Platt Perspective on Business and Technology

Innovation, disruptive innovation and market volatility 11: standardized and customized product offerings 1

Posted in macroeconomics by Timothy Platt on April 24, 2015

This is my eleventh posting to a series on the economics of innovation, and on how change and innovation can be defined and analyzed in economic and related risk management terms (see Macroeconomics and Business, posting 173 and loosely following for Parts 1-5 and Macroeconomics and Business 2, posting 203 and loosely following for Parts 6-10.)

I built up to and then explicitly discussed product portfolios and the economic factors that drive what would effectively go into them for a manufacturer in Part 8, Part 9 and Part 10 of this series. And at the end of Part 10, I stated that I would turn from there to consider standardized versus customized products, noting that these terms take on distinctly different meanings when considered from the manufacturer and the consumer perspectives.

I have written, and I add have publically stated many times that value ultimately is defined by the customer and by the markets that buyers and end users collectively comprise. This certainly holds for products and services that are directly offered for sale. And it also holds for value-added ancillary offerings such as customer support and related market-facing services that are offered in conjunction with directly sold market offerings.

• Purchasing-customer and end-user experience and judgment determine whether any given market-facing offering can bring a providing business new or enhanced sales opportunity, let alone create anything like a sustainable competitive position for it in its industry.

Internally within a business, value holds defining meaning too insofar as cost and benefits evaluations are used to determine what might and might not be competitively cost-effective to even to try to bring to market or offer as value-adding support services. This type of consideration helps to shape the overall product portfolio developed and offered. But ultimately, and simply assuming a realistically reasonable possibility of profit potential from any given offering from the production process side, value for anything that is brought to market must be viewed as such by the consumer.

In a fundamental sense, the words standardized and customized are consumer defined too. And to highlight this observation and bring it into explicit focus, I cite an adage that is particularly relevant here:

• A difference without a distinction is not a difference.

Manufacturers select which differences they will build into their products, and they can and frequently do expend significant resources in the form of time, effort and money in doing so. But if their customers and potential customers do not even notice those differences because they see them, if at all, as insignificantly minor cosmetic-only distinctions, then these contrived points of product and service variation do not in fact represent real, meaningful differences at all.

• So the defining criteria that should be used to determine how standardized or customized a product or service is, need to rest on a solid marketing data-driven understanding of consumer expectations and on what specific details of an offering they would see as significant for them – and of which types of features and change in them, they would simply take for granted.

I have written up to here in this posting on standardization and customization in terms of change in what is offered per se, and on how it is viewed and from both the manufacturer and the consumer perspectives. And I have addressed how consumers purchase and use, or choose not to purchase or use depending on what changes they see as holding at least some threshold of significance for them, and which of those changes they see if at all, as just minor differences without distinctions. To take that out of the abstract, I would cite the automotive industry and how every year, every high volume mass-production auto manufacturer makes at least minor cosmetic changes to essentially all of their production line products: to all of their makes and models offered.

Very few customers or potential customers would be able to identify the model year of a set of photos of headlights and front grills of essentially any given model of car and for most any manufacturer – and even for the type and the basic model of car that they drive and have owned several such versions of. Manufacturers add in these differences-without-distinctions so they can more provably claim that they do make changes and that their newest models are different from their now older and no longer manufactured versions – and to help drive sales for offering new cars per se. But this simply reflects how new car sales per se are pursued. These individual cosmetic changes in and of themselves do not add to competitive sales-driving value in and of themselves because essentially no one sees them, or at least takes significant note of them. And they are not in general developed and added in every year for the specific value that they might in principle create.

I could just as easily have cited toothpaste manufacturing with all of the seemingly endless numbers of primarily difference-without-a-distinction variations that you can find for them, and on the same sales shelf of most any supermarket or drug store, and certainly in countries like the United States. Manufacturers seek to gain competitive overall position from all of this through niche market-supporting strategies, and by capitalizing on consumers who tend to continue buying their same product variations more on the basis of momentum of label recognition and experience of that, than on their perceived value awareness of the precise difference between product versions offered – exactly as with automotive sales and particularly when selling to repeat customers.

• Automotive and I add toothpaste production and sales can perhaps best be considered here, as representing exceptions that prove the rule, by how they work as exceptions to it.

And this brings me explicitly to the issues of standardized versus customized. Customized that is directed toward individual consumers or to very limited market demographic audiences and more generally, limited production of select offerings and product variations, only offer value for their defining points of difference and for exclusivity in being offered them, if consumers see those differences as offering value to them – and even if that means their just holding a perceived added value from having a more uniquely personal product or service offering per se, that others cannot all readily acquire too. The notion of a difference without a distinction not meaningfully qualifying as a difference applies to the customization versus standardization paradigm as fully as it does to any product or service design and production context.

I am going to continue this discussion in a next series installment where I will reconsider standardization and customization from a different perspective, and how differences with distinctions can each offer both increased or reduced value to the customer – and to the manufacturer as well depending on context and circumstance. In anticipation of that, I will raise the issues of customer preferences for the individually distinctive that they can see as their own, and consumer preferences for compatibility and consistency, and how these purchase decision making criteria can and do collide. And I will also tie the line of discussion that I have begun here in this installment, back to that of the production line and the product portfolio of series Parts 8-10, by reconsidering the economics of portfolio diversity and flexibility.

Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation.

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