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1. Introduction
“Mass Customization” takes into account both the mass production to reduce costs and the customers' individual needs through digital technology and information technology industries combined. The customers should start from the various firms’ flexible choices, select the product characteristics which meets their own preferences, and then will enter into the production process. Through the rapid production, it would distribute to end customers in high efficiency. Its main aim is to provide required products and services with targeting individual needs by mass production. Moreover, there is another term easy to be confused with is “personalization”, which must be a little more communication with customers. In the definition, there are some differences between them, and we refer to "mass customization." However, both of them focus on meeting customers’ needs and the definition increasingly blurred and difficult to distinguish nowadays. A large number of customized services come out in early 1990s in other countries. Generally believe that the U.S. Dell Computer Corporation, which launched personalized Internet direct sales model, is the earliest implementation of customized services. Other cases like Nike have launched the customization sneakers.
The advertising commercial media generally include as follows: bulletin boards, flyers, radio, film, television, web banners, web pop-up ads, bus stops, magazines, newspapers, bus bodies, taxi body, packaging, music video, and the back side of some tickets. Any forms of media which advertisers are willing to pay to advertise their business and products to meet its expectation are advertising.
The related studies of advertising, such as Irmen and Thisse (1996) show the games that firms could choose locations. Whenever firms have different
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characteristics, they would choose to maximize the dominant characteristic between others. However, if the characteristics are alike between firms, they would minimize the differences between others. That is, the principle of minimizing differences will be established except there are no characteristic differences between firms. In addition, with the characteristics between products increasing close to each other, the price would not decline necessarily. It is because when the advantages of product difference between firms are sufficient, price competition will gradually relaxed. Bloch and Manceau (1999) show that when the customers have different preferences between two competitive products in the market, persuasive advertising is deem to be one of the ways to change product preferences of them. If both products are sold by the same firm, the advertising would make the price of the advertised products increase, and the price of the other one would decrease. Only when customer's preferences not too focused on one product in the beginning, advertising would be profitable. When different firms sell two different products, advertising would lead to lower prices.
It would make firms have no incentives to advertise its products. Johnson (2013) shows that when advertising have no effect on consumers, the firm would continuously improve its ability to influence market. Though firms would benefit from increasing its ability, the customers don’t need it. In the article, they also point out that there may be too few obstacles in the advertising equilibrium.
And the related studies of customization are like Logunova (2010) challenges the assumption in the general theory. The paper assumes that customers always could get their ideal product when they buy customization products. They use the Hotelling’s model. Assume initially, firms manufacture standardized products and the products locate at both ends of the interval point. Then one of the firms start to provide customization products, the customers who are more familiar
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with the brand would more easy to convert their needs into the brand's product characteristics. On the contrary, others who are not familiar with the brand would encounter difficulties. In the paper, the knowledge of specific products is important. More knowledge they have, more ability they could analyze the information and more fit the products to their preferences. In the game, both of the firms would decide whether they choose to customize products at the same time, and then would enter into a price competition. In the article, they also note that when the differences between customization products become small, it would lead to co-design with customers to reduce price competition. In equilibrium, only one firm would provide customization products. Loginova (2012) described more in mass customization of today's theoretical description that it would reduce the differences between products and enhance price competition. However, in practice, management literature has shown the main objective of customization is to generate a difference between the company and its competitors. Customers and product design influence each other so that customers may have emotion toward the firm. Then it would weaken the firm's competitive pricing. The literature provides an added customer factor model to explain the phenomenon of practical management class literature. In the Hotelling line with two firms, a group customers with continuity and heterogeneous brand preferences, and a group of exogenously given customers who may more interested in customization products. The benefits which customers get from customization products are a special shopping experience and the product customization value (a more suitable product). When customers buy a customization product, they will have to pay the cost of waiting. Syam et al. (2005) show the mass customization competitive market. Competition leads to a surprising conclusion: firms would only customize one of the two
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characteristics, and each firm would choose the same characteristics. When the firm chooses to customize in the beginning and then selects the price. In the equilibrium, customizing both two characteristics would not be sustained because customization would make opponents desperate to give the pressure by lowering prices. The equilibrium includes partial or no customization. In addition, Xia and Rajagopalan (2009) show that the standardization and customization decisions of two firms in the competition, which include product type, product design and the time gap between the actual production (lead time) and price setting. The paper combines the customer’s preferences toward firms (or store convenience) and the heterogeneity of product characteristic preference. They noted that the equilibrium would depend on the cost-effectiveness of manufacturing technology, customer’s experience of suitability for the product design and the lead time. Compared to previous studies, this paper found that when enough differences between firms already exist, increasing the range of products does not make themselves more favorable in a price competition.
However, if firms pay more attention to meet customers’ demand, the product’s price would increase and the pressure of price competition would release.
Taking these discussions, although there are literatures that firms may affect competition in the market on advertising or customization products, we still have no literatures that discuss the competition between the firm with customization capability and the firm without customization capability but can adjust the product characteristics by inputting advertising or selecting market location. We have the following conclusions: if the firm with customization capabilities chooses to customize the products, it would make the other firm with the ability of selecting market location choose to make the product more specialized. The firm with customization capability has potential impact on reducing the other
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one’s profits. And the relative size between the cost coefficient of market location and the cost coefficient of advertising input would affect the strategic choice of the two firms.
The structure orders of this article are as follows: section 1 is the introduction, section 2 is the basic model, section 3 is the equilibrium of the second and third phase, section 4 is the equilibrium solution of first phase, and Section 5 is the conclusion.
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