A critical analysis of Mass Customization: Adidas

Mass production, also referred to as “flow” or “continuous” production, is the large-scale production of standardized products. The term was popularized in the 1920s by the Ford Motor Company, whose chain production techniques and the “assembly line” process transformed manufacturing. Mass production became championed for the dramatic increases in productivity, i.e. efficiency and output, the reduction of variation and errors from human involvement, reduction in labor costs and the generation of economies of scale, all achieved through linear production carried out predominantly by machinery. From the consumer perspective, mass production is associated with the affordability and availability of a large quantity of products and the standardization of products resulting in a highly simplified purchase journey for consumers. A few decades later, Levitt (1983) argued that technological advances in transportation and communication were drivers of globalization and would lead to the homogeneity of markets. His infamous argument sparked off the global debate on the feasibility of adaptation against that of globally standardized production.

Markets have since saturated with mass produced, standardized products and manufacturers have started heeding to an increasingly fragmented pattern of demand that is attributed to the growth in consumer choice. Emerging technological advances have made the idea of meeting individual consumer demands possible, giving rise to new marketing approaches with a common goal of providing customized products and services (Bardacki & Whitelock, 2004). In manufacturing, the idea of customized production limits the benefits from economies of scale traditionally achievable through mass production but a the global shift towards individualization (Hart, 1995) has incentivized customized production and offered the possibility for offsetting these costs with a new marketing concept: mass customization (Eyers & Dotchev, 2010).

According to Kotler et al. (1996), the field of marketing is primarily concerned with determining and delivering to consumer demand patterns. Understanding the needs, motives and behavior of target markets and leveraging one’s core competencies to effectively satisfy their specific needs has driven competitors to differentiate their products and services. The marketing process therefore revolves around three key aspects: market segmentation, targeting and positioning.

Bardacki & Whitelock (2004) defines mass-customization as “the most recent and ultimate type of market segmentation”, a post-modernist concept emphasizing individual preferences. Also referred to as “finer segmentation” (Davis, 1987; Kara and Kaynak, 1997), this concept treats the end consumer as a single segment whose unique needs and desires can be met individually through customized adjustment of products and services (Wiggins, 1995; Pine et al., 1995). Davis (1987) posits that traditional methods of market research such as surveys and focus groups now fall short of enabling the success of this newer concept of fine-segmentation. As such, there is general acknowledgement of the need for a more direct way of determining consumer needs and identifying the most efficient ways to integrate a direct relationship with the end-consumer into the mass-customization supply chain. More recently, this has been achieved to a degree with a shift towards customer-centric marketing approaches such as relationship marketing, direct marketing, data-driven marketing, etc.

Defining Mass Customization

The term was coined in 1987 by Stan Davis, who conceptualized mass customization as the notion of simultaneously treating a large number of customers as “mass markets of the industrial economy” as well as “individually, as in the customized markets of pre-industrial economies”. Tseng & Jiao (2001) phrased mass-customization as production that “meets individual customer’s needs with near mass production efficiency”. A more technical definition by McCarthy (2004) explains mass customization as “the capability to manufacture a relatively high volume of product options for a relatively large market that demands customization without trade-offs in cost, delivery and quality”. From a supply chain perspective, mass customization is the method of “postponing the task of differentiating a product for a specific customer until the latest possible point in the supply network”.

This relatively new production paradigm is sometimes also referred to as “micro-marketing”, “neo-marketing”, “one-to-one marketing”, and “real-time marketing” in literature (Bardacki & Whitelock, 2004). The underlying idea is that mass customization should make use of technological advances in production systems to mass-produce customized outputs, combining low-cost production processes with the flexibility and variety of customization.

There are some key concerns with realizing mass-customization to its full potential, such as keeping prices similar to the mass-production levels, avoiding a complex variety of offerings so as not to complicate or delay the purchase-decision making journey, and introducing robustness and flexibility to existing production processes.

Personalization

One of the chief aspects of mass-customization is concerned with personalization. Personalization refers to the tailoring of information, products and services to the individual consumer, so as to ensure that customers can satisfactorily locate their specifications and get relevant recommendations with minimal interaction, which can result in an increased probability of sales (Tiihonen & Felfernig, 2017). Personalization requires optimal configuration and the usage of user models to store and extrapolate relevant information which will be displayed to the potential customer during the purchase-process.

Tiihonen & Felfernig (2017) addresses the importance of Artificial Intelligence technologies in optimizing personalization. For example, recommendation technologies, a common feature of which includes “collaborative filtering” which allows the system to recommend positively reviewed items from users with similar preferences.

Theoretical assumptions

Bardacki & Whitelock (2004) attributes the adoption of mass-customization to four structural changes, namely “heterogenous demand”, “short product life cycles”, “mature markets” and conscious consumerism. The authors conceptualized three main assumptions behind the approach of mass-customization. These can be summarized as:

1. Fragmentation of consumer demand: This assumption acknowledges that even niche offerings are no longer enough to satisfy the growing heterogeneity of markets.

2. Customers are not looking for the lowest prices but the best value and satisfaction for their money.

3. Technological developments have significantly reduced the “minimum efficient scale of operations” and has enabled finer-segmentation and individual consumers to be supplied and satisfied.

CASE STUDY : ADIDAS

Industry Overview

Adidas AG, branded as adidas is a German multinational and one of the largest suppliers of sporting goods in Europe and the second largest globally, following Nike. A pure brand company, Adidas develops products across the categories of footwear, apparel and accessories, with a focus on product development and sales while manufacturing is carried out by independent suppliers.

The shoe brand was developed by brothers Adolf and Rudolph Dassler in the 1920s. The Dassler brothers’ brand was first showcased in the 1928 Amsterdam Olympics, which was followed by its breakthrough in the 1936 Berlin Olympics, which helped expand the performance footwear category to include shoes manufactured for eleven types of sports. Categories such as sporting equipment and apparel were developed much later, around the same time that newer players such as Reebok and Nike entered the market with athleisure-themed fashionwear. Adidas has since underwent several organizational and managerial transformation and in 2006, acquired their competitor Reebok, which helped the company rise to become the second largest sportswear manufacturer in the world.

The global market for sports shoes is characterized by high competition, low barriers to entry and a large number of specialized suppliers. The success of online channels has also enabled both specialized and general retailers to enter the market with low cost, fast-fashion footwear. Consumers have access to a huge range of options online and switching of brands is achievable at no extra cost. Consequently, brand loyalty, commitment and brand community are indispensable areas of development for manufacturers to build their competitive advantages. Product differentiation in terms of quality, lifestyle, consumer preference and other psychological grounds for further segmentation is crucial to standing out from a large number of competitors in the market.

The growth of heterogenous customer needs (Moser et al., 2007) led Adidas to launch a pilot program called “miadidas” in 2000 to test the feasibility of custom manufactured product offerings. The evaluation was successful and strongly supported the demand for product customization. This led to the expansion of the initial miadidas line into several customised product offerings at Adidas. The positioning of three mass-customizable product lines from Adidas are discussed below:

miadidas

Adidas’ first mass customized product line miadidas combined three custom dimensions namely “mifit”, “miperformance” and “midesign” referring to the corresponding measurement, functionality components and color combination and was focused mainly on performance shoes (Berger & Piller, 2003). The shoes are available both online and at Adidas flagship stores and allows consumers to customize their product across a number of performance categories such as running, basketball, tennis or soccer. The product was positioned to attract consumers on the premise that they could now have custom-made, high quality performance shoes that top athletes usually wear.

The figure below represents the value chain for the miadidas product line. The fulfilment process begins with the initiation of contact between the company and the consumer through a consumer interface which allows Adidas to receive customized inputs directly from the end consumer. The order is then received and processed by its order management system which subsequently prompts the manufacturing activities within its production facilities. The final block of the value chain comprises of logistics, distribution and delivery-oriented services to ship the final product to the end-consumer.

The miadidas fulfilment process (Piller et al., 2012)

mioriginals

Positioned primarily as a fashion rather than performance product, mioriginals lets consumers develop their own shoe style by selecting a range of style options on pre-defined color fields for the shoes.

miteam

This product line comprises of performance-wear and is targeted at professionals or sport teams where each sportsperson can customize their shoes, apparel and accessories to enhance performance or simply as a personal branding statement.

Organizational Capabilities Framework

Studies by Salvador et al (2009) and Piller & Tseng (2010) contributed towards the derivation of a capabilities-framework to describe mass customization as a group of three fundamental organizational capabilities: “Solution space development”, “robust process design”, and “choice navigation” (Piller et al., 2012).

In a study discussing the strategic capabilities at Adidas, Piller et al. (2012) describes the three components of the capabilities framework that should be integrated to create a meaningful customization experience. The following section relays the components of the capabilities framework and their application in the context of product development for miadidas.

Solution space development

Piller et al. (2012) defines a solution space as consisting of clearly defined offerings when adopting a mass customization strategy. A company must identify the “idiosyncratic needs” of its target market and draw up a web of product attributes based on the divergent needs and wants of consumers. At this stage, access to information about the target market’s preferences, needs and motives are crucial to the success of a mass customization strategy (Hvam et al., 2008). This contrasts with the mass production approach of identifying convergent, centrally tending attributes which is then packed into a limited, standardized portfolio of products.

For miadidas, customization was done on the existing product lines and product variants were chosen from the top-performing shoes in each product category (Piller et al., 2012). The solution space development process was further supported by market research and data collection from focus groups while selecting the customizable attributes for the shoes.

The launch of the miadidas pilot program revealed deeper insights into a market where consumer knowledge about customization was initially very low by introducing participants and existing customers to the new product offering and recording consumer opinion. It was found for instance that 68 and 75% of the participants were interested in purchasing customized soccer and running shoes respectively. All participants were interested in customizable offerings by Adidas, revealing a 100% demand for customization services (Piller et al., 2012).

Robust process design

“Robust process” here refers to an improved supply chain and the optimization of existing organizational resources. The supply chain of a mass-customiser should be designed to accommodate the increased variability of demand so as not to significantly deter operational and supply-chain efficiency (Pine et al., 1993). Traditional or craft customization involves customization of products as well as processes. In contrast, mass customization should have stable, pre-defined processes in place. The underlying idea is that customization should be delivered at a level of efficiency that matches mass production.

In the case of miadidas, the firm utilized its existing suppliers for its inline products. The company has manufacturing networks across Asia and the processes differ correspondingly. The automation of Adidas’ supply chain in 2006 contributed majorly towards the success of the miadidas campaign. Custom inputs were now directly and automatically allocated to the manufacturing facility with the most suitable resources or capacity available. There were challenges as a result of an improved, automated order management systems such as the need for a system of inter-organizational information networks to help smoothly carry out interactions at all stages of the supply chain from the customer to the firm to the manufacturing partners.

Choice navigation

The final organizational capability involves the simplification of the choice navigation process for the end consumer. The firm must support the consumer in their purchase-decision making journey by helping them identify their unique problem, preferences and develop a solution. The final firm-consumer interface should be designed to reduce the complexity of customization and the exposure to a large number of irrelevant choices. Too many choices can confuse customers and delay the purchase process or suspend the purchase decision altogether.

“Configuration systems”, also known as “configurators”, “choice boards”, “customer design systems” or “co-design toolkits” (Franke & Piller, 2003; Salvador & Froza, 2007; Hvam et al., 2008) refers to the system or software that facilitates the interaction between customers and the firm. The significance of such a system extends beyond its technical utility as a customer interface to include its integration into the firm’s branding as a sales channel, a source of learning, as well as a driver of the firm’s ability to create a pleasant user experience and generate customer satisfaction.

For miadidas, the system included three channels for customers to interact with the brand and place their orders: retail/flagship stores, online/e-commerce platforms and special events such as a sporting event or a marketing event at a retail partner.

Limitations & Conclusions

Bardakci & Whitelock (2003) considers three inconveniences of mass-customization: the premium on customized products, the delay in receiving customized products, and the need for customers to invest significant effort and time into specifying their product preferences. The first inconvenience exist despite the theoretical possibility of maintaining no cost-premiums on mass-customized production as pioneering practice has revealed that customized products are bound to be more expensive in its current state. The third inconvenience arises as a side-effect of mass-customization.

Tiihohen & Felfernig (2017) states that the probability of customers executing a purchase decision has an inversely proportional relationship to the quantity of parameters requiring specification during the ordering stage. This is where a personalization approach through recommendation technologies and other developments in Artificial Intelligence can play a crucial role in improving the sales process.

A fourth inconvenience can be gleaned from the case study discussed above: networks and manufacturing capabilities. Adidas was able to employ its large, existing network of suppliers towards the manufacture of its custom shoes. Existing manufacturing capabilities were utilized and combined with customization to make mass customization possible. But for smaller companies or custom footwear start-ups, finding a supplier is significantly more challenging. Large and established players have the capabilities to invest in a large variety of product styles, and each style drives up the costs of design, sampling, development, inventory, transportation, and sales. Piller (2007) reveals that 95% of the total revenue for Nike’s footwear category, for instance, is generated from a mere 35% of its portfolio of product styles. The supply chain complexity required to handle the depth and breadth of these processes can only be supported with robust processes. However, in order to “standardize” the implementation of stable, robust processes effectively, constraints must be placed on the variability allowed in the solution space which will ultimately limit the extent of customization and consumer satisfaction.

On the customer-side, demand for greater manufacturing responsiveness and shorter delivery lead times can prove very challenging to achieve in practice (Squire et al, 2006). This has been referred to as the “customization-responsiveness squeeze” (McCutcheon et al., 1994). Eyers & Dotchev (2010) proposes two common techniques to manage this problem.

• The first is “modularity”. A modular product is one that integrates a series of components with predefined specifications set by the manufacturer. The customer may select the modular parts according to their preferences and combine them to obtain the custom product. This can significantly reduce the lead times in the supply chain as the individual components are standardized with predefined characteristics.

• The second is “postponement”. Van Hoek et al (1999) refers to it as the process of delaying certain supply chain activities until a customer order has been received.

Despite such adjustments, losses are also associated with the risk of overstocking at retail outlets, necessitating large discounts to reduce unsold inventories. Inventory management therefore poses a significant challenge in the mass-customization approach, more so than in mass-production due to the added costs of customization. Until there are further developments to enable mass-customization at a large and profitable scale, on-demand customization is a more efficient approach to meeting fragmented consumer demand without trading off high levels of customization for lower costs.

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