Competition between online and offline retailer mass customization

Abstract

As online sales increase, customers worldwide have different tastes, preferences, and lifestyles. Mass customization enables the offline retailer to satisfy the heterogeneous customer taste preferences. We adopt the Hotelling model to analyze mass customization strategy on the offline retailer to compete with the online retailer that sells the same product. We consider customers’ heterogeneous hassle costs when visiting offline and the online retailer and their heterogeneous taste preferences towards the products. We aim to examine the value of the mass customization to offline retailer. We found that the mass customization strategy can be great way for the offline retailer when competing with the online retailer. The mass customization strategy can be beneficial for the offline retailer’s profits than the non-mass customization strategy in considerations of customer taste preference. We also found that the breadth of the mass customization scope is subject to several factors, including mismatch cost. Mass customization is less effective when its implementation is costly.