In Chapter 7 we bring up the interesting topic of mass customization. Table 7.1 (on p. 284) illustrates the explosion of variety that has taken place in autos, movies, cereals, and thousands of other products as OM uses rapid, low-cost production to fulfill increasingly unique customer demands. What followed in recent decades is that retailers ramped up choices. They tried to capitalize on the shift toward personalization with a desire to please everyone and added variety to tempt people to buy items they didn’t need.
Now, with choices overwhelming shoppers and clogging supply chains, some brands are moving in the opposite direction, writes The Wall Street Journal (Nov. 22, 2020). They are trimming styles and colors in the hope that by eliminating the decision paralysis that grips customers when they are faced with too many options, they can boost sales and reduce markdowns. For example, Coach is cutting its handbag styles by half. Bed Bath & Beyond is reducing its can opener selection by 2/3. Kohl’s is culling its towel offerings by 20% and women’s dress styles by over 40%. In industry parlance, this is known as “buying narrow and deep” and follows Pareto’s 80-20 rule that 20% of a company’s products account for 80% of its sales.
Coach used to produce 1,000 handbag models each season, but now is only making 500. Instead of making two of the same bag, one with a leather strap and the other with a chain, it might make only the leather version. Coach is emphasizing its 3 best-selling colors and weeding out other shades. “We don’t need three types of red,” said the CEO.
A recent Columbia U. study found that people bought more jam when they were shown fewer choices. Only 3% of consumers who were shown 24 types of jams made a purchase. The purchase rate increased to nearly 30% when consumers were shown just 6 varieties. “We live in a world where we think more choice is better even though we recognize that it’s overwhelming,” said the study.
Classroom discussion questions:
- What is mass customization and why is it an OM issue?
- Give examples of how consumers can be overwhelmed with choices in a supermarket.