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Arbeitsberichte des Lehrstuhls für Allgemeine
und Industrielle Betriebswirtschaftslehre an der
Technischen Universität München
Prof. Dr. Dr. h.c. Ralf Reichwald (Hg.)
Arbeitsbericht Nr. 37 (März 2003) des Lehrstuhls für Betriebswirtschaftslehre -
Information, Organisation und Management der Technischen Universität München
Leopoldstrasse 139, 80804 München, Tel. 089 / 289 24800
www.prof-reichwald.de
ISSN 0942-5098
© Copyright 2004 by Piller, Berger, Möslein, Reichwald, TUM.
Alle Rechte vorbehalten.
Frank Piller / Christoph Berger / Kathrin Möslein / Ralf
Reichwald
Co-Designing the Customer
Interface:
Learning from Exploratory
Research
Version: 15. März 2003
Co-Designing the Customer Interface:
Learning from Exploratory Research
Frank Piller+, Christoph Berger*, Kathrin Moeslein+, and Ralf Reichwald+
*Adidas Salomon AG, Herzogenaurach
+TUM Business School, Department of General and Industrial Management,
Technische Universitaet Muenchen
Corresponding authors:
Kathrin Moeslein and Frank Piller,
Leopoldstrasse 139, 80804 Munich, Germany,
piller@wi.tum.de, moeslein@wi.tum.de
TUM Business School, Working Paper # AIB37, March 15, 2003
This working paper can also be downloaded from our website: www.prof-reichwald.org
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Executive Summary
The objective of this paper is to explore, discuss and evaluate different demands on the
collaboration between retailers (other intermediaries) and manufacturers in a mass
customization context. Our focus will be the development, implementation and operation of
customer interfaces where co-design activities take place between consumers and suppliers.
As a result, we will present four modes to perform these tasks collaboratively. Our research is
based on field research: (1) In collaboration with the sport goods manufacturer Adidas
Salomon AG, a company heading towards mass customization with its mi adidas system, we
explore challenges of consumer co-design. (2) In a second step of exploration, we use results
from large scale high-quality case study research to identify basic modes of collaboration.
These modes provide a platform for consumer co-design in mass customization systems
between retailers and suppliers. From the perspective of management practice at Adidas, this
research contributes significantly to better understand the collaboration challenges of
implementing a customization system. From the perspective of management research, it
provides a conceptual model of collaborative customer interfaces as well as a pilot for the co-
design of the mi adidas customer interfaces.
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Contents
1. COLLABORATION IN MASS CUSTOMIZATION SYSTEMS...........................................................3
2. A NOTE ON OUR RESEARCH APPROACH ........................................................................................ 6
3. EXPLORATION I: MI ADIDAS − A CASE IN CO-DESIGN ...............................................................9
3.1. HISTORY OF COLLECTIVE EXPERIENCE................................................................................................... 9
3.2. COLLABORATION CHALLENGES: LEARNING FROM EXPLORATION I ...................................................... 11
4. EXPLORATION II: FOUR MODES OF COLLABORATION FOR CUSTOMIZATION.............. 15
4.1. CASE STUDIES ON CUSTOMIZATION...................................................................................................... 15
4.2. CONCEPTUAL MODEL OF COLLABORATIVE CUSTOMER INTERFACES:
LEARNING FROM EXPLORATION II ........................................................................................................ 18
4.3. FIELD FEEDBACK AND REFINEMENT OF COLLABORATION MODES ........................................................ 25
4.4. A COLLABORATION MODEL FOR MI ADIDAS ......................................................................................... 29
5. TOWARDS CO-DESIGNING THE CUSTOMER INTERFACE........................................................ 30
Acknowledgments:
This research was funded partly by grants from the European Commission (project EuroShoe,
www.euro-shoe.net) and the German Federal Ministry of Education and Research (project
EWOMACS under supervision of the PFT Karlsruhe, www.ewomacs.de). The authors gratefully
acknowledge the input of Mitchell M. Tseng, Hong Kong University of Science and Technology.
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1. Collaboration in mass customization systems
“The mass market is dead,” (Kotler 1989, p. 47) provocatively said when describing the
evolution from mass marketing to target oriented marketing that finally arrived at
individualized or one-to-one marketing today. Kotler as well as many other marketing
scholars are pleading for a perspective which gives priority to building up and maintaining
long-term profitable relationships with promising individual customers, in contrast to the
short-term success orientated approach of single transactions in anonymous mass markets. In
this sense, companies have to adopt strategies which embrace both cost efficiency and a faster
reaction to customer needs. While this shift from transaction towards relationship marketing
is described in literature since more than a decade (e.g. Grönroos 1989; Glazer 1991; Webster
1992), implementation of this principle in businesses has just started to a larger extent. Only
the recent diffusion of modern information and communication technologies enables firms to
build deep and individual relationships with their customers without the traditional cost
surpluses connected to rich communication modes. Thus, many companies that used to deal
with larger segments of anonymous customers are placing now each individual customer at
the focal point of attention.
The ultimate form of serving customers individually is delivering customized products or
services which meet exactly the desires and whishes of each customer. Strategies like agile
manufacturing, focused factories, mass customization, flexible manufacturing, or customer
relationship management are being discussed as approaching concepts to support this
challenge (Milgrom/Roberts 1990; Sahin 2000). Especially the mass customization approach,
which will be in the focus of the remaining paper, is discussed recently as a promising way to
serve every single customer both individually and efficiently. The objective of mass
customization is to deliver goods and services which meet individual customer’s needs with
near mass production efficiency (Duray et al. 2000; Pine 1993; Tseng/Jiao 2001; Piller 2003;
Tseng/Piller 2003). This preposition means that individualized or personalized goods can be
provided without the high cost surpluses (and, thus, price premiums) usually connected with
(craft) customization. Until today, mass customization was argued to be possible due to the
capabilities of modern manufacturing technologies like flexible manufacturing systems or
modular product structures, reducing the trade-off between variety and productivity and hence
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enabling to decrease the additional production costs (Ahlström/Westbrook 1999; Kotha 1995;
Pine 1993; Victor/Boynton 1998)., New flexible manufacturing systems are however a
necessary but not sufficient condition for successful mass customization. They have to be
supplemented by infrastructures capable of handling the information flow and transaction
costs connected to mass customization which is characterized by a high intensity of
information used compared to mass production (Huffman / Kahn 1998; Lee/Barua/Whinston
2000; Reichwald/Piller/Moeslein 2000). Every transaction in a mass customization system
implies information and coordination on the customer specific product design. It is based on a
direct communication between the customer and the supplier as the result of a two stage
product development process leading towards customer co-design:
• Product architectures and the range of possible variety are fixed during a preliminary
design stage linking the overall company strategy to the available manufacturing
capability. During this step, the ’solution space’ of a mass customization system is set
(von Hippel 2001).
• The second design and development stage takes place in close interaction between the
customer and the supplier. Here, the capabilities of the solution space from stage 1 are
turned through adequate configuration tools into a specific customer order. The supplier
has to interact with the customer to obtain specific information in order to define and
translate the customers’ needs and desires into a concrete product specification. A product
is co-designed between every single customer and the supplier. This co-design is the
foundation of a new kind of value creation following the paradigm of customer integration
(For more detail see: Piller/Moeslein 2002a; Reichwald et al. 2003; Piller/Stotko 2003).
Co-design for customization always means collaboration. Every transaction in such a model
implies information and coordination about the customer specific needs and is based on a
direct communication between the customer and the supplier (Hibbard 1999; Zipkin 2001).
This relationship between the customer and supplier can be seen as a collaboration providing
benefits for both sides, but demanding input from both participants, too. Individualization
means that value is mutually created among the actors on different levels as customers are
integrated into value creation (Ramirez 1999). The result is a system of prosumerism, i.e. a
company-customer interaction (social exchange) and adaptation for the purpose of attaining
added value (Milgrom/Roberts 1990; Normann/Ramirez 1993; Toffler 1971). An important
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task for firms heading towards customization is to develop and operate new kinds of customer
interfaces and interaction systems building an efficient platform for this value co-creation.
To provide individualization, however the supplier and customer not only have to collaborate,
but manufacturers and retailers must as well. While the requirements of manufacturing
customized goods or services have already been discussed to some extent in the literature
(e.g., Agrawal/Kumaresh/Mercer 2001; Zipkin 2001), the perspective of retail and other
channel partners is much less evaluated. Traditionally, the competitive advantage of a retailer
is based on its ability to provide a fitting assortment for the targeted market segment and its
capabilities in distribution. By bundling supply and demand, retail is lowering transaction
costs. When providing customized solutions, however, assortment, efficient stock keeping,
and distribution are no longer the driving sources of competitive advantage. On the contrary,
interaction skills and matching the customization possibilities with the needs of a specific
customer during the process of co-design are becoming the prime sources of competitive
advantage. As at the end each order it has to be transmitted separately to the corresponding
manufacturer, and as the manufacturers get access to information on every single customer,
the relationship between suppliers and retailers change when introducing mass customization.
In the same manner as transaction marketing is supplemented (or even substituted) by
relationship marketing, transaction based relationships between suppliers and retailers are
being replaced by collaborative relationships between these two parties.
In this context, collaboration relates on creating a mass customization system above
companies’ borders and integrating the system (especially its customer interfaces) in a multi
channel context. While this task is of general importance in many retail contexts, we will
argue that customization has even higher demands to design an appropriate collaboration
setting. The objective of collaboration is to create specific competitive advantages as a result
of the increased proximity to its partners and members of other partner networks
(Wigand/Picot/Reichwald 1998). In the following, we will limit our discussion to the
relationships between manufacturers, retailers and customers in consumer goods mass
markets. Unlike in many business-to-business (b-to-b) markets, where customization is
relatively common-place (however, often connected with high surpluses), in business-to-
consumer (b-to-c) markets implementation of mass customization has just started. For this
reason, we will focus on analyzing mass customization in b-to-c markets in the rest of this
paper. Here, the principles of mass customization have greater impact and a greater degree of
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innovation than within companies operating in b-to-b-markets. However, most of the results
can also be transferred to the b-to-b domain.
The objective of this paper is to explore, discuss and evaluate different demands of
collaboration between retailers (other intermediaries) and manufacturers in a mass
customization context. Our focus will be the development, implementation and operation of
customer interfaces where co-design activities take place between consumers and suppliers.
As a result, we will present four modes to perform these tasks collaboratively. Our research is
based on a case study of sport goods manufacturer Adidas Salomon AG, a company heading
towards mass customization with its mi adidas system. This case study, described in Section
3, provides us with the research questions and challenges of a mass customizer in regard to
collaboration in retail. In a second step of exploration, we use results from large scale
qualitative case study research to identify four modes of collaboration for customization
(Sections 4.1 and 4.2). After describing these modes, we will discuss suitable modes of
collaboration for mi adidas (Section 4.3). The term “co-design” is used threefold in this paper:
Customization requires a co-design between the supplier and each customer to specify the
desired products. Secondly, we discuss that the interfaces between customers and suppliers
(where this product related co-design is performed) have to be developed jointly and operated
(co-designed) by retailers and manufacturers. Thirdly, the concepts and results presented in
this paper are co-designed from a methodological perspective as it is the result of a long term
and on-going collaboration between the case company and the research team (see Section 2).
2. A note on our research approach
This paper presents and discusses experiences from an ongoing field research project on the
co-design of corporate customer interfaces. While our objective is to discuss approaches for
bridging the boundaries between suppliers, retailers and their customers in order to build up
individual and profitable relationships, the project itself bridges between management
research and management practice in many aspects. It builds on a long-term cooperation with
Adidas Salomon AG (referred as Adidas in the following), a leading sports company
headquartered in Herzogenaurach (Germany), which represents the stable backbone of our
research project giving access to current management problems and strategies at the customer
interface, thus opening up an exciting field not only for exploration but also for the co-design,
piloting and evaluation of experimental solutions.
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+
+
+
Research Process
Conceptual
preunderstanding
(desk research)
Exploration I
(longitudinal case
research with Adidas)
Systematization of
collaboration
challenges
Refinement of
systematization
Conceptual
model of
collaborative
customer
interfaces
co-design of the
mi adidas
customer
interface
Output
Exploration II
(220 qualitative
case studies)
Field feedback
workshops
at Adidas
Figure 1: The exploratory research process
The trigger for the current research project was clearly rooted in the joint interest of Adidas
and our research team to learn more about the business challenges and potentials of
customization systems at the customer interface. Started in 1998, this research cooperation
gave us the chance to co-create a joint perspective and understanding of collaborative
customer interfaces and to gradual develop and refine the mi adidas customer interface within
in the last five years. Figure 1 gives an overview of our overall exploratory research process
that comprises three major steps:
Step 1: Starting from slightly different conceptual pre-understandings in the early beginning,
we jointly developed the in-depth case history of customer interface management at Adidas
Salomon AG in order to explore specific challenges in the context of collaboration and
customization (“Exploration I”). This step (see section 3) gave us a deep joint understanding
of the specific collaboration challenges of the mi adidas customer interface and resulted in an
early systematization of possibly important collaboration challenges.
Step 2: Building on this early systematization we explored the mass customization case
database of our research group containing more than 220 in-depth case studies in the field of
customization spanning a time frame of more than 15 years and showing alternative models as
well as success factors and barriers of customization (“Exploration II”). This research is
described in more detail in Section 4.1. This step guided the refinement of our
systematization. Field feedback workshops and in-depth discussions at mi adidas finally lead
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us to the conceptual model of collaborative customer interfaces that will be presented in
Section 4.2.
Step 3: takes what is learned from exploration I and II and aims at a collaborative evaluation
and redesign of the early mi adidas field pilot. In an interdisciplinary research and design
project funded by the German Federal Ministry of Education and Research we are in the
process of developing the mi adidas customer interface further, based on our joint conceptual
understanding of the field (see Section 5). Ongoing cross-industry evaluations which
accompany the co-design process will help us to further refine our conceptual understanding.
In doing so, our research follows the Munich School of Exploratory Research aiming at the
co-creation of knowledge in close collaboration between management research and practice.1
The approach is rooted in the fundamental work of Eberhard Witte who established his school
of empirical management research in the German business administration community in the
late 1960s and early 1970s (Witte 1968; Witte 1977; Hauschildt/Grün 1993). Witte’s work
was also a starting point for a fruitful debate in German academia on exploratory management
research in the 1970s and 1980s (see, e.g., Köhler 1977), fostering a strong research tradition
aiming at the co-construction of knowledge in exploratory research settings (see Kubicek
1977). The exploratory management research presented in this paper follows this
“construction strategy of empirical management research”. It looks at management research
as a “design science” that does not stop with normative design suggestions but aims to pilot
and evaluate design suggestions in field experiments in order to generate real world
experience as a basis for theory development (see similarly Witte 1997; Gummesson 2000;
van Aken 2001; Tranfield 2002). This also implies a tendency towards longitudinal research
in order to detect cause-effect-relationships in real world settings (Van de Ven 2002).
The underlying research strategy of this School of Exploratory Research can be seen as an
early attempt “in search of mode 3” (Huff / Huff 2001)2. Leaving the traditional science
approach and integrating sound management research with the co-construction of
management knowledge in real world settings. As we will show in Section 5, the funding
1 For further research following this approach see e.g. Reichwald 1984; Picot / Rogers 1985; Picot / Reichwald 1988; Reichwald /
Goecke 1994; Pribilla / Reichwald / Goecke 1997; Reichwald / Bastian 1999; Koller 2000; Reichwald / Moeslein / Piller 2000;
Moeslein 2001; Piller / Moeslein 2002; Piller / Reichwald / Schaller 2003.
2 Cf. also Gibbons 1994; Gibbons et al. 1994; Tranfield / Starkey 1998; Huff 2000; Starkey / Madan 2001; Starkey 2001; Tranfield
2002a, b; Huff 2002.
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strategy of the German Federal Ministry of Education and Research strongly supports this co-
construction of knowledge in management research by fostering exploratory project designs
aiming at piloting and evaluating management and technology innovations in interdisciplinary
partnerships between management research and management practice.
3. Exploration I: mi adidas − a case in co-design
3.1. History of collective experience
Based on the ongoing collective experience between the research team and Adidas since
1998, the background of our research derived to be as follows: The international sports shoe
industry is a text book example of innovative variant management. The five biggest brands −
Nike, Adidas, Reebok, Asics and Puma − no longer do their own manufacturing, but rely on
strong outsourcing, often to the same suppliers. Their core competences are the recognition of
market trends and the design and development of new products. Extensive market research
activities, lean contract manufacturing systems, sound forecasting skills, and good supply
chain management along with a strong brand management are seen as the preconditions for
success within the industry. However, even the two market leaders Adidas and Nike are
facing problems: Their brand name is being attacked by new, trendy fashion labels,
consumers are demanding high quality shoes for lower prices, and customer loyalty tends to
decrease fast.
The reasons for these developments can be found by and large in the culmination of increased
competitive pressure, technological progress, and changes in shopping behavior. Adidas is
challenged by an increasing individualization of demand. Explanations may be found in the
tendency towards an experience economy, an orientation towards design, and, most
important, a new awareness of quality and functionality which demands durable and reliable
products corresponding exactly to the specific needs of the purchaser. A further influence is
the maturing of a brand-literate society that is evolving from awareness to involvement with
brands, with members keen to exercise greater choice and influence over what they consume
(Sahin 2000). In particular, consumers with great purchasing power are increasingly
attempting to express their personality by means of an individual product choice. Thus,
Adidas (as almost all suppliers in the sports good industry) was forced to create product
programs with an increasing number of variants (differentiation by means of variety). This
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development makes forecasting and planning for Adidas more difficult than ever. The
consequences are high overstocks, an increasing fashion risk, an enormous supply chain
complexity, and a need to give large discounts in order to get rid of unwanted products, not to
mention lost sales caused by products which have performed better than expected and that are
therefore not available in adequate quantities or sizes.
In the final consequence, the company realized that implementing made-to-order
manufacturing instead of made-to-stock variant production could become a promising option
to manage the costs of variant explosion and broad product assortments due to the growing
individualization of demand in final consequence. Adidas’s management decided to head
towards mass customization. The program development started in the mid 1990s, and in a
joint effort between the research team and Adidas’s project group (headed by Christoph
Berger) the customizable product range mi adidas was developed and launched in test
markets in 2001.3 The program makes customized shoes available to consumers in specialized
retail stores and at selected events. Consumers are given the opportunity to create their own
unique footwear to their exact personal specifications in terms of fit, function and design, thus
providing a service that until now was only available to football stars like David Beckham, or
top running athletes like Haile Gebrselassie. The shoes are offered in selected markets world
wide at a price that is about 30 per cent above the price of an in-line (standard) product.
By means of a footscan system, the customers’ feet are scanned to determine the exact length,
width and pressure distribution of each foot. Together with trained “fitting experts” the clients
review the result of the scan. This information, combined with personal fit preferences, is
entered into a computer to determine the best-fitting shoe. Once customers have chosen their
personalized function and fit, they have the opportunity to test the shoes before heading into
the final design phase. The customer then gets to design the color elements and select material
preferences. As a final sign of individuality, customers can create a uniquely embroidered
monogram on each pair of shoes. All these steps are performed with the help of a
configuration system, a PC-based sales kiosk leading the customer but also the sales clerk
through the whole customization process. The system also visualizes the results and connects
3 Adidas competitor Nike had already launched a mass customization program in 1998. However in this system consumers can simply
choose some customized (aesthetic) design options on a standard model and print their name on it. The “mi adidas” program goes much
further as it adds a customization option with regard to fit and functionality. See the case study in Piller/Stotko (2003) for a discussion
of both programs.
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the point of sale with the fulfillment systems. All shoes are made-to-order at an Asian factory
(see Seifert 2002), and the delivery time is about three weeks. The program was introduced
within two stages: A first pilot stage helped to evaluate the degree of variety offered and the
perception of this totally new kind of shopping by consumers in major international markets.
The experiences from this stage were used to reengineer the process and product models
accordingly and to introduce the system in its recent appearance (see also
www.miadidas.com).
Due to the full customization approach including physical feet measurement, mi adidas
products need an offline interaction tool. The products are sold in two channels today: Firstly
during special retail events in traditional retail outlets. The system is promoted towards retail
as a “retail innovation” helping participating retailers to stress their local store image and
sports shoe competence in the market. The individual retailer is responsible for the marketing
prior to and during the event. Secondly, mi adidas products are sold at various locations
during major sporting events (like major marathon runs or the Soccer World Championship).
While in the first case a retailer books an Adidas team as a facilitator, but makes the sale
within its own system, in the second approach Adidas sells shoes directly to the end user. Re-
orders based on an existing customer profile can be placed by customers of both channels in
an Adidas owned call center, re-orders on the internet will be possible at the end of 2003.
3.2. Collaboration challenges: learning from exploration I
Mi adidas can be considered as a new business model for the whole industry, influencing and
changing the value chain and potentially the sporting goods marketplace. The first two years
of operation of mi adidas brought such a large amount of customer response, that Adidas’s
management is now looking for a way to extend the mi adidas activities and to integrate them
in the existing business processes for a broader roll-out of individualized sports goods. But
while consumer interest proofed to be very high, and supply chain (manufacturing) issues of
mi adidas are mainly solved (see Piller/Stotko 2003; Seifert 2002), relationship and
collaboration management remain to be the biggest challenge while trying to scale-up the
system. As described above, the system is based on an offline co-design process due to the
need of physical interaction. Thus, cooperation with retail partners is particularly important
for Adidas if the firm wants not to go the costly way of building an own network of stores and
direct channels. As cooperation with retail to perform customer co-design in a mass
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customization setting is a totally new task for Adidas (and its retail partners as well), our
research collaboration set a strong focus on this aspect. Several critical incidents during the
piloting phase of the mi adidas projects were based on conflicts between the company and its
retailers. Succeeding workshops and discussions between the research team and the project
management identified three challenging areas resulting from new demands in handling
customer interaction, customer relationships, and collaboration between all parties delivering
the customized product:
• Mastering the transition from product marketer to solution provider;
• solving ownership conflicts of customer data and increasing customer loyalty;
• access to market research information.
These areas have to be mastered to avoid channel conflicts and realize benefits of cooperation.
Our research in exploration step II (evaluation of other mass customizing companies, see
Section 4.1) showed that these challenges are shared by many firms heading from mass
production towards mass customization. We will describe the three collaboration challenges
in more detail in the following:
(1) Transition from a product marketer to a solution provider
Within mi adidas, the product itself ceases to be the central focus when interacting with the
customer. Many end consumers do not have the necessary know-how to specify an
individualized solution which corresponds to their desires. While, for example, more and
more users nowadays have learnt to configure a PC online, only a few may be able to
configure a pair of sport shoes, for example, on their own. Therefore, an important task
becomes to assist them during the configuration process. As the final product does not exist
during the sales process, demonstrating solution competence during the sales process becomes
one of Adidas’ top priorities. This competence is shown firstly by the design of the
configuration system, but is primarily based on the (customers’) perceived competence of the
sales clerk at the point of sales. Mass customization poses new challenges for brand managers
because customers that co-design their products expect to have a different relationship with
brands than traditional consumers. They are not satisfied with simple one-way
communication, but instead want a true two-way relationship.
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Retail is often not prepared for this step. Sports shoe retailers are used to selling products, not
to co-designing and co-developing them with their customers. While the involvement of retail
personnel in traditional sales channels is already often below manufacturers’ expectations,
this problem is much more significant in a mass customization system. Sales clerks often
show reluctance to change from selling stock items to co-designing a product with a specific
customer. Adidas has overcome this problem for the time being by sending its own team of
experts into the stores on an event basis. However, if the mi adidas system is going to gain
major market share, this solution is far too expensive (even if retailers are paying a fee for this
service). But the problem can emerge from the retailer’s perspective as well: While selling
standard goods, the manufacturer of the product is seen responsible for quality failures,
product liability and the warranty. However, as mass customization implies a change from
selling a product to providing a service, the retailer will be made responsible much more
readily for dissatisfaction with the final product, even if the error is based in the fulfillment
system of the supplier. Furthermore, when the product is finally handed over after delivery, it
has to be ensured that a competent sales clerk is present to get feedback information and
round off the experience, even if by that time the mi adidas experts are gone.
Thus, managing the collaboration between Adidas and its retail partners has to address the
following questions: How can retail communicate the interaction possibilities of mi adidas
towards consumers? How can suppliers motivate retail personnel to participate in mass
customization and personalization and address the transition to offering solutions instead of
products? What institutions are there to increase the motivation and involvement of the
retailers and to prevent biases (and low quality) in retail?
(2) Ownership of customer data and increase in customer loyalty
One of mi adidas’s major advantages comes not in the sale of the first pair of shoes, but
during the subsequent purchases made by a single customer. Properly implemented, mi adidas
can become the company’s premier tool for increasing customer loyalty. Based on the generic
foot scan and the knowledge of fit preferences of a user, this data can be used not only to
fulfill the first order, but also to make re-orders very easy. Profiling information regarding the
style and comfort preferences of a customer is rather subjective data. Often some effort has to
be undertaken in order to obtain reliable information. However, once it has been collected, a
re-order could be processed now also by phone or internet, without the usual problems
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connected with distance shopping. Moreover, once Adidas has proved that it can deliver a
customized solution in-time, the trust perception is higher therefore reducing the risks
customers face when ordering customized goods. Thus, cross-selling of different kinds of
sporting equipment, or selling add-ons or up-grades, becomes possible. Often, all these
additional sales can be based on the first set of data, with just a few additional interactions. If
Adidas can maintain control of brand values by listening and responding to their customers to
ensure that they do not feel duped into a false relationship, the resulting closer relationship
can rekindle brand loyalty, provide a competitive opportunity for differentiation, and increase
the “share of customer” (i.e. the aggregated profits a firm makes with one single customer).
To fulfill this potential, the configuration process of mi adidas has to be designed to get as
much information as possible from a customer. Secondly, getting feedback data immediately
after delivery is very important in order to extend the knowledge about any single customer.
This potential implies a major source of conflict: Who owns the customer data and who will
take re-orders? At this point, Adidas would have all the information for selling re-orders in a
direct channel, which is much more profitable than using the retailer. Also from a consumer’s
perspective, a direct sale is often more comfortable. An additional problem exists:
Traditionally, manufacturers deliver the same product to competing retail chains. Thus, a mi
adidas customer purchasing her first pair of shoes with one retailer would expect to make re-
orders with another retailer as well. This, however, would include sharing knowledge about
the customer within a horizontal network − quite a challenging task. Why should a retailer
invest in getting a customer into the system when the fruits are reaped by either the supplier
or a competing retailer? How can the retailer be motivated to get feedback data (after
delivering the goods) and to share it with the supplier? Is the supplier willing to use this
information to improve the joint relationship with a customer?
(3) Access to market research information
By interacting with the end-user, mi adidas obtains market research data by aggregating the
data on individual customers through the use of data mining activities (Kotha 1995). The
results can improve not only the customized product line, but also the standard lines by
providing better market research information and more accurate forecasting on customer
needs. To plan manufacturing for standard products, the mass customized segment provides
panel-like market research information without the common panel effects biasing the results.
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The information gained here can be used to plan and control better existing variants of
products made to stock. Thus, all results must be checked and consistently evaluated in terms
of their relevance for in-line production (e.g. the modularization of production, and the
definition of country specific color preferences for the product management). Data such as
preferred color combinations of a country are important for Adidas in order to improve
regional offerings and to improve sales planning and forecasting.
However, retail could also use this knowledge to improve an assortment of standard products
across brands, and might be interested in sharing this information with other suppliers. The
resulting conflict prevents the gain of learning economies and synergies between the
customized and the traditional system. Realizing this opportunity is once again dependent on
the quality and mode of collaboration with retail. Retail collaboration has to find ways to
realize the synergies between the customized and the traditional system for both Adidas and
the retailer.
4. Exploration II: four modes of collaboration for
customization
As the Adidas case shows, customization offers a large range of opportunities (not to mention
the gain in efficiency and the prevention of discounts for unwanted products that were the
main motivator for implementing the system, see Tseng/Jiao 2001; Piller/Moeslein 2002b;
and Piller 2003 for an in-depth discussion of these advantages of mass customization).
However, it demands also to solve conflicts between the parties involved and the
establishment of new collaboration forms within the whole value chain.
4.1. Case studies on customization
These challenges are not specific for mi adidas, but shared by many firms heading towards
customization (e.g.; Agrawal/Kumaresh/Mercer 2001; Peppers/Rogers 1997; Piller 2003;
Piller/Tseng 2003; Zipkin 2001). Hence, we looked at other companies in similar situations in
order to find an answer to the challenges of Adidas. The objective of this second exploration
step is to gain insight into the modes of collaboration in mass customization systems. Mass
customization is still a rather young field in practice characterized by a heterogeneous
population of firms and strong growth rates. In such an environment, in-depth case studies are
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seen sufficient to provide exploratory insight into business mechanisms, value drivers, and
success factors (Bettis 1991; Kotha 1995). Starting point of our research is a database of
roughly 220 qualitative case studies in the field of (mass) customization, relationship
marketing, and customer integration. The cases were collected and documented by the
research team since 1995 (see Piller 2003 for a documentation; Table 1 lists some of the
included companies which were identified to serve as sources of input to address the
challenges of mi adidas). The objective of this database is to document and evaluate different
aspects of mass customization and customer orientated value creation (see Franke/Piller 2003;
Reichwald/Piller/Moeslein 2000; Reichwald/Piller/Lohse 2000; Piller 2002; Piller/Moeslein
2002b; Piller/Ihl 2002; Piller 2003 for further research based on this database). We selected
companies according to the following structure: As described above, we firstly focused our
research on companies with a mass customization program in the b-to-c market. Secondly, we
tried to identify firms that are reported to exhibit "promising practice" within their industry or
are often quoted as a leading example. The basis for this selection were expert interviews with
academics and consultants on conferences related to the topic (like the World Congress on
Mass Customization and Personalization 2001 in Hong Kong), and an analysis of the
literature (e.g. Agrawal/Kumaresh/Mercer 2001; Da Silveira/Borenstein/Fogliatto 2001;
Durray et al. 2000; Lee/Barua/Whinston 2000; Riemer/Totz 2003; Tseng/Jiao 2001). We also
focused on companies that have been carrying out mass customization operations for a longer
period of time in order to get information on their learning curve. However, this selection is
limited by the fact that implementation of mass customization does not have a long history.
Mass customization is an evolving field with often only a few active firms in one branch of
industry. This must be taken into account when discussing the contributions and limitations of
our research.
For each case, data was gathered by primary sources such as semi structured interviews with
the firm’s management and company visits and complemented through secondary sources
such as database research and expert interviews. We interviewed managers in charge of the
customization program (which often was the CEO). The interviews for each case were
structured openly and conducted mainly face-to-face (otherwise by telephone). Interviews for
companies that were included in the database in the beginning of this research (late 1990s),
are updated regularly as long as the company exists. Whenever a company had to close its
operations, we tried to follow up the case to get insight into the reasons and the background of
failure.
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Company Products Markets
Creo @ Otto Versand (not in operation
any more)
fashion shoes Germany
Custom Foot (not in operation any more) dress shoes USA
Customatix (www.customatix.com) fashion shoes USA
Dell Computers (www.dell.com) PCs world wide
Dolzer (www.dolzer.de) men’s (formal) wear Germany
Factory 1to1 (www.factory121.com) Swiss watches Europe, USA
getCustom (not in operation any more) online shop for various
customized goods
USA
Interactive Custom Clothes Company
Designs (www.ic3d.com)
jeans USA
Lands’ End (www.landsend.com) khakis (trousers) USA
Lego (www.lego.com) comics, special toy kits
(Mosaic product line)
world wide (major markets are USA,
Canada and Germany)
NikeID (www.nike.com) sport shoes (design) USA, Germany, Japan
Possen.com (www.possen.com) apparel Netherlands
real Age (www.realage.com) personalized health
recommendations
USA
Reflect (www.reflect.com) cosmetics and body
care
USA
Selve AG (www.selve.net) women’s footwear Germany
Sovital (www.sovital.de) vitamin products Germany
Timbuk2 (www.timbuk2.com) bags and luggage USA, Canada (minor markets are
Europe)
Westbury by C&A (www.CundA.de) men’s (formal) wear Germany
xaaaz (not in operation any more) online shop for various
customized goods
Germany
Table 1: Exemplary cases covered for Exploration II
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4.2. Conceptual model of collaborative customer interfaces: learning from
exploration II
Looking at the collaboration structures and the ways mass customizing firms manage and
organize their relationships between (end-) customers, retailers (or other independent
intermediaries), we could identify different modes of collaboration. These modes were
differentiated (following the approach to analyze case study evidence suggested by Yin 1994,
pp. 102 ff.) by firstly identifying all players involved in the customization process
(manufacturer, suppliers, retailers, intermediaries, brand owners etc.) and secondly evaluating
their role and tasks to perform the co-design process. In doing so, we tried to identify
• how the co-design process was organized;
• which player performed the customized manufacturing from the end consumers’
perspective,
• who was the driving force when implementing the system,
• who had control (ownership) of customer data and who was using them in order to
generate re-orders or facilitate cross-selling activities.
Doing so, we could distinguish between four different systems which are differentiated from
each other by different allocation structures of information, knowledge, risks, and profits (see
Table 2 for an overview). The four modes shall describe an evolutionary path of development:
starting with new kinds of collaboration between the customer and the manufacturer, moving
directly on to collaboration with new partners in retail, and arriving at systems including
additional players and intermediaries.
Mode of Collaboration Company
Consumer Direct Customatix, Dell Computers, Dolzer, Lego, NikeID, Reflect
Manufacturer-driven
collaboration Factory 1to1, Selve AG, Sovital, Timbuk2
Retail-driven collaboration Creo @ Otto, Custom Foot, Lands’ End, Westbury by C&A
Intermediary based
collaboration Get Custom, Possen, Real Age, Xaaaz
Table 2: Modes of collaboration for mass customization (see Table 1 for examples’ description)
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Consumer direct
Many of the prominent examples of mass customization rely on direct sales strategies.
Consumer goods companies like Mattel, Levi Strauss, P&G or Nike, which normally use
multi-level retail channels, sell their mass customized products efficiently via the Internet or
own retail outlets in direct interaction with their consumers. When Adidas’ competitor Nike
started mass customizing with NikeID (see foot note 3 above), it decided to offer this product
only via its own web site. Apart from lower transaction costs due to the “design it yourself”
approach, the main motivation behind this decision was to gain experience with interacting
with consumers directly on the Internet. To avoid channel conflicts, Nike could argue
successfully that the product would be much too costly and labor intensive if it were sold
offline (Nike just charges a small surplus for the customization option).
Theory also backs up this approach. For individualized goods and services transaction cost
theory recommends, at first glance, direct interaction between manufacturer and buyer.
Configuration and purchasing should be fulfilled without any intermediaries (Williamson
1975; 1989). A retailer would do nothing more than transfer the product specification to the
manufacturer where each order has to be checked, planned and carried out separately. Thus, a
retail channel would just add an additional (transaction) cost-generating level, especially as
today electronic commerce allows manufacturers to communicate and trade with large groups
of consumers directly and efficiently.
Take the example of P&G’s Reflect which offers customized cosmetics on the Internet. Using
interactive software, visitors to the site can create their own cosmetic line, mix and match
various options like colors, scents, and skin-care preferences to create a unique product at off-
the-shelves prices. A facility in upstate New York manufactures the product, and a "concierge
service" in Cincinnati handles follow-up interaction with customers (Piller / Reichwald /
Schaller 2003; Warner 2001). P&G decided to sell direct, passing by the retail channels that
are usually distributing their products. Although big retailers watched Reflect very carefully,
they realized that this mode is not possible in a normal retail channel. Transaction costs would
be far too high if a sales clerk went through all the customization options with a consumer.
Thus, when launching Reflect, P&G realized that the largest challenges of the model would
not be retail, but internal conflicts with the existing business model. In a wise move, they
decided to partner a venture financier and operate Reflect as a separate company, totally
independent from the normal operations. However, Reflect’s management has now realized
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that they need further contact points with the consumers in order to grow in new market
segments. Many consumers are not willing, or not able, to customize cosmetics online. An
online channel can never address all the sensual and tactile attributes involved in shopping for
cosmetics. So recently Reflect announced the opening of own stores where consumers can
interact more closely with the system, learn about the products and create their first order. But
to make re-orders customers are encouraged to use the internet in order to reduce transaction
costs.
Dealing with the consumer directly prevents channel conflicts simply by not integrating any
channel partners and establishing no collaboration on the retail side at all. Moreover, interface
problems do not occur.,Conflicts however may derive from outside the system if the
manufacturer still sells goods and services that are sold in traditional channels. In this case
selecting products for the direct channel that do not cannibalize traditional channels is crucial.
Manufacturers can also argue that innovative forms of individualization strengthen the whole
brand with innovation leadership and therefore create benefits for the retailers, too. This is the
argument Nike told its retailers when it started selling customized sneakers through a direct
channel on the Internet. The firm prevented channel conflicts by choosing a product which
was not possible to sell in traditional retail. On the other hand, Levi Strauss failed with its
consumer direct channel on the Internet, since big retail chains felt attacked, as Levi was
selling exactly the same products as in their stores.
Manufacturer-driven collaboration
Other companies are using traditional retail channels to implement mass customization. By
integrating an outside retail partner into this process, they try to use the proximity of many
retailers to their customers. This can provide substantial value in terms of more accurate and
up to date information about consumer needs and market trends. Understanding customers
better leads also to a more efficient handling of the configuration process on behalf of the
manufacturer. Another advantage is simply the ability of retail to bundle customer interaction,
therefore reducing internal complexity. Doing so, manufacturers may start on a higher level of
reputation if they use a retailer’s market name. Especially when selling online, the adoption of
technologies and higher levels of attention paid to an established retail web site allow
significant economies of speed during market introduction.
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In this mode, the collaboration is dominated by the manufacturer (mass customizer).
Especially from the perspective of a customer, the manufacturer is the provider of the
customized product and the main interaction partner. The retailer just provides access and
infrastructure for the co-design process. Customer data and customer relationships are within
the ownership of the supplier. The collaboration between the manufacturer and the customer
is based on a contract honoring the efforts of a retailer to establish a customer relationship
during a first sale, even if additional sales within this relationship are performed directly with
the manufacturer (provisions for the use of customer data). While one would expect that
especially the owners of well-known brands are using this mode of collaboration (as this is
the by far dominating way of selling standard products) to go into mass customization, we
found primarily start-up companies in this field. One explanation is that heading towards mass
customization is often motivated by large manufacturers especially by the possibility to get
experience in consumer direct without channel conflicts as described in the example of
NikeID. One the contrary, smaller start-up companies are much more dependent on the
network, customer proximity and capabilities of established retailers.
Retail-driven collaboration
In some cases, retail was the initiator of a customization program. Being close to the
customer, retailers are often able to realize individualization needs faster and more precisely
than manufacturers. In highly competitive markets, price competition reaches its limit where
further pressure to lower margins on the suppliers is no longer possible. In order to find new
ways of differentiation, retailers try to upgrade their offerings by becoming more service
orientated. Take, for example C&A, a leading European apparel discounter. At the end of the
1990s the firm was, to use Porter’s (1980) phrase, “stuck in the middle”. Its brand portfolio
and product range was neither fashionable enough to compete with emerging low-price trend
stores like H&M or Zara, nor could it become the clear cost leader due to expensive inner city
retail locations, large floor spaces, and huge overhead costs. In this situation, going into
individualization was seen as a chance to upgrade its service. C&A developed a new in-house
brand that is now offered in some 20 locations in Europe, selling mass-tailored men’s clothes
(at off-the-rack prices). The whole fulfillment system was outsourced to two supply chain
partners, a clothing manufacturer that offered mass tailoring, and a consultancy which was
responsible for the process engineering and operational management. A similar example
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provides catalog order retailer Lands’ End. This company, however, was motivated mainly to
go into made-to-measure manufacturing to avoid returns of unfitting products.
In this mode, from the end consumers’ perspective C&A and Lands’ End are the only visible
supplier. The customized offer is delivered under a brand name of the retailer. The
manufacturer delivering the customized goods is acting as a traditional contract supplier, with
the difference that at least on the fulfillment site a direct information based relationship
between the consumer and the manufacturer has to be established in order to deliver the co-
design information into manufacturing. Only the retailer however has full access to all
customer information (being able to match configuration data with a customer’s name).
Nevertheless, failures like that of Custom Foot (Reichwald/Piller/Moeslein 2000) show that
frequently retailers may have strong capabilities to understand the needs of a customer
interaction, but lack the capabilities to control the supply and manufacturing chain.
Intermediary based collaboration
As discussed above, established retailers are sometimes neither willing nor able to deliver the
new capabilities required for customization. But at the same time, many manufacturers are
typically not set up for close contact with end-consumers. Here the inclusion of an
intermediary may avoid channel conflicts if this broker acts as the visible market player. The
same is true for internal conflicts between the individualization processes, the old sales force
or between business units. The inner structure of many manufacturers often impedes a
seamless and comfortable interaction process, since customer-orientation is not anchored in
the company’s culture. It took mass customization pioneer Levi Strauss four years to establish
a relationship management program for its “Original Spin” program in order to lock-in first-
time customers into its system. Here, the collaboration with a specialized intermediary who
understands the relationship processes of individualization could have sped-up this practice
rapidly (Reichwald / Piller / Lohse 2000).
For the clothing industry, Possen.com, a Dutch company, may become such an intermediary.
Acting as a scanning broker, the company takes three dimensional body scans of its clients in
main street “scanning” shops as well as with a mobile scanning truck. Supplemented by
personal fit and style preferences, the data is stored on a central database and delivered to its
own retail outlets and participating, but independent retailers selling made-to-measure clothes.
Clients can also log in to the firm’s web site and order clothing (given that a client’s body
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shape has not changed too much since the last scan). The body scan data goes directly to
different workshops in Europe, where mass customization technology manufactures the
individual clothes. Even though the company strongly leans on the application of the Internet,
it is not the most important sales channel. The company’s major business objective is
becoming the central body data broker for the industry, enabling many more retailers to sell
made-to-measure clothing without having to invest heavily in scanning equipment or needing
to employ skilled tailors to do the measurements. Possen will earn a provision every time a
body data set is used, and will provide the value added service of processing the raw body
data into a customized cutting pattern, the technically most difficult part when mass
customizing clothing.
The business idea behind Possen offers a premier example of the benefits of intermediary
based collaboration. This mode can support customization in several ways:
• Economies of scale and enhanced efficiency: For many retailers the re-use of one configu-
ration system (like the 3D body scanner in the case of Possen) decreases the cost per use
and enables these technologies to break even much faster. Intermediaries can also enhance
competitive pressure on the whole collaboration system by forcing manufacturers and
retailers to design their processes more efficiently (for example by choosing only the best
mass customizer from one product category).
• Economies of specialization: Brokers like Possen have core competencies in
configuration, selection and assisting the customers in finding the product that really fits
their particular desires. By specializing in these individualization specific tasks at the
customer interface they may be able to foster these activities on a much higher
performance level at lower costs as well as achieving faster learning curves.
• Shared reputation: Brokers may be asked to rank and assess new manufacturers and
retailers in order to create shared reputation backgrounds of different suppliers. Customers
don’t have to rely purely on direct personal experiences, which is both inefficient and
perilous since one will only discover untrustworthy partners through one’s own hard
experience (Kollock, 1999). Reputation can reduce uncertainty and guide the decision of
whether to trust the supplier. Great gains are possible if information about past
interactions is shared and aggregated within a group. Here an intermediary may add new
value, too (Raub/Weesie, 1990; Yamagishi, 1994) by bundling a selected group of
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suppliers under “one roof” the broker assists a prospective customer in finding her
particular supplier. If an intermediary offers own guarantees for order fulfillment, it will
only cooperate with suppliers which have high quality standards − decreasing the
uncertainty for the customer.
Who could become these intermediaries? Firstly, there is still a chance for newcomers and
start-up businesses. However, as many of the business models of this kind are dependent on
network effects, start up entrepreneurships may not have sufficient funds to establish these
networks and achieve critical mass. Also, they face problems of building up trust and
guaranteeing commitment to manufacturers and retailers. Thus, established companies may
seize the opportunity. We see three groups of companies which could be particularly
dedicated to this kind of service:
• Logistic service providers: In many supply chains, logistic providers are closest to the
customer. The trend of providing integrated services along the whole value chain like
packaging, labeling, stock management, or handling returns can be supplemented by
customization related services. Logistic providers are also capable of handling interfaces −
IT and organizational ones − between different partners and complex data, constituting
two of the premier capabilities of such a collaboration broker. Finally, nowadays these
firms already act as clearing houses and trusted agents between suppliers and
manufacturers. These services may be extended to end consumers, too.
• Telecommunication companies: In the age of the cell phone why doesn’t a
telecommunication carrier provide scanning booths (for customized apparel and footwear)
instead of telephone booths? Many telecommunication providers need to upgrade their
offerings into more value added services. They have intense capacity to handle data, and
also provide millions of touch points with their existing customers. Many firms in this
industry also provide already billing and value-added services to third parties.
• Integrated Media Networks like AOLTimeWarner or Bertelsmann do not only own some
of the most valued and trusted brands, but also have direct channels via book clubs,
internet services or magazine subscribers to millions of customers. Take the example of a
fashion magazine which’s core business it is to sell fashion advice and trend spotting.
Such a company could become a valuable provider of brokerage tasks in the clothing
industry.
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4.3. Field feedback and refinement of collaboration modes
We have presented four possible modes of collaboration for customization: manufacturer
managed pure play (consumer direct), manufacturer-driven collaboration, retail-driven
collaboration and the intermediary-based mode. All modes have their own distinctive
demands and requirements. They are rich with advantages, but hold challenges which must be
met. We evaluated all modes of collaboration jointly in workshops and expert interviews with
various managers from Adidas in order to solve the specific collaboration demands of mi
adidas. The following section summarizes the result of this discussion (see Table 3 for a more
generic overview of the benefits and draw backs of the different modes).
Benefits Disadvantages
Consumer
direct
• no direct channel conflicts
• absence of interface
problems
• clear interaction partner for customer
• clear owner of relationships and
customer knowledge
• often lacking or insufficient capabilities to
deal with consumers
• high investments required to build up
interaction system
possibility of indirect conflicts if standard
products are still sold through traditional
channels
Manufacturer-
driven
collaboration
• use of retailers’ existing experience of
interacting with consumers efficiently
• cost savings by outsourcing of
customer interaction and information
handling to retail
• sales channels and interaction points
are known by consumers
• need to acquire new knowledge and skills
necessary for customer interaction may
demand investments of manufacturer into
retail partners
• motivation of sales personnel
• managing of different contact points
ownership of customer relationships and
sharing of gained knowledge
Retail-driven
collaboration
• close proximity to customer, existing
experience of interacting with
consumers efficiently
• low level of channel conflicts
• experience shopping
• reduction of market uncertainty on the
manufacturer side
• need to acquire abilities to be able to
control supply and manufacturing chain
• often weak understanding how to manage
and integrate all activities along the mass
customization supply chain
difficulties in realizing full benefit of better
market research information
Intermediary
based
collaboration
• possibility of avoiding internal conflicts
and channel conflicts
• economies of specialization
• economies of scale and enhanced
efficiency
• shared reputation, exchange / re-use
of customer data
• requires deep understanding of whole
mass customization system
• additional transaction costs
• growing complexity of ownership of
information and relationships
increase in filtering may result in loss of
information
Table 3: Advantages and challenges of modes of collaboration for customization
As already discussed above, customer-direct in its pure form is no option for mi adidas.
Adidas’s customization model requires the physical interaction with each consumer. As
Adidas has no retail chain of its own, cooperation with retailers or other intermediaries is
crucial as management decided not to build up a whole network of own retail stores (apart
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26
from some flag ship stores). This option is much too costly. However, when cooperating with
retailers, Adidas wants to be the clear leader of the system (manufacturer-driven
collaboration), especially as mi adidas should become a major instrument to strengthen the
whole Adidas brand name (in regard to technology & innovation leadership and customer
proximity). Thus, retailers should remain more or less within their traditional role of a
distribution partner providing the point of sale. Adidas tries to capture the advantages of
including retail partners in customization as mentioned above (outsourcing of customer
interaction and information processing, realization of economies of speed). These benefits
have to counterbalance the additional transaction costs (and smaller margins) resulting from
including a third party.
However, the savings are challenged by the problem of managing different contact points as
described in Section 3.2. A retail-driven system is not seen as an option as the Adidas brand
name is much stronger than the existing retail brands. However, a major threat could be a
retailer collecting experiences in customization with the mi adidas system and then
introducing an own customization program. As described above in Section 3, mi adidas has to
find an answer on the following challenges in particular which were the guideline for
evaluation of the identified collaboration modes (see Figure 2 for an overview).
Overall evaluation criteria:
Can a particular mode solve or at least lessen multi channel conflicts
for a
g
eneric
p
ers
p
ective?
(1) Transition from product marketer to solution provider:
Does a particular mode motivate retail personnel to participate in
mass customization and to address the transition to offering
solutions instead of products?
(2) Ownership of customer data and increase in customer
loyalty: Who owns the customer data and who will take re-orders in
a mode of collaboration? Does this mode of collaboration motivate
partners to collect feedback data (after delivering the goods) and to
share it with each other in order to improve the joint relationship with
a customer
?
(3) Access to market research information: Does a mode provide
access to economies of learning (market research data) and does it
help to realize synergies between the customized and the traditional
system?
Figure 2: Guidelines for case specific evaluation
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(1) Transition from product marketer to solution provider
Enabling consumers to become co-designers and implementing corresponding customer
interfaces delivering the expression of capabilities as described in Section 1 becomes a major
success factor in every (mass) customization system. Cosnumer-direct and manufacturing-
driven collaboration provide the best options to build a configuration system that connects
directly the product architectures and customization possibilities with the customer interface
(Franke/Piller 2003). In the consumer goods industry however, interacting with end
consumers is a completely new task for many manufacturers. Manufacturers, and also Adidas,
often lack the capabilities to interact with consumers and have to invest heavily in sufficient
interaction systems. Many individualization concepts have failed, as manufacturers did not
have the capability to deliver the right interaction system (Piller/Ihl 2002).
While retailers may be closer to the customer and more used to deal with end consumers from
an overall perspective, several problems still exist. One challenge is the motivation of sales
personnel. Many retailers are characterized by a high turnover of sales clerks, low levels of
education, and a lack of understanding the need of relationships. This has proved to be one of
the most serious problems of all companies implementing customization we have studied.
Incentive models have to be adjusted, and educational programs have to be installed to
address the change from selling products and services to providing solution capabilities. The
motivation levels of retail management to invest in corresponding programs are especially
low if it is not clear who will benefit from the relationship and profit from customization.
Decentralized retail networks are the major winners of reductions in inventory, decreasing
fashion risk, and the prevention of discounts at the end of a season resulting from
customization. But it is a manufacturer’s part to enable these savings and to promote these
possibilities to its retail partners. Here, much internal marketing effort is still needed. Sharing
the benefits of customization can become a key incentive for retailers to participate in an
individualization concept and implement appropriate trainings for their employees.
The retail-dominated system provides benefits for functions related to the consumer
interaction. The concept of experience shopping as a strong contribution to the need of
delivering solutions instead of pure products will be in most cases triggered by a retail driven
mode of collaboration (Pine/Gilmore 1999). Retailers may also create easier economies of
learning and increase efficiency by providing individualization for whole sets of different
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products from different sources, if they are able to transfer experiences from one category to
another.
(2) Ownership of customer data and increase in customer loyalty
Getting market research information and relating this to the development of new solutions
will be more difficult (from the perspective of Adidas) in the retail-driven mode than in the
manufacturer-driven mode (and consumer direct), as there will be more selection and loss of
information. The motivation to build customer relationships and to capture customer data is
driven by the same factors as described before in relation to the task of becoming a solution
provider. To address this challenge, the intermediary based mode of collaboration could
provide many benefits as here an independent third party counterbalances the interests of the
manufacturer and the retailer. While providing many benefits (as described before), there are
several drawbacks connected with intermediary based collaboration. First of all, the
intermediary has to have a strong understanding of the customization value chain and how to
manage the seamless integration of all partners. This task is especially difficult as the
intermediary has to acquire this knowledge from a position of neither having the product
knowledge of a manufacturer nor the customer proximity of many retailers. From a
transaction cost point of view, the introduction of a further player brings additional
communication costs that have to be counterbalanced by new savings. Furthermore new
channel conflicts can appear if an intermediary gains so much knowledge that it is able to
integrate vertically in value activities performed formerly by the manufacturers or retailers.
Finally, mi adidas has no option to pilot this intermediary based model in its industry as no
corresponding party exists today.
(3) Access to market research information
Access to market research data can be realized reasonably well in the fully vertically
integrated approach of consumer direct. Information gained from the customers is not biased
and can be related smoothly with the fulfillment activities. Furthermore, the responsibility for
realizing the savings is clearly set. From a customer’s point of view there is only one contact
name, and no confusion as to who is responsible for re-orders, feedback or complaints.
Also an intermediary could have a good position to decouple knowledge gained by interacting
with its clients in order to deepen and re-direct market-driven and technological
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competencies. But the probability of data sharing related problems may become even higher
in such a mode. Because a third party, the intermediary, claims ownership of jointly generated
customer knowledge. In addition, if a broker cooperates with horizontally competing partners,
privacy and ownership of information becomes hard to guarantee. In the end, the
manufacturing-driven model seems again the most efficient way to handle this task.
4.4. A collaboration model for mi adidas
In conclusion, no mode of collaboration is without drawbacks for mi adidas. While consumer-
direct was excluded by the high costs of building a large scale retail network from scratch, the
intermediary model can not be considered at the moment due to the sheer lack of such an
intermediary. A retail based system is no option for a brand driven company like Adidas.
Thus, only a system of manufacturing-driven collaboration seems suitable. The discussions
show the need for new contract systems between Adidas and its retail partners. Instead of
selling products giving retailers high margins, Adidas has to offer a system of commissions
and additional incentives for building up a relation to a mi adidas customer, getting her profile
right and feedback information when delivering the product, and for educating and delivering
the possibilities of customer co-design in a more general way. This includes also to
commission retailers for re-orders of existing customers done on a direct channel of Adidas
(call center, internet) that is based on the customer profile created by a specific retailer.
However, there is no generic model of such a system. Management of the trade-offs between
the benefit and the challenges of such a system becomes the foremost success factor of a mass
customization system. Thus, Adidas decided to keep its direct model of interacting with
consumers in dedicated events and some flag ship stores to leave this option open and to have
a platform for further developments and easier trials of new interaction systems. As long as
retailers see the benefits of such a hybrid approach this is a promising option for the state of
the mi adidas project. However, an important communication task of the mi adidas
management is to share these benefits with the retail partners. From an overall perspective, we
see one dominant challenge for consumer brands like Adidas: They should not forget their old
and foremost direct customers – retailers – when experiencing new possibilities and practices
of interacting directly with end consumers.
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5. Towards co-designing the customer interface
This paper addressed three levels of co-design in the area of customization: Firstly, we
showed that customization demands structures and capabilities for co-designing products
and/or services in an close interaction process between each customer and a supplier.
Secondly, we discussed that the interfaces between customers and supplier where this co-
design is performed have to be jointly developed and implemented collaboratively (co-
designed) between all partners in the supply chain, namely retailers and manufacturers.
Thirdly, our results are based on a co-design also from a methodological perspective as the
findings presented here are the result of a long term and on-going collaboration between the
case company and the research team (co-design of knowledge).
From the perspective of Adidas, the research presented here contributed greatly to better
understand the collaboration challenges of running a customization system and finding a
systematic approach to address corresponding questions. The insight gained from studying
other case studies and evaluating the generic benefits and drawbacks of different collaboration
modes provides a good base for further discussions with retail partners.
From the perspective of academia, the research presented here provides insight into an aspect
of customization that until now has not been covered deeply from a research perspective:
collaboration in retail. Mass customization needs strong collaboration between the supplier
and the customer in the course of co-design. Meeting the challenges and solving the problems
of customization not internally within one firm, but collaboratively with partners offers many
opportunities to foster customer loyalty and increase customer knowledge. Further empirical
evaluation of the four generic collaboration modes would further provide important
knowledge for implementing mass customization successfully. In our study, we also could
observe many mixed forms of collaboration (for the same manufacturer, a consumer direct
model was supplemented by participation in a retail driven system). Here, further research is
also needed.
Following our understanding of management research as a design science, a piloting stage has
to build on the stages of exploration. In this paper, we presented two stages of exploration. In
the meantime, our research collaboration continues with a next step where different pilots of
customer interfaces are implemented and evaluated. Funded by the German Federal Ministry
of Education and Research (BMBF) we are aiming at further co-design of knowledge within
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31
an interdisciplinary research project dedicated to value chains and structures of customer
interaction in mass customization systems (project EWOMACS, 2002-2004, see
www.ewomacs.de). This project focuses on the comparison of different modes of
collaboration in customer interaction for mi adidas and evaluates them form both the
company’s and the customers’ perspectives. The knowledge that will be generated in this
project shall help to design and implement better fitting co-design interfaces according to a
specific company situation and configuration task. Ultimately, every mode of collaboration
for a customization system has to be customized, too.
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