Under the Influence with Terry O'Reilly - S3E09 - Have It Your Way: How Mass Customization Is Changing Marketing

Episode Date: March 2, 2014

After a 100 years of Mass Production - where one size fit all - 21st century marketing is moving to Mass Customization - letting you custom-design everything you buy. From cars, to clothes, to shoes – to your own breakfast cereal.This week on Under The Influence, we’ll explore how companies profit from personalized products, how they market those products, how consumers are drawn to companies that offer customization, and how brands use customization to fight competitors.Including how Burger King stole market share from McDonald’s by letting customers personalize their burgers.Their slogan: “Have it your way!” Hosted on Acast. See acast.com/privacy for more information.

Hi, it's Terry O'Reilly. As you may know, we've been producing a lot of bonus episodes while under the influences on hiatus. They're called the Beatleology Interviews, where I talk to people who knew the Beatles, work with them, love them, and the authors who write about them. Well, the Beatleology Interviews have become a hit, so we are spinning it out to be a standalone podcast series. You've already heard conversations with people like actors Mark Hamill, Malcolm McDowell, and Beatles confidant Astrid Kershaw. But coming up, I talk to May Pang, who dated John Lennon in the mid-70s. I talk to double fantasy guitarist Earl Slick, Apple Records creative director John Kosh. I'll be talking to Jan Hayworth,

who designed the Sgt. Pepper album cover. Very cool. And I'll talk to singer Dion, who is one of only five people still alive who were on the Sgt. Pepper cover. And two of those people were Beatles. The stories they tell are amazing. So thank you for making this series such a success. And please do me a favor, follow the Beatleology interviews on your podcast app. You don't even have to be a huge Beatles fan. You just have to love storytelling. Subscribe now and don't miss a single beat. In case nobody's told you, weight loss goes beyond the old just eat less and move more narrative. And that's where Felix comes in. Felix is redefining weight loss for Canadians with a smarter, more personalized approach to help you crush your health goals this year.

Losing weight is about more than diet and exercise. It can also be about our genetics, hormones, metabolism. Felix connects you with online licensed healthcare practitioners who understand that everybody is different and can pair your healthy lifestyle with the right support to reach your goals. Start your visit today at Felix.ca. That's F-E-L-I-X.ca. From the Under the Influence digital box set,

this episode is from Season 3, 2014. I go lovin' in an instant You're a decent waiter that no, no, no You're not you when you're hungry You're in good hands with us You're under the influence with Terry O'Reilly Back in the 13th century, the concept of war was evolving. It was becoming a medieval arms race. As weapons improved, the armor designed to protect knights was forced to improve as well. While there was armor long before the 13th century, the penetrating ability of the longbow had changed the rules.

Expert marksmen could shoot up to 18 arrows per minute. And thousands of archers in a line could dispose of an entire regiment efficiently and quickly. Especially when those arrows were shot within a short range, piercing plate armor making men and horses extremely vulnerable. While warriors needed to be protected, the armor was heavy and awkward. As the superb British TV series Weapons That Made Britain notes, a knight couldn't even put his armor on alone.

He needed a squire to assist. Once inside the armor, knights experienced a form of sensory deprivation. Vision was impaired. Breathing was constricted. Hearing was muffled. Worst of all, movement was severely impeded. In other words, a knight not only fought his enemy, he fought his own armor as well.

So, in the mid-1400s, England, while engaged in an historic war with France, hired 2,000 Italian craftsmen equipped in the latest armor technology. What those Italian craftsmen did was game-changing. They created custom-made suits of armor. Measuring each knight's body down to the last millimeter, the metal protection was designed to fit and move to each individual's body type.

It didn't come cheap. Custom-made armor could cost up to one quarter of a individual's body type. It didn't come cheap. Custom-made armor could cost up to one quarter of a knight's annual income. The ones who couldn't afford custom-made armor only wore the few pieces they could afford or found scattered on the battlefield. But custom-made armor gave armies an enormous advantage. The added range of sight and movement was incisive on the battlefield it was bespoke tailoring the world of marketing is also a battlefield territory ground and market

share are fought for every day in every category imaginable And while the advancements in mass production accelerated the climb of most major brands, there is a new and almost inverse trend emerging. Mass customization. We've entered the era of custom design for the masses, from the music on our smartphones to designing the cars we want via websites to creating our own clothes and even our own breakfast cereals.

And how we're doing that is fascinating. We've come a long way from Henry Ford's assembly line, because now you can have it your way. You're under the influence. The term mass customization is an interesting dichotomy of sorts. Mass meaning majority, customization meaning individual. The seeds of mass customization were planted at the beginning of mass production. As the ability to mass produce a product started with companies like Oldsmobile and Ford in the early 1900s, it forever changed how big a company could grow and prosper.

Suddenly, thousands of identical products could be built at a low cost and shipped to all corners of the country via railroads. While Henry Ford didn't invent mass production, he certainly improved on it. For example, early assembly lines were static, with workers moving along it, performing a number of tasks. Ford saw an efficiency opportunity and decided to make the assembly line move,

with workers remaining static. That way, an employee could perform just one function many times a day, resulting in more consistent workmanship. It also meant the worker didn't need to be skilled, just trained at one specific task. Keeping the design simple, the parts interchangeable, and by manufacturing a succession of identical products, auto manufacturers like Ford could sell cars for only hundreds of dollars and

still make enormous profits. It led to one of Henry Ford's most quoted lines saying, A customer can have a car painted any color he wants, so long as it's black. There was method in his madness, as the color black had the quickest drying time. But the undertow of that quote emanated from the very core idea of mass production,

and that was one product for all. As the 20th century unfolded, mass production was embraced by virtually every major manufacturer. Clothing, food, tools, toys, furniture, kitchen products, nearly every purchasable item distributed nationally came off an assembly line. But mass production eventually ignited the opposite desire, and consumers were soon willing to pay for special options that made their purchase unique or enhanced.

So, in 1919, Ford began offering electric starters as a $75 upgrade, which eliminated the need for hand cranking. Removable rims and balloon tires were offered as options in 1925. Going against Henry Ford's edict of every car being black, you could now buy Model Ts in several colors by 1926. Automatic transmission became an option in 1938, eliminating the need for fancy footwork on a clutch. Air conditioning was introduced by Packard in 1939, but it would be decades before the average car buyer could afford it.

Needless to say, while you could customize your car, the options were limited. Mass production still needed to stay mass. Then the world went on pause during the long Second World War. As the 20th century passed its halfway mark, mass production started to fall out of favor. The 60s was a decade of pushback of all things corporate. Then came the 70s. Burger King was a fast food company that opened its doors in 1954. By the 70s, it was feeling the continuous headwind from arch-enemy McDonald's. Part of the reason for McDonald's vast success was its steadfast consistency.

No matter which McD's restaurant you went into, you could be assured the menu never deviated. Every hamburger was mass-produced on the spot, sporting the same condiments in the same amounts in the same order. That rigid consistency even led to one of McDonald's most memorable jingles. To all these patties, special sauce, lettuce, cheese, pickles, onions, all the specialties, love you. But that cornerstone of McDonald's success gave Burger King a strategic opportunity. Beginning in 1974, Burger King offered the public customized hamburgers by saying, Have it your way.

If I wanted a Whopper and I asked you to hold the pickles and hold the lettuce, I know I'd get that fast. But would I get to hear you sing? No, sir. No? You'd get to hear us sing, girls. Ooh, hold the pickle, hold the lettuce, special orders, don't upset us. All we ask is that you let us serve in your way.

All right. Hold the pickles, hold the lettuce, special orders don't upset us was the perfect strategy to pierce McDonald's armor. McDonald's felt customization would increase labor costs and take the fast out of fast food. But Burger King figured out a way to allow for individualized burger toppings without sacrificing speed or price. Have it your way at Burger King.

Come on now, have it your way. It was a powerful marketing strategy, or price. It was a powerful marketing strategy because it positioned McDonald's as inflexible and positioned Burger King as the company that listened. It would be well into the 90s before the Golden Arches would embrace the concept of customization. But Have It your way showed, not just the food industry,

but other categories as well, that mass customization could actually be good business. No story about mass customization would be complete without talking about Starbucks. Howard Schultz joined Starbucks in 1982. It was a coffee shop named after the coffee-loving first mate of the whale ship Pequod in Herman Melville's famous novel, Moby Dick. At the time,

Starbucks only sold whole beans and coffee in bags for home consumption. Schultz had experienced an epiphany while visiting Italy, where he saw small communities gathered around coffee shops, where baristas put on a show creating custom cappuccinos, lattes, and espresso orders. As Schultz said, it was coffee theater. So, he returned in 1987 and bought Starbucks with the backing of some local investors. Sensing a big opportunity, Schultz brought that coffee theater to Starbucks and positioned it as the third place in someone's life

after home and work. It's hard to remember that before Starbucks in the U.S., the only places to savor a cup of coffee were diners. But Starbucks infused coffee with emotion and meaning, offered people a place to gather, and, above all, gave customers a sense of ownership by customizing each and every cup served. Schultz was only 34 at the time,

and today his customization strategy is poured in 18,000 locations in 62 countries around the world. And we'll be right back. If you're enjoying this episode, why not dip into our archives, available wherever you download your pods. Go to terryoreilly.ca for a master episode list. Before Apple launched its revolution in personal computing in 1984, someone else was busy taking the first steps to building what would also become an empire. Michael Dell was 15 when he got his first computer, an Apple II, and promptly took it

apart to see how it worked. A few years later, working out of his dorm room at Texas University, 19-year-old Dell started an informal company called PCs Limited, selling and installing upgrade computer kits for university students. In 1984, he sold almost $80,000 of merchandise. In May of that year, he incorporated as the Dell Computer Corporation and relocated to an office in Austin. One year later, his company built its first full computer called the Turbo PC.

At that stage, the mighty Dell Computer Corporation consisted of a few order takers and three guys with screwdrivers sitting at a table. But Dell's idea was novel. Sell direct to customers and design the computers to customer specifications as they were ordered. It was a first.

Mass customization in the PC world. Dell also employed just-in-time manufacturing, which allowed him to keep his inventory low. He wouldn't build a computer until he got an order, unlike all other computer manufacturers who would build thousands of computers and hope for customers. The genesis of Dell's master plan was simple. He just didn't have any capital.

And there you have it. The game-changing customization strategy of the Dell Computer Corporation was born not of envisioning a new paradigm in computers, but rather of having no money in the bank to buy materials with. In its first year in business, that forced customization plan generated over $73 million in revenue. By 1992, Dell Computers was on the Forbes list, making Michael Dell the youngest CEO of a Fortune 500 company at just 27 years of age.

It was a model based on mass customization in a category crowded with mass production. And it was an idea that made the whole world sit up and take notice. Soon, the idea of customization began to pollinate other industries. For more than 100 years, Levi Strauss & Company had been the leading brand of blue jeans in the world. Then, in the 1990s, its business went sideways. While baby boomers were a loyal audience, their children weren't, as Levi's had lost touch with changing tastes. And with overseas factories, competitors were capable of manufacturing low-cost jeans, turning them into a commodity. Levi's 50% market share had fallen to 27% by 1997, then 18% by 1998.

It desperately needed to innovate. So, Levi's decided to do something no other major clothes manufacturer had ever attempted. They decided to offer customized jeans. It was a radical strategy, considering the fashion industry is shackled to mass production by squeezing out margins through factory efficiencies and low overhead. But Levi's knew that women, in particular, were frustrated with jean shopping.

54% of them try on 10 pairs or more to find one pair they would buy. 87% wish they could find jeans that fit better. And 67% felt that jeans were designed for women with, quote, ideal figures. There was clearly a gap in the market. But was there a market in the gap? So Levi's launched Personal Pair and invited women to pick the style of jean they wanted, the color, the type of leg opening, meaning tapered or bootcut, etc., the type of fly, and then three body measurements were taken.

Customers could even name the jeans. The custom order was sent via the internet to the factory. Computers cut the pattern pieces and the jeans were sewn manually. Total time from store to customer? Two to three weeks. At that time, custom jeans cost 35% more than regular Levi's. But women saw the value,

and they felt the satisfaction of feeling good in jeans that were made specifically for them. As a result, over 25% of all Levi's jeans sold to women became custom orders. It helped turn the business around. In the process, Levi's learned that in the jean category, price wars aren't the only option. They learned that mass customization allowed them to charge more for their jeans, while at the same time building customer loyalty among service-hungry customers.

It also allowed Levi's to create a valuable database of customers when databases were rare. And, best of all, the custom jeans orders instantly provided trend data about customer preferences and in-demand styles. It became a strategy Levi's has stuck with. In 2010, Levi's introduced Curve ID, a revolutionary line of customized jeans based on the shape of a woman, not her waist size. And in 2012, Levi's launched the Made to Order project, where jeans are created from

scratch, by hand hand for individual customers. Levi's had found a way to innovate, generate revenue and revitalize its brand at the same time. And who ever thought Levi's would do it with bespoke jeans? One criticism of bespoke manufacturing is that it can't be scaled up to become a major revenue generator. Well, tell that to Nike US. Its Nike ID website lets customers custom design their own shoes

with dozens of color combinations and styles, and you can even add up to 8 characters of personalized text to the footwear. According to reports, Nike ID now accounts for 20% of store revenue. In a category that runs on mass production, Nike found a way to make hundreds of millions of dollars with mass customization. In case nobody's told you, weight loss goes beyond the old just eat less and move more narrative. And that's where Felix comes in. Felix is redefining weight loss for Canadians with a smarter, more personalized approach to help you crush your health goals this year.

Losing weight is about more than diet and exercise. It can also be about our genetics, hormones, metabolism. Felix connects you with online licensed healthcare practitioners who understand that everybody is different and can pair your healthy lifestyle with the right support to reach your goals. Start your visit today at Felix.ca. That's F-E-L-I-X.ca. Some auto companies now encourage you to custom design your own car online. BMW, for instance, was one of the first luxury brands to offer mass customization. Even the BMW Mini lets you totally custom design your new car online. From exterior color, to a roof with a different color than the body, to racing stripes,

interior stylings and wheels, all the way to premium performance and trim packages. The website lets you see the car from different angles as you design it, and does a running tally of the cost. Analysts say that a big part of BMW's success in the last decade was due to customization. We've clearly come a long way from the

you-can-have-it-in-any-color-you-want-as-long-as-it's-black days of Mr. Ford. There are schools that always do homework. Whenever there's a beat, there's always a drum. Whenever there's fun, there's always Coca-Cola. Coca-Cola has a sizable vending machine operation around the world. Recently, the soda company introduced the Coke Freestyle Machine. It lets customers pick their favorite base drink then use a touch screen to create a custom beverage from over 100 variations of flavors the freestyle machine has an interesting strategy it was designed not only to attract new drinkers but to bring back old ones who haven't had a coke in years

plus the freestyle tracks what flavor combinations are the most popular and reports back to Coke headquarters in Atlanta every single day, giving Coke valuable insights into what might be the next big flavor launch. The ability to create custom beverages has resulted in double-digit increases in fountain sales and has given Coke a new and surprising way to connect with their customers. Did you know you could even custom design your cereal? MyMuesli.com lets people create their own organic muesli mix, choosing from 80 distinct ingredients, which, according to their website, allows for 556 quadrillion possible combinations. What's a quadrillion?

I have no idea. Many of those ingredients are exotic options from 20 different countries, including flavors such as Tibetan goji berries and even jelly babies customers can go online and create a personal muesli mix then that new muesli is put into a can with an individual label displaying the name the customer has given to the mix and shipped while a few food companies have succeeded with mass customization, like Subway and Harvey's, most haven't. MyMuesli.com, on the other hand, has already had to expand to a new plant because of the overwhelming demand for their product. And the crazier your custom muesli mix is, the more the company likes it. Which is not a universal sentiment shared by

all companies offering customization. Take upscale fashion retailer Burberry. Established in 1856, the British luxury fashion house outfits an affluent customer base that includes the royal family. And recently, it started to invite customers to design their own trench coats online. Called Burberry Bespoke, clients can select the cut of their trench coat, the fabric, the color, and then navigate through options like sleeve studs,

leather cuff straps, mink lining, and shearling collars. At each step, the screen assembles the virtual coat, and the real-life version arrives at your door in four to six weeks. The cost for a custom Burberry trench coat? Anywhere from $1,800 to $6,000. The high price point is a strategy, as Burberry believes luxury isn't a luxury if everyone has it. So, they let their highly visible, wealthy customers enhance their brand by wearing ultra-stylish, custom-designed trench coats. But there is a caveat.

A Burberry trench coat designed by you still reflects on Burberry. So even though they offer customization, they still want to prevent unsightly creations, like, say, a pink collar and a fuchsia lining inside an olive green trench coat. So they don't allow all combinations. It seems while offering mass customization,

some brands still have their limits. It's been an interesting journey. We've lived through one century of mass production that has given way to a new century of mass customization. From the music on our smartphones, to the TV shows we choose to record on our PVRs, to the filters and alerts we set up on Google, to how we curate our news on apps like Flipboard,

to actually being able to custom design a car on a website, we are truly personalizing every corner of our lives. It could be argued that none of this mass customization would be possible without computers and the Internet. The digital world has opened up an immediate and direct line of communication between companies and individuals that has never existed before. And any company that doesn't embrace that connection will have a hard time surviving into the next decade. Then there's the Burberry conundrum. How much control do you give customers when the resulting design will reflect on your brand?

Good or bad? In the end, the real win is customer engagement. If companies can entice you to spend more time with a brand, roll up your sleeves, dig into the design elements, and then make you fall in love with a product because it's tailor-made just for you, well, that's every marketer's dream. The trick is to have

it your way and still be under the influence. I'm Terry O'Reilly. Thank you. Hey Terry, I'm really interested in finding that trench coat with a pink collar and fuchsia lining. What was the name of the store again? Under the Influence was produced at Pirate Toronto Sound Engineer, Keith Ullman Theme Music by Ari Posner and Ian Lefevre Series Coordinator, Debbie O'Reilly

Research, Tanya Moryusef Okay, I won't beat around the bush I like the cut of your jib. And your jib would look even better in an Under the Influence t-shirt. You'll find them on our shop page at terryoreilly.ca slash shop. See you next week.