Towards profitable customized solutions in small firms: a matter of relationships, modularity and expertise

Abstract

Purpose The decision concerning the degree of product and service customization is crucial, yet has scarcely been studied for small businesses in business-to-business (B2B) contexts. Although such a decision allows relationships with potential customers to be strengthened, it might involve high opportunity costs given the investment required. This paper aims to analyse the profitability of customization undertaken by small businesses in terms of cost–benefit and examine the drivers of profitable customized projects vis-à-vis the ability to strengthen relationships with clients (relationship investment and customer involvement) and the firm’s resources related to processes and technology (expertise and modularity). Design/methodology/approach To test the proposed hypotheses, data were collected from 140 small Spanish firms involved in two sectors characterized by the offer of customized solutions: information and professional, scientific and technical services. Findings Analysis reveals that customer involvement in the customized solution, even when it requires investing in equipment, time or human resources has a positive effect on customization and ultimately on profitability, as the cost of this customer interaction is lower than the revenue it provides. Likewise, supplier investment in the relationship allows for a solution that is adapted to the client, although it requires a cost associated with investing in specific assets. Such costs cancel out the positive indirect effect through the customized solution. Finally, expertise enables appropriate use of the flexibility derived from modularity to satisfy customer requirements, with both being key company resources for driving profitability through customized solutions. Originality/value This study makes a contribution to the domain of customization. The authors extend current knowledge on B2B customization by proving that small firms can use their available capabilities and knowledge to achieve a successful customization strategy.