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Standard vs. Custom Products: Variety, Lead Time, and Price Competition


  • Nan Xia

    () (Lubar School of Business, University of Wisconsin–Milwaukee, Milwaukee, Wisconsin 53201)

  • S. Rajagopalan

    () (Marshall School of Business, University of Southern California, Los Angeles, California 90089)


In this paper, we study the standardization and customization decisions of two firms in a competitive setting, along with variety, lead time, and price decisions. We incorporate consumer heterogeneity both in firm preference (or store convenience) and in product attribute preferences. We find that the equilibrium outcome depends on the cost efficiencies of the production technologies as well as the consumer sensitivity to product fit and lead time. We develop an index that signifies the relative attractiveness of the standardization and customization strategies, and the potential outcomes. We identify the strategic roles of product variety and lead time in the competition. In contrast to the previous literature, we find that increasing the variety will not intensify the price competition if there is sufficient firm differentiation. Rather, it relieves the price pressure for the firm as it satisfies consumer needs better and enables higher price premiums. We also analyze the impact of asymmetric variable costs, fixed costs, and brand reputation on the equilibrium decisions.

Suggested Citation

  • Nan Xia & S. Rajagopalan, 2009. "Standard vs. Custom Products: Variety, Lead Time, and Price Competition," Marketing Science, INFORMS, vol. 28(5), pages 887-900, 09-10.
  • Handle: RePEc:inm:ormksc:v:28:y:2009:i:5:p:887-900

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    References listed on IDEAS

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    Cited by:

    1. Ng, Irene & Scharf, Kimberley & Pogrebna, Ganna & Maull, Roger, 2015. "Contextual variety, Internet-of-Things and the choice of tailoring over platform: Mass customisation strategy in supply chain management," International Journal of Production Economics, Elsevier, vol. 159(C), pages 76-87.
    2. Oksana Loginova & X. Henry Wang, 2008. "Mass Customization with Vertically Differentiated Products," Working Papers 08-33, NET Institute.
    3. Wong, Hartanto & Lesmono, Dharma, 2013. "On the evaluation of product customization strategies in a vertically differentiated market," International Journal of Production Economics, Elsevier, vol. 144(1), pages 105-117.
    4. Wan, Xiang & Sanders, Nadia R., 2017. "The negative impact of product variety: Forecast bias, inventory levels, and the role of vertical integration," International Journal of Production Economics, Elsevier, vol. 186(C), pages 123-131.
    5. Oksana Loginova & X. Henry Wang, 2009. "Customization: Ideal Varieties, Product Uniqueness and Price Competition," Economics Bulletin, AccessEcon, vol. 29(4), pages 2573-2581.
    6. Takagoshi, Noritsugu & Matsubayashi, Nobuo, 2013. "Customization competition between branded firms: Continuous extension of product line from core product," European Journal of Operational Research, Elsevier, vol. 225(2), pages 337-352.
    7. Oksana Loginova, 2010. "Competitive Effects of Mass Customization," Working Papers 1007, Department of Economics, University of Missouri.
    8. Felipe Caro & Victor Martínez-de-Albéniz, 2012. "Product and Price Competition with Satiation Effects," Management Science, INFORMS, vol. 58(7), pages 1357-1373, July.
    9. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2014. "Product variety and channel structure strategy for a retailer-Stackelberg supply chain," European Journal of Operational Research, Elsevier, vol. 233(1), pages 114-124.
    10. Jue-Shyan Wang & Shu-Ning Chan, 2014. "The Strategic Choice of the Firm with Customization Capability," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(2), pages 56-67, September.
    11. Hara, Reiya & Matsubayashi, Nobuo, 2017. "Premium store brand: Product development collaboration between retailers and national brand manufacturers," International Journal of Production Economics, Elsevier, vol. 185(C), pages 128-138.
    12. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2016. "Delivery leadtime and channel structure decisions for make-to-order duopoly under different game scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 113-129.


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