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Ever since the Internet emerged as a sales channel in the 1990s, it has been thought that one of the chief advantages of e-commerce would be its ability to facilitate the customization of goods and services for consumers.
That promise, however, is not yet close to being realized, according to experts at Wharton and Forrester Research, an e-commerce research firm. E-commerce sites continue their struggle to find ways to provide shopping experiences that matter to buyers. Customization is sometimes hard to pull off because of cumbersome manufacturing processes; at other times, shoppers simply do not yearn for products or services tailor-made for them.
“When people come up with post mortems about the dot-com crash, they point to bad planning, mismanagement and other big-picture explanations about the way people approach the web,” says marketing professor Peter S. Fader.
Some companies have recognized this, but others have not. Fader says those firms continue to believe erroniously that if they try harder to offer customization, buyers will automatically flock to their sites.
“You would think that making something more personalized to customers’ needs would make the product or service better, but it doesn’t,” says Fader. “It’s almost impossible to find out what people’s true needs are. Their past behavior provides some decent information but not a perfect reflection of what they want today or tomorrow. So trying to customize a website to take advantage of what a customer did the last time he shopped online doesn’t always work. And, in many cases, people don’t want to be treated as being special in that regard. They’re satisfied if the site isn’t customized.”
He also points out that some attempts to customize have been rather clumsy: A company offers “eight different varieties of a product, thinking that one of them is bound to be the perfect one for a customer. People see through that and it can do more harm than good.”
The issue of customization will be one of the topics discussed at an April 12 conference in Philadelphia co-sponsored by Wharton’s Reginald H. Jones Center for Management Policy, Strategy and Organization and IBM’s Institute for Knowledge Management. The conference is titled “The Internet and the Twenty-first Century Firm.”
“The Internet has yet to reach its full potential,” says Bruce Kogut, professor of international management and co-director of the Jones Center. “It’s important to realize that the Internet has achieved high penetration rates in wealthy countries, but the amount of goods and services sold online is low relative to those penetration rates. In other words, there’s a major gap between the overall success of the Internet and the realization of the Net’s commercial potential. Businesses need to explore new models of customization if the Internet is to realize its commercial promise.”
Marketing professor Fader, however, suggests that Amazon and other e-commerce sites do not offer customized products at all; the customization actually takes place in the selection and shipping processes. Nor do build-to-order sites always offer true customization. “Build-to-order is over-hyped. Everyone points to Dell, but Dell isn’t customizing all that much. The vast majority of computers they sell are standard configurations that are not personalized in any way. Cars are another great example. Everyone talks about the build-to-order car, but it’s not clear it can be done economically.”
Mark Dixon Bünger, an analyst with Forrester Research in San Francisco who has studied the sale of automobiles online, says that many constraints on customization occur as a result of manufacturing requirements.
“Look at computers,” Bünger says. “You have a lot of standard interfaces and interchangeable parts. A computer is a complex product that’s easy to customize.” A car, however, is a different matter. “You need to keep factories running at certain levels, and the physics of vehicles means you can’t design them willy-nilly and expect them to be safe.”
Automakers realize that for cars to be more customizable, their design has to be made simpler. Bünger notes that General Motors has developed a concept called AUTOnomy, under which vehicles ranging from sports cars to minivans would be built from a limited number of common chassis, perhaps as few as two or three. But the program is years away from implementation. With autos, manufacturing constraints – not consumer demand – keeps more customization from occurring, according to Bünger.
(The words customization and personalization are sometimes used interchangeably. But Bünger says e-commerce analysts usually make this distinction: With customization, the user is active, choosing the content, features and functionality he or she wants from a website. One example is my.yahoo.com. With personalization, the user is passive. The provider infers, or asks broadly, what each user wants, and chooses each user’s content, features and functionality accordingly. Using this nomenclature, Amazon’s book and music recommendations are a form of personalization.)
David J. Reibstein agrees that customization is “an interesting promise that hasn’t been delivered yet.” But he points to several examples of companies that do a good job at online customization. Dell Computer’s website offers build-to-order computers. Orbitz.com, by coming to know the travel habits of its customers after repeated visits, can offer specialized information on flights and low fares based on the traveler’s expected needs. And Amazon.com keeps track of what customers buy and recommends other products they may be interested in. says that some attempts at customization have flopped. Levi’s offered customers an opportunity to go to retail stores to be measured for jeans. Once those measurements were on file, clothing could later be ordered online, but few consumers were interested. says it is helpful to view customization as taking place on a continuum. At one end is a heavy, physical industry, like autos, whose products are difficult to customize. At the opposite end is information, which is easier to customize on a newspaper or magazine website. “People’s ability to customize their news has exploded,” he says. “People can pull together the amount and type of information they’re interested in. You can have a customized newspaper for every person every day.”
Other clothing e-tailers created virtual models that customers could use to try on different articles of clothing. “Those kinds of things have been a disaster,” Fader contends. “They still don’t take into account all the factors at work when people buy something. Companies got the mistaken impression that customization was working because sites were generating a lot of traffic, but the sites were novelties. Shoppers were saying, ‘Let’s check out this cool site,’ but had little intention of actually buying anything. Yet companies kept marching ahead, saying, ‘We got it right this time.’” “All of that might be true, but they are missing the important story one level down – that the promise of customization has been a near-complete bust. Many people don’t really want it and companies have a hard time doing it.”
Despite the disappointments, Reibstein and Fader say it is only a matter of time before online customization improves and, more importantly, consumers begin to see its advantages. Indeed, the promise of customization may only be realized when a new generation of shoppers increases its presence online.
“We had this notion that the Internet would allow customization to be able to present customers with very specific products unique to them,” notes Reibstein. “Most sites have not been able to do this at all. The storefronts we see are identical to everybody else’s, and sites don’t pay sufficient attention to the details of what customers might want. But we will get there. The technology exists. The creativity exists. You can customize a site, but changing customer behavior sufficiently to reward that kind of an investment in a site takes time.”
Companies will go down one of two paths, predicts Fader. “On one path, companies really do get it right: Through lots of trial and error, they figure out how to offer an appropriate amount of customization in a cost-effective way, and they find there are sufficiently large groups of consumers who genuinely want it.”
On the second path, “companies give up on the idea of customization and use e-commerce as just another way to do direct marketing – a website as a catalog on steroids. For the next few years, I think, that’s the only way companies should view it. They should focus on streamlining the shopping experience without over-customizing the actual products or services being sold.
“But it would be shortsighted for firms to give up completely on path one. It’s not clear how and when companies will get it right, but there is a new generation of shoppers on the horizon. Even when they grow up, today’s high-tech children will fully expect to get exactly what they want, when they want it, and how they want it. This will be a slow, natural evolution. Companies can’t force this change simply by throwing money at new technologies. But companies need to be ready to accommodate these new consumers when they begin to exert their influence in the marketplace. How much their shopping experience will require customization remains to be seen. But they will shop differently.”