Product Customization Schemes and Value Co-Creation with Platform-Driven C2M Model

Abstract

Taking advantage of the market, e-commerce platforms can help manufacturers produce tailored products to meet customer needs, referred to as the Customer-to-Manufacturer (C2M) model. This paper examines how a manufacturer can collaborate with an e-commerce platform to offer custom products and achieve value co-creation. Implementing the C2M model is not viable when product valuation or consumers’ fit sensitivity is low. We specify four optimal customization schemes for implementing the C2M model. We find that there exist three effects when a manufacturer transits to implementing the C2M model, i.e., the price-premium effect, market-expansion effect, and the substitution effect. We reveal that implementing the C2M model will increase retail price (price-premium effect) but may not increase market demand (market-expansion effect). Under some conditions, implementing the C2M model will require the manufacturer to only produce custom products and stop producing standard products (substitution effect). Although the maximum total profit can be achieved from a supply chain perspective, the manufacturer gets its preservation profit while the platform takes up all the incremental profit, which leads to unsustainable cooperation. We propose a cooperative scheme considering the platform’s and the manufacturer’s resource contribution when offering custom products. Our managerial insights will facilitate the stakeholders in implementing product customization with the C2M model.