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The tailoring of a firm's marketing mix to the individual customer is the essence of one-to-one marketing. In this paper, we distinguish between two forms of one-to-one marketing: personalization and customization. Personalization occurs when the firm decides what marketing mix is suitable for the individual. It is usually based on previously collected customer data. Customization occurs when the customer proactively specifies one or more elements of his or her marketing mix. We summarize key challenges and knowledge gaps in understanding both firm and customer choices in one-to-one markets. We conclude with a summary of research opportunities.

This paper investigates the competitive market for mass-customized products. Competition leads to surprising conclusions: Manufacturers customize only one of a product's two attributes, and each manufacturer chooses the same attribute. Customization of both attributes cannot persist in an equilibrium where firms first choose customization and then choose price, because effort to capture market with customization makes a rival desperate, putting downward pressure on prices. Equilibrium involves partial or no customization. In partial customization, rival firms do not differentiate their mass-customization programs: If firms customize different attributes, many more consumers are indifferent between the two firms. The elasticity of demand is increased and the resulting price war makes differentiated customization unprofitable. If firms customize the same attribute of a two-attribute product, they should concentrate on the attribute with the smaller heterogeneity in consumers' preferences. We incorporate consumers’ effort in portraying their preferences as a cost of interaction and provide public policy findings on the well-being of these consumers: When this cost is low, consumers are better off with customization than with standard goods, but firms choose too little customization. The loss in consumer surplus is sometimes captured by the firms, but for low interaction costs, firms' profit-driven behavior is economically inefficient.customization, product differentiation, competition, game theory, personalization

In this study, we examine firms' incentive to offer customized products in addition to their standard products in a competitive environment. We offer several key insights. First, we delineate market conditions in which firms will (will not) offer customized products in addition to their standard products. Surprisingly, we find that when firms offer customized products they are able to not only expand demand, but can also the prices of their standard products relative to when they do not. Second, we find that when a firm offers customized products it is a dominant strategy for it to also offer its standard product. This result highlights the role of standard products and the importance of retaining them when firms offer customized products. Third, we identify market conditions under which ex ante symmetric firms will adopt symmetric or asymmetric customization strategies. Fourth, we highlight how the degree of customization offered in equilibrium is affected by market parameters. We find that the degree of customization is lower when both firms offer customized products relative to the case when only one firm offers customized products. Finally, we show that customizing products under competition does not lead to a prisoner's dilemma.degree of product customization, mass customization, standard products, competition, game theory