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Executive Summary
Scholars and practitioners alike have predicted that mass customization will soon displace traditional market segmentation practices. The drivers of this development are technological developments in production and communication on the one hand and increasingly heterogeneous customer preferences on the other hand. Customization involves obtaining information about the individual customer’s preferences and delivering an individualized product that precisely matches those preferences. It has been argued that this leads to closer preference fit and thus to higher value for the customer. However, some spectacular failures in mass customization, such as Levi Strauss’s “Original Spin” jeans and Mattel’s “MyDesign Barbie,” question these promises. Are customers really able to specify their preferences that precisely? Several arguments raise doubts that implicitly challenge the value of customization as a marketing strategy. The authors conduct studies with large samples representative of Austrian citizens who have an e-mail account in the diverse product categories of newspapers, fountain pens, kitchens, skis, and cereals. They measure customers’ preference information and their reaction to individual products customized on the basis of their preferences, finding that in all product categories, customized products bring about significantly higher benefits for the customer in terms of willingness to pay, purchase intention, and attitude toward the product than standard products. The benefits are higher if customers have (1) better insight into their own preferences, (2) a better ability to express their preferences to the manufacturer, and (3) higher product involvement. This suggests that customization has the potential to be a powerful marketing strategy if these conditions are met. In the opposite case, firms willing to serve heterogeneous customer preferences by providing individualized products need to adapt their customization systems in such a way that they explicitly address the customers’ inability to deliver valid preference information. This can be achieved by refraining from customer-active means of preference transmission in which customers must specify what they want actively, instead relying on alternatives such as smart agents or recommender systems, which require less skill and effort from the customer than laborious self-design processes. An alternative is to build toolkits for user innovation and design that are explicitly designed to help the consumer understand and articulate his or her preferences more accurately.

Biography
Nikolaus Franke is a full professor and Director of the Institute for Entrepreneurship and Innovation at the Vienna University of Economics and Business Administration (WU Wien). His former academic affiliations include University of Munich and Massachusetts Institute of Technology. He initiated and leads the User Innovation Research Initiative Vienna (www.userinnovation.at), a joint research effort dedicated to enhancing the understanding of the phenomenon of user innovation and open innovation. In particular, he works on developing methods to help companies benefit from the enormous creativity of customers and users in related/relevant markets. He has received several awards for research and teaching and has provided consulting services for numerous firms, from start-ups to leading multinationals.

Peter Keinz is an assistant professor in the Institute for Entrepreneurship and Innovation at the Vienna University of Economics and Business Administration (WU Wien). As a member of the User Innovation Research Initiative Vienna, he mainly focuses his research efforts on user innovation and open innovation. He is currently working on the development of a systematic method to search, identify, and evaluate alternative applications for existing technologies with the help of (potential) customers. He also provides consulting services for companies in other aspects of innovation management.

Christoph Steger is Head of Marketing, Product Management and Quality Systems at Cincinnati Extrusion (www.cet-austria.com), a Vienna-based manufacturer of extrusion equipment. In addition, he is a lecturer and research partner in the Institute for Entrepreneurship and Innovation at the Vienna University of Economics and Business Administration (WU Wien), where he earned his doctorate and worked as a research assistant until 2007. His research interests include user integration into the innovation process and the development of methods to identify particular customer needs to facilitate proper product development. He has received several awards for his research and has provided consulting services for numerous firms on topics related to innovation.

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