One to One Marketing on the Internet

Transcription

1 One o One Makeing on he Inene Rajiv Dewan, Bing Jing, and Abaham Seidmann William E. Simon Gaduae School of Business Adminisaion Univesiy of Rochese, Rochese, NY 1467 {dewan, jingbi, seidmannav}@ssb.ochese.edu Absac: The Inene povides unpecedened abiliy fo makees o lean abou hei cusomes and offe cusom poducs a special pices. The echnology, makeing and economics of using he Inene fo one-o-one makeing is examined. We find ha, unde vey genea l condiions, a selle can make highe pofis by adoping a "mixed" saegy of seving convenional segmens wih sandadized poducs a a unifom pice and seving he diec makeing segmen wih cusomized poducs a diffeeniaed pices. Supisingly, he selle can aise is pices fo boh sandad and cusomized poducs as cusomizaion and infomaion collecion echnologies impove. The selle s bes esponse o educion in echnology coss is o incease is cusomizaion effo a he expense of is sandad poducs. 1 Inoducion One-o-one makeing uns he nomal conceps of makeing on hei head. While he focus of convenional makeing is o infom he poenial cusomes abou is poduc and help hem make a selecion, he focus of one-o-one makeing is fo he vendo o do he leaning insead. In one-o-one makeing, he vendo may lean abou he cusomes desies and needs, build a pesonalized poduc fo each cusome and sell i o him a a special pice [Pine, Peppes & Roges, 1995]. While his kind of makeing has been he nom fo business-o-business ansacions, he infomaion gaheing and pocessing hudles have pevened he exensive use of his appoach in consume makeing. Till now ha is. The Inene is beginning o change his calculus. The Inene and consume acking echnologies allow selles o build a connecion wih specific households and individuals and o send a pesonalized message o poduc o a caefully seleced audience [Hagel and Raypo 1997, MeKenna 1995]. Such a one-o-one ineacive communicaion on he Inene faciliaes a leaning elaionship beween he selles and he cusomes, enabling lage-scale poduc design wih ich individualized feaues. Advanced manufacuing echnologies such as flexible manufacuing sysems (FMSs) and compue inegaed manufacuing (CIM) pemi selles o cusomize goods o sevice fo individual cusomes in high volume a elaively low coss. To illusae he value of one-o-one makeing, nex conside an example of diec makeing of cusomized pesonal compues by Dell Compues. Rahe han ceae a few models of pesonal compues and make hem, Dell allows he cusomes o ineac wih Dell via is web sie, o off-line fo lage copoae puchases, o ceae a unique poduc. Dell hen builds he pesonal compue on is special assembly lines whee he poduc is

2 aleady idenified wih a paicula individual ode by a ba code. A each saion, he subassembly added is dicaed by he cusome s choice. This kind of makeing, which cucially depends on he ineaciviy of he Inene, is changing he makeing of many consume poducs. Even fims (such as Compaq) ha buil hei epuaion on deale disibuion, ae changing. Levi Sauss diecly makes ailoed jeans ove he Inene by successfully leveaging consume pefeence infomaion. The impacs of eleconic makes on fim's poduc and makeing saegies have been examined empiically by Raypo and Sviokla [1994] and Bessen [1993]. The impacs of educed buye seach cos on pice, allocaional efficiency, and diffeen paies' incenives o inves in eleconic makes ae examined in Bakos [1997]. Balasubamanian [1998] analyzes he compeiion beween convenional eailes and diec makees. Howeve, hese eseaches do no examine he poenial of he Inene as an infomaion-gaheing ool fo one o one makeing. The focus of ou pape is o sudy he impacs of educed coss of leaning cusome pefeence on a monopoly selle s poducion and picing policy. The new Inene echnologies and makeing mehods aise a numbe of quesions: Who benefis fom one-oone makeing Should fims ha have he abiliy o cusomize also sell non cusomized, mass make iems We analyze hese and ohe simila issues using an economics model of he Inene makeplace. In he following secions we descibe he Inene echnologies used o lean abou cusomes, using cusome infomaion fo makeing, and examine closely he saegies and benefis fom poduc cusomizaion. We build on he model of spaial compeiion in Salop [1979] by adding poduc cusomizaion. We show ha when he selle is a monopolis, adoping mass cusomizaion and disciminaoy picing allows i o make highe pofis. Unde vey geneal condiions, he selle s opimal saegy is o povide cusomized poducs a diffeeniaed pices while simulaneously poviding seleced sandad poducs a a unifom pice. As cusomizaion and infomaion collecion echnologies advance, he selle should expand is sales of cusom poducs and incease he pice of is sandad poducs. Cusome Tacking Technologies Though numeous acking echnologies and ineaciviy, he Inene povides he vendo a hisoically unpaalleled oppouniy o lean abou he cusome and make a cusom poduc. These echnologies fom he conesone fo selles o collec cusome pefeence infomaion on an individual basis. A descipion of some of hese echnologies follows. 1. IP addess of linking page. When a use clicks on a link on a page, he eques fo web esouce a he new sie includes he IP addess of he sie on which he page conaining he link is hosed. This povides he makee wih infomaion ha he may use o cusomize a makeing message. As an example, conside a consume who clicks on a link o an audio equipmen eaile s sie fom a web page of a magazine ofen ead by audiophiles. The eques sen by he use s bowse includes he URL of he magazine

3 sie. The eaile may choose o fis show pages wih high-end audio equipmen bundled wih ohe accessoies puchased by audiophiles.. Log page. Mos seves mainain a log page. I conains a wealh of infomaion ha can be used on a eal ime basis o cusomize he offeings. Seves such as Micosof s IIS allow he log o be in elaional daabase allowing easy daa mining. The log conains a hisoy of visis, pages viewed, ime beween esouce equess, ec., along wih he IP addess of he equeso. 3. Use egisaion and auhenicaed access: Many sies equie he use o log in and povide infomaion such as demogaphics. Even if he sie does no equie egisaion, he billing o shipping addess idenifies he specific aea in which he use esides and many makeing companies sell daabases ha allow a makee o glean aggegae saisics abou he consume. 4. Cookies: Pesisen cookies ae small amouns of ex, a few ens of byes in each insance, ha ae soed on he bowse s had disk by a seve. The nex ime he use equess he same URL o visis he same sie, he cookie placed by he seve is sen o back o i. A seve canno ge a cookie ha iself does no place. Fuhemoe, he infomaion conained in he cookie is an encapsulaion, possibly jus a daabase key o idenifie ha may be encyped, of he use s ineacion wih ha specific seve. Cookies may be used in a numbe of diffeen ways: auomaic log in upon visiing a sie, shopping cas, cusome idenificaion fo cusomizaion, ec. Amazon, CDNow, and Banes & Noble ae jus a few examples of companies ha use cookies fo cusomizaion. 5. Collaboaive Fileing: Some vendos combine use idenificaion wih a cleve fom of daa mining o cusomize he appeaance of a web page o offe he cusome poducs o puchase. A common foma employed by Amazon and Banes & Noble (using Fiefly Technology) is o use he puchase hisoy of a cusome and ohes o exapolae wha a paicula cusome migh like o puchase. The cusome s puchase hisoy is compaed o find ohes ha have bough simila books. The books ha many such ohe simila cusomes have bough bu have no been puchased by he cusome in quesion become he ecommendaion fo his cusome. Makeing pofessionals commonly efe o he many decisions ha go ino makeing a poduc as he makein g mix. The makeing mix includes poduc design, pice, pomoion, and disibuion. Infomaion abou he cusome can be used o offe cusom poducs (Dell), special deal on pices (book puchases by affiniy goups such as he Linux goup), pomoion (banne adveising depends on seach em on Yahoo) and disibuion (diec Inene sales channel). In his pape we focus on he new poduc cusomizaion and diffeeniaed picing saegies enabled by he Inene and cusome acking echnologies. We nex model an eleconic makeplace and examine he value of cusomizaion in his seing. 3 Using Cusome Infomaion fo Poduc Cusomizaion 3

4 As in Salop [1979], he basic seing is sill a cicula make of uni cicumfeence. A selle adoping cusomizaion is epesened by an ac along he cicle (see Figue 1) ha epesens a coninuous specum of cusomized poducs fiing all buyes whose ideal ases lie wihin ha specum. In Figue 1, he ac [L,R] is he selle s cusomized poduc specum and also is diec-makeing segmen. Fom hee on we will use he phases "diec makeing segmen" and "cusomized poduc specum" inechangeably. The wo end poins (L and R) of he specum epesen he selle's poduc offeings in he convenional segmens [A,L] and [R,B], i.e. hose buyes no coveed by he specum. Fo simpliciy, we assume ha buyes have complee poduc infomaion and ha no buye seach occus. Buyes wih heeogeneous ases ae unifomly disibued along he cicle wih densiy one. Each buye has a uniay demand subjec o esevaion pice. The fi cos of buyes is pe uni disance along he cicle. Ignoe selles fixed coss. Assume o ease analysis. Assume poducion of sandad poducs demonsaes consan euns o scale and nomalize maginal poducion cos o zeo fo convenience of exposiion. Cusomizaion enails an exa cos which depends on he scope of cusomized poducs. Assume exising echnology allows a selle o povide a cusomized poduc specum of lengh x a cos ax bx, whee a, b 0. Hee a is he maginal cusomizaion cos of poduc scope and b is he maginal cos of collecing buye infomaion. We call x he selle s cusomizaion scope. Cusomizaion scope measues he selle s manufacuing flexibiliy (a fim poviding a sandad poduc has zeo manufacuing flexibiliy). Flexibiliy in manufacuing means he abiliy o econfigue manufacuing esouces so as o poduce diffeen poducs efficienly [Sehi and Sehi 1990]. An obvious measue fo poducion flexibiliy is he volume of he se of poducs he sysem is capable of poducing [Chaejee e al. 1984]. Hee volume can be expessed by he numbe of diffeen poduc ypes in he se [Bowne e al. 1984, and Gewin 1987], if hey can be couned, and if no, by he ange of sizes, shapes, ec. [Poh 198]. The inoducion of flexibiliy ino a manufacuing sysem equies high iniial invesmens [Gupa and Goyal 1989]. Fo example, a numeically conolled uning cene coss $300,000 o $400,000 while an FMS insallaion can balloon o $5 million [Bobowski and Mabe 1988]. The quadaic cos em ( ax ) in he cusomizaion cos funcion eflecs he diseconomies of scope in manufacuing invesmen; cusomizaion becomes inceasingly difficul and cosly as cusomizaion scope inceases. The echnologies fo infomaion collecion and daa mining discussed in he pevious secion have consan euns wihin a vey lage ange of numbe of buyes consideed. Fo example, he cos fo Dell o pocess each addiional cusom ode should no vay much. The linea em (bx ) capues he consan maginal cos of collecing buye infomaion. We assume ha he selle can only pice disciminae o he second degee, i.e., he selle decide on he offeings and pices and each cusome picks his suplus maximizing poduc. Consequenly, a selle poviding a sandad poduc chages a single pice, and a selle adoping cusomizaion ses a disinc pice fo each poduc vaiey he poduces. We conside hee cases nex: Pue sandadizaion: only a single sandad poduc; 4

5 Pue cusomizaion: only cusomized poducs; and Mixed saegy: he selle may offe boh cusomized and non-cusomized poducs simulaneously. 3.1 Pue Saegies: Only Sandad o Only Cusomized Poducs The case of poviding a single sandad poduc has been well sudied in he lieaue [Salop 1979 and Tiole 1988]. The monopoly pice is and pofi is. We nex examine a selle s pofi unde pue cusomizaion. If he selle seves only he diec makeing segmen wih cusomized poducs, he can pice as high as buye esevaion uiliy. The selle has o choose he cusomized poduc specum lengh x o maximize his pofi: Max x ax bx, 0 x 1. x b We find ha he opimal lengh of he cusomized poduc specum is and ha he a ( b) selle s pofi is. 4a 3. Mixed Saegy: Boh Cusomized and Sandad Poducs As descibed in Figue, we assume ha he cicula make is no fully coveed and ha buye esevaion pic e is sufficienly high o exceed he selle s highes pice in he diec makeing segmen. The ohe cases ae examined in Dewan, Jing and Seidmann [1999]. The selle's oal pofi is composed of wo pas: he pofi fom he convenional segmens, c, and he pofi fom he diec makeing segmen, d. The selle can no pice disciminae in he convenional make segmens and chages a single pice p fo poducs L and R (see Figue 1). The lengh d of convenional segmen [A,L] o [R,B], is deemined by he locaion of he buye who is indiffeen beween buying and no buying. We have p d since p d 0. The selle's pofi fom he convenional segmens is p c p. In he diec makeing segmen of he eleconic make, he selle can obseve each buye's pefeence locaion and heefoe can povide ailoed poducs and hen pice disciminae. To exac maximum suplus fom buyes in he diec makeing segmen, he selle applies such a picing scheme: chaging he sum of he convenional make pice and he buye fi cos of puchasing he closes convenional make poduc (eihe L o R, depending on he buye's locaion). In ohe wods, fo a buye locaed in he diec 5

6 p makeing segmen a disance y ( y ) away fom he closes end poin, he pice chaged is p y. This is he highes pice he selle can chage o peven buye y fom swiching o he convenional make poduc. Unde his picing scheme, buyes in convenional segmens [A,L] and [R,B] will choose poducs L and R especively. This picing scheme eliminaes abiage oppouniies among buyes. Figue shows he selle s make segmenaion and picing scheme. The selle s pofi fom he diec makeing segmen is x ( p y) dy ax bx. d 0 The fis em in his fomulaion is he pofi fom he diec makeing segmen. The emaining ems ae he exa cos of poviding a cusomizaion scope of lengh x. The selle has o choose convenional make pice p and poduc specum lengh x o maximize his oal pofi: x p Max p p y dy ax bx p,x ( ). 0 * (4a ) b Solving his poblem gives opimal convenional make pice p and 8a 3 * 4b ( b) opimal poduc specum lengh x. The selle's oal pofi is. A 8a 3 (8a 3 ) 3 nonzeo poduc specum lengh equies b. When b and a ( b), he 4 4a 3b highes pice in he diec makeing segmen,, is less han (see Figue ). 8a 3 3 When b and a ( b), we have 4 saegy o pue sandadizaion since his pofi unde he mixed saegy, exceeds, he pofi of poviding one sandad poduc. 3 a and he selle pefes he mixed 8 ( b), (8a 3) 3 ( b) When b and a ( b), selle pofi unde pue cusomizaion,, is 4 4a even less han he pofi unde pue sandadizaion,. Theefoe he mixed saegy dominaes boh pue saegies of sandadizaion and cusomizaion when he maginal cusomizaion cos is elaively high compaed wih fi cos and maginal infomaion 3 collecion cos ( a ( b) ) and when maginal infomaion collecion cos is sufficienly 4 6

7 b 3 low ( b ). When a (1 ) and b, we have a and pue cusomizaion 8 ( b) ( b) dominaes pue sandadizaion and he mixed saegy ( ). 4a (8a 3 ) b When a (1 ) and b, pue sandadizaion dominaes pue cusomizaion and he mixed saegy. This esul is fomally saed as follows. 3 Poposiion 1. A) When a ( b) and b, he selle will adop a "mixed" saegy of 4 poviding boh sandad and cusomized poducs. The selle pice disciminaes in he diec 4b makeing segmen (cusomizaion scope) of lengh, and chages a unifom pice of 8a 3 ( b) (4a ) b in he wo convenional segmens of lengh each. The selle's (8a 3) (8a 3) ( b) oal pofi is ; (8a 3) b B) When a (1 ) and b, he selle will poduce a single sandad poduc, chaging a pice of and eaning a pofi of ; b C) When a (1 ) and b, he selle will poduce only cusomized b poducs and choose a cusomizaion scope of, seing pice a buye esevaion uiliy a ( b) and eaning a pofi of. 4a 3 When b and a ( b), he highes pice in he diec makeing segmen, 4 4a 3b, is lage han, violaing ou basic assumpion in he beginning of secion 3.. 8a 3 Inuiively, Poposiion 1 says ha when maginal cusomizaion cos is elaively high bu maginal infomaion cos is sufficienly low, poviding boh cusomized and sandad poducs is he opimal saegy. When boh maginal cusomizaion and infomaion coss ae elaively high, he selle s bes choice is o povide a sandad poduc. When infomaion cos is elaively high bu maginal cusomizaion cos is sufficienly low, he selle will choose povide only cusomized poducs. Poposiion 1A) invalidaes he common conjecue ha cusomized poducs will compleely dive ou sandad poducs in eleconic makes. 7

8 We nex analyze he manageial implicaions of he selle s opimal poduc and picing saegy based on Poposiion 1A). Unde pue sandadizaion, hee is a significan deadweigh loss due o buye fi cos. This deadweigh loss is elieved unde he mixed saegy since a smalle convenional make is seved because of a highe convenional make pice. In conas, a pue cusomizaion saegy eliminaes he deadweigh loss of buye fi cos and allows he selle o exac full buye suplus in he diec makeing segmen, bu enails exa coss and leads o insufficien make coveage, inoducing new souces of inefficiency. The mixed saegy inheis he viues of boh pue sandadizaion and pue cusomizaion and compomises hei dawbacks. Selle pofi is a deceasing funcion in a and b. As echnologies advance, a and b will decease and selle pofi will incease (see Figue 3). The selle will espond o echnological advances by boh aising convenional make pice and expanding cusomizaion scope. Raising he convenional make pice enails a sales and pofi loss in he convenional segmens, bu he selle can chage a coespondingly highe pice in he diec makeing segmen. In fac, he selle will delibeaely seve smalle convenional segmens and a lage diec makeing segmen. Consisen wih inuiion, he focus of he selle's mixed saegy will shif owads moe cusomizaion as echnologies impove. In Figue 4, we see ha he selle's pofi fis deceases and hen inceases as fi cos inceases. The eason is as follows. As deceases, poduc pices will decease, he convenional segmens will expand and he diec makeing segmen will conac. When is close o, he selle's pofi gain in he convenional segmens dominaes he pofi loss in he diec makeing segmen. As inceases, pices will ise and he selle will cove smalle convenional segmens and a lage diec makeing segmen. When is close o 4a, he selle's pofi gain in he diec makeing segmen exceeds his pofi loss in he 3( b) convenional segmens. The inuiion is ha, when fi cos is small, he selle will exploi he convenional segmens moe han he diec makeing segmen, and vice vesa when fi cos is lage. The selle's convenional make pice is highe han, he monopoly pice of poviding one sandad poduc. The aio of he diec-makeing segmen size o he oal size of he convenional ( b) 3 segmens is v. When a ( b) and b, we obain an uppe bound 4a b 4 on his aio: v 1. The selle seves cusomized poducs o less han h alf of his oal make. This aio inceases as a and b decease. As echnologies advance, he selle will povide cusomized poducs o an inceasing facion of is make. b The selle's oal make size, as measued by, will incease as a o b 8a 3 deceases. The ne effec of adoping mass cusomizaion and pice disciminaion is highe make powe and pofi fo he monopoly selle. 8

9 As echnologies advance, exising buyes in boh convenional and diec makeing segmens ae wose off since pices will all incease, bu he buyes oiginally piced ou of he make will gadually join he convenional segmens. I is no obvious how aggegae buye suplus changes wih a and b. The oal buye suplus is u * x 0 * * p ( p ) * ( p y) dy 1 [3a 4a 3( b b ) ]. (8a 3 ) 3 u 4( b) u 6( b) When a ( b) and b, we have 0 3 and 0 4 a (8a 3) b (8a 3). Theefoe oal buye suplus will decease when a o b deceases and buyes, as a goup, will be wose off when cusomizaion and infomaion collecion echnologies advance. The selle benefis fom diffeeniaed picing in he diec makeing segmen. The advanage of picing flexibiliy in eleconic makes can be seen diecly fom Figue. Whaeve he convenional make pice is, he iangle aea in he diec makeing segmen epesens he exa suplus ha he selle can exac fom hose buyes. To quanify he advanage of pice disciminaion in eleconic makes, we nex compae wih he siuaion in which he selle does no pice diffeeniae among buyes. The selle chages a single pice p on all make segmens and chooses cusomizaion scope x o maximize his pofi: p Max p px ax bx. p,x * 4a b Solving his poblem we obain he opimal pice p and cusomizaion scope 8 a * ( b) * 4a b( b) x. The selle s opimal pofi is. The pofi pemium 8a (8a ) of pice disciminaion is 4 ( ) (8a 3)(8a ) 0. ( b) (8a 3) 4a b( b) (8a ) 4 b( b) (8a 3 )(8a ) * When a o b, we obain p, x * 0 and *. Theefoe Poviding one sandad poduc [Salop 1979] is a limiing case of ou model wh en cusomizaion cos is pohibiively high o when infomaion collecion cos appoaches is uppe limi,. Fo he selles o adop mass cusomizaion, maginal infomaion collecion cos b mus be sufficienly low ( b ). The lae 1970s and ealy 1980s aleady winessed 9

10 significan pogess in cusomizaion echnologies such as FMSs and CIM. Howeve mass cusomizaion had been pimaily applied o indusy goods bu neve became a majo poducion pacice fo consume poducs. One key baie was he cos of collecing pefeence infomaion fom individual buyes, which had been oo high fo mass cusomizaion o be moe pofiable han mass poducion of sandadized poducs. As we have seen, educed coss of leaning and cusomizaion povide selles wih new makeing oppouniies in eleconic makes. Even hough collecing buye infomaion and mass cusomizaion enail highe coss han adiional mass poducion of a sandad poduc, pesonalized ageing and pice disciminaion enabled by eleconic makes may sill allow selles o make highe pofis. Theefoe he selle has he incenive o adop diec makeing and mass cusomizaion by leveaging infomaion echnologies o his bes advanage. 4 Conclusion and Fuue Exensions As a supeio communicaions channel, he Inene has he unpaalleled capabiliy o enable eal-ime infomaion exchange beween buyes and selles, faciliaing a new leaning elaionship beween hese wo communiies. Coupled wih mauing flexible manufacuing echnology, consume pefeence infomaion obained via he Inene is usheing selles ino a new one-o-one makeing paadigm of mass cusomizaion and pice disciminaion. I is ue ha he educed buye seach cos shifs make powe o buyes, bu he educed selle leaning cos may also shif he make powe back o he selles. As we have shown, a selle adoping cusomizaion can chage moe fo he pesonalized poduc feaues, since emoval of fi cos inceases buye s esidual willingness o pay. We idenify he condiions unde which a selle will benefi fom exploiing such diec makeing advanages as eadily available buye pefeences, fine make segmenaion, and picing flexibiliy endowed by he Inene. In paicula, we find ha he selle will adop a mixed saegy of poviding boh cusomized and sandad poducs when he maginal cusomizaion cos is elaively high and he maginal infomaion collecion cos is sufficienly low. I is couneinuiive ha he selle adoping cusomizaion should opeae as a quasi diec makee and also povide sandad poducs a he edges of his cusomizaion scope. Howeve, he advanage of cusomizaion can no be fully exploied wihou pice disciminaion. We devise an opimal piece-wise linea picing scheme eflecing second degee pice disciminaion, unde which he selle can eap he maximum benefi fom cusomizaion. Compaed wih a selle poviding a sandad poduc, he selle adoping cusomizaion will pice highe and cove a lage make. This esul suppos he popula belief in he pess ha mass cusomizaion allows he selle o sell moe and chage moe. When cusomizaion and infomaion collecion echnologies advance, he selle should expand his cusomizaion scope and aise his sandad poduc pice. The selle s make coveage and pofi gow while oal buye suplus suffes. One immediae exension o ou cuen wok is o sudy selles poduc and picing saegies in a compeiive make using a simila modeling famewok. Anohe poenially fuiful exension is o elax an implici assumpion in his pape ha cusomizaion geneaes 10

11 pefec poduc fi. Cusomizaion-based poduc compeiion hen becomes veical, and selles compee on he degee of poduc fi. 5 Appendix: Table of Noaion a : coefficien of diseconomies of scope in manufacuing b : infomaion collecion cos pe cusome; d : he size of each convenional segmen; p : convenional make pice; : buye esevaion uiliy; : fi cos ae; u : oal buye suplus; v : he aio of he diec makeing segmen size o he oal convenional make size; x : he lengh of cusomized poduc specum o diec makeing segmen; y : he disance beween a buye and he convenional make poduc close o him; c : selle pofi fom he convenional segmens; d : selle pofi fom he diec makeing segmen; : oal selle pofi. A: he bounday of he lef convenional segmen; B: he bounday of he igh convenional segmen; L : he sandad poduc fo he lef convenional segmen, also he lef end poin of he cusomized poduc specum; R : he sandad poduc fo he igh convenional segmen, also he igh end poin of he cusomized poduc specum; Refeences Bakos, Y., Reducing Buye Seach Coss: Implicaions fo Eleconic Makeplaces, Managemen Science, 43:1, Balasubamanian, S., Diec Makee vs. Reaile: A Saegic Analysis of Compeiion and Make Sucue--Mail vs. Mall, Makeing Science, 17:3, Bessen, J., Riding he Makeing Infomaion Wave, Havad Business Review, Sep-Oc Bobowski, P.M. and Mabe, V.A., Alenaive Rouing Saegies in Bach Manufacuing: An Evaluaion, Decision Sciences, 19:4, Fall Bowne, J., Dubois, D., Rahmill, K., Sehi, S.P., and Secke, K.E., Classificaion of Flexible Manufacuing Sysems, The FMS magazine, Ap Chaejee A., Cohen, M.A., Maxwell, W.L., and Mille, L.W., Manufacuing Flexibiliy: Models and Measuemens, Poceedings of he Fis ORSA/TIMS Special Inees Confeence on FMS (Ann Abo, MI), K.E. Secke and R. Sui (Eds.), Elsevie, Amsedam, The Nehelands, Dewan, R., Jing, B., and Seidmann, A., Make Segmenaion, Cusomizaion, and Picing Saegies in Eleconic Makes, Woking Pape, Simon School of Business, Univesiy of Rochese, Rochese, NY 1467, Gewin, D., An Agenda fo Reseach on he Flexibiliy of Manufacuing Pocesses, Inenaional Jounal of Opeaions and Poducion Managemen, 7:1,

12 Gupa, Y.P, and Goyal, S., Flexibiliy of Manufacuing Sysems: Conceps and Measuemens, Euopean Jounal of Opeaional Reseach, 43:, Nov Hagel, J. and Raypo, J., The Coming Bale fo Cusome Infomaion, Havad Business Review, Jan-Feb Hagel, J. and Raypo, J., The Coming Bale fo Cusome Infomaion, Havad Business Review, Jan-Feb McKenna, R., Real-Time Makeing, Havad Business Review, Jul-Aug Pine II, J., Peppes, D., and Roges, M., Do You Wan o Keep You Cusomes Foeve Havad Business Review, Ma-Ap Poh, J-M., La flexibilie des sysemes de poducion: les evoluions possibles, Revue Fancaise de Gesion, Ma-May 198. Raypo, J., Sviokla.,J., Managing in he Makespace, Havad Business Review, Nov-Dec Salop, S., Monopolisic Compeiion wih Ouside Goods, The Bell Jounal of Economics, Sehi, A.K., and Sehi, S.P., Flexibiliy in Manufacuing, The Inenaional Jounal of Flexible Manufacuing Sysems, :4, Jul Tiole, J. Theoy of Indusial Oganizaion, Cambidge, Mass., MIT Pess, 1988, pp

13 Diec Makeing L R [ ] A Convenional B Figue 1. A Selle s Make Segmens and Cusomizaion Scope. L and R ae he wo end poins of he cusomized poduc specum. Buyes in he lef and igh convenional segmens will choose L and R especively. Pice Resevaion Pice Highes Pice Convenional Make Pice A L R B Make Lef Diec Righ Figue. Make segmenaion and picing in he mixed saegy 13

14 14 Figue 3. Monopoly pofi as a funcion of infomaion gaheing cos. Pofi b 0 ) 3 (8 ) ( * a b ) 3 (8 a Figue 4. Monopoly pofi as a funcion of fi cos Pofi 0 ) 3( 4 b a ) 3 (8 ) ( a b