Choice Menus for Mass Customization: An Experimental Approach for Analyzing Customer Demand with an Application to a Web-Based Information Service

Abstract

Customers are now active collaborators in creating value. Companies are increasingly engaging in mass customization and offering consumers a “choiceboard” (or a menu of choices) of various features and options for configuring their own products and services. The authors discuss the use of experimental choice menus for assessing customers' preferences and price sensitivities for the variety of features and options that might be offered by a firm in its choiceboard. The proposed approach directly analyzes customers' portfolio of choices from each of several experimental menus by estimating the utility for each menu item as a function of its characteristics, its price, and other specific attributes such as multifeature discounts. The authors accommodate customer heterogeneity in the utilities, allow for correlation of the utilities across items, and incorporate constraints in menu choices. Various technical issues and methodological contributions are discussed. The authors illustrate the approach in a commercial application of a customized Web-based information service, which is typical of offerings in the information economy. To assess predictive performance, the authors compare the proposed approach with alternative traditional approaches. The authors conclude with a discussion of the types of insights that can be obtained from this approach to menu choices and the managerial implications of these findings.