The year was 1973. Jay and I were both teaching at Boston U.’s brand new European MBA program, just outside of Pisa, Italy. The most popular car on the Italian road was the “Cinquecento”, a midget of a vehicle that could easily fit in the back of a Chrysler minivan. The Cinquecento had all the power of about 3 Vespa motorscooters, my vehicle of choice in college. When I left Italy I never thought I would see one again.
So yesterday’s Wall Street Journal article (Nov.22,2010) announcing that Chrysler was bringing the Cinquecento to the US–and planning to sell 50,000 of them in 2011–was a bit of news. The car will be called the Fiat 500 and be manufactured at a retooled Chrysler plant in Mexico. Five feet shorter than a Chevy Impala, the 500 will retail for $15,500.
But the reason you may want to bring this topic to your class is Chrysler’s risky strategy of mass customization (Chapter 7). Where the Japanese mastered the global auto market by limiting production options (a typical Honda might have 2 transmission options, 6 paint choices, 2 interiors, etc.), the Fiat 500 will provide a dizzying array of features to choose from.
With 3 versions of body style, 14 exterior colors, 14 seat colors, 6 wheel styles, and so on, there will be about 1 million combinations of the new car. Chrysler hopes the chance to customize the 500 will draw a wide range of customers who may want a “one of a kind”. In the past, US auto makers learned the risks of mass customization: too many choices leave dealers with lots full of cars, but not the exact one a customer may want (and 80% of US customers want to drive their car off the lot the day they buy).
Further, suppliers are being asked to keep more parts on hand so they can more quickly build a seat or interior combination , then ship it to the plant within a few hours.
Discussion questions:
1. How interested are students in a unique, customized car that will take 30 days to deliver?
2. Why is Chrysler taking this approach?
3. What are the competing products and how do they fare?
In the sales and marketing workshops that I give to industry professionals, I am always urging them to give customers customizing options – but I also warn them to take two important steps. (Most of my workshop clients are from the hotel and restaurant business.)
1. Have a product that the customer can walk away with at the time of purchase. Offer them options, but also give them a simplified version, at a lower price, that they can accept at that moment.
2. Give them package choices, at a higher price, and limit the options by advising them. The salesperson is always the expert, and while they will customize, they will also adhere to specific standards so the customer does not get lost, or order something that really doesn’t meet their needs.
I believe Chrysler is making a HUGE mistake. Unfortunately, as an American taxpayer, they are doing it with my money.