Information Systems Research, 2015, Volume 26,
Issue 2, Page 456-468.
Advances in the digital economy have driven the trend among manufacturers, particularly those in the information technology (IT) industry, to offer products that consumers can self-customize to satisfy their idiosyncratic needs. This study examines firm strategies on offering such consumer-customizable products. Our analysis shows that a monopolistic firm obtains a greater profit from offering a consumer-customizable product than from offering a preconfigured standardized product only if consumers are sufficiently capable to conduct the customization task; otherwise, it is more profitable for the firm to offer a standardized product. Moreover, consumers obtain a greater surplus when the firm offers the customizable product. We also consider the case where the firm is capable of offering both a customizable product and a standardized product and find that the firm benefits more from offering both products than offering either product if consumer customizing capability and the customization cost are not too high. Interestingly, when the firm offers both products, its effort in enhancing consumer customizability (e.g., offering free consumer training) always benefits both the firm and consumers, but its effort in increasing the value of the standardized product (e.g., offering more functions) can hurt both the firm profit and consumer surplus. Our theoretical results explain many interesting business practices and provide useful insights for marketing practitioners.
Keywords: consumer customization ; consumer-customizable product ; standardized product ; IT products ; game theory