Quantifying Customer Sacrifice for Use in Product Customization Problems Available to Purchase

Every time a customer selects a product from the shelf they make a purchase decision based on trade-offs between available offerings. The available products often exhibit feature excess at a price premium, feature deficiency at a price discount, or some combination of both. By purchasing one of these products a customer experiences some degree of sacrifice. This paper proposes the use of choice-based conjoint analysis and hierarchical Baysian modeling to calculate the perceived utility of a customer’s ideal product and the perceived utility of the best current alternative in the market. A customer’s sacrifice gap, a quantity that mass customization seeks to minimize, is defined as the difference between these values. This paper quantifies a market-average sacrifice gap and uses it in a theoretical product platform customization scenario. This scenario examines the effects of offering customization options on one attribute of a product at a time on a customer-centric objective (sacrifice gap) and a firm-centric objective (aggregate contribution). The results are also used to examine how customer sacrifice is minimized at an individual-level.