processes, and technologies needed to deliver parts of the product or services.

Interested in learning more about Smart Customization and the 3 Sources of Improved Performance?  You can download an editable PowerPoint on Product Strategy: Smart Customization here on the Flevy documents marketplace.

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About Mark Bridges

Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.

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