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What's Next: Custom-Made for All

No two clients are the same. Your services shouldn't be, either.
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In his travels as CEO of Citrix Systems, an $800 million server-software company he founded in 1989, Ed Iacobucci noticed that business travelers who fly to smaller cities waste a lot of time making connections at one or more hub airports that serve bigger cities. So for his latest venture, Iacobucci is starting an airline called DayJet, which will specialize in flying directly to smaller cities--places like Omaha and Rochester, N.Y.--with the intention of turning a lot of overnight business trips into day trips.

This scheme might sound like a fairly straightforward transportation play--and a welcome development in air travel. But Iacobucci's undertaking is even more notable for another reason: It will test the limits of current technology. Indeed, whether he succeeds or not, DayJet's ambitious, technology-driven business plan could well force a rethinking of the way nearly all businesses serve their customers.

DayJet, based in Delray, Fla., has ordered more than 200 six-seat "microjets," scheduled to roll off production lines next year. These $1.3 million aircraft are designed to bring airlinerlike efficiencies and performance to tiny planes well suited for small airports. But unlike other airlines, DayJet will not have set routes or prices. Instead, routes and prices will fluctuate in real time, hour by hour, as demand ebbs and flows. Customers will specify which cities they want to fly between on what days, and then DayJet will determine what routes it will employ to serve the greatest number of customers on a given day, and what prices it needs to charge each passenger to make a profit.

The concept is easy to understand. But it turns out to be a technological nightmare. Traditional airlines struggle to determine what the optimal routes are every few months. Imagine having to work it out hourly, with billions of times as many possible routes. Further complicating matters, DayJet won't merely be figuring out a single price--it will offer each customer several prices, based on how flexible the customer is willing to be with regard to departure time. Essentially, travelers will get a discount for giving DayJet a little wiggle room on timing--which will increase the chances that DayJet can fit them in a plane with other passengers who want the same route on that day. The company is essentially rejiggering its scheduling and prices every time the phone rings. "We'll keep everything suspended as long as possible in a state of flux and disruption," says Iacobucci. "We won't freeze the schedule until the last possible moment." The result: DayJet estimates it will fly passengers from, say, Montgomery, Ala., to Danville, Va., in 2.5 hours (with one stop) for about $600--compared with five hours and $350 on a commercial flight or $4,000 for a 90-minute charter jet ride.

No one, Iacobucci included, seems to have a name for this approach yet, so I'll give it one: aggregated customization. And whether or not the label catches on, the concept will, because it combines some of the most powerful trends reshaping technology--and business--today.

First, there's mass customization, a business model that allows individual customers to order slightly customized versions of mass-produced products, as Dell Computer does. Then there's agile manufacturing, which involves building in the logistics flexibility to adapt products (or services) quickly to changing markets and conditions. There's also dynamic pricing, or the ability to adjust prices on the fly based on swells and dips in customer demand and inventories. And let's throw in one more: social networks, or the connecting of people with similar interests and needs, a phenomenon that has exploded with the numberless communities that have sprung up over the Internet.

In a nutshell, aggregated customization combines all of these forces. It's the pulling together of people who have similar product-customization needs, tying these pooled needs into a company's logistics so the needs can be met quickly at relatively low cost, and coming up with pricing that's high enough to ensure profit and low enough to entice more people to sign on. "Businesses can look at what customers want and what they're willing to do in return for a discount, and they can use that knowledge to make their production systems more flexible," says Julie Swann, who studies pricing at the Georgia Institute of Technology.

A few other types of businesses--mostly in transportation--are already experimenting with similar models, if on a less ambitious scale. Trucking and freight companies, for example, have always looked for ways to aggregate shipments from different customers heading in the same direction; now information systems are allowing them to do a better job of it. But aggregated customization is not just about moving products--or people--from place to place. The model applies to any company willing to ask this question: How can I provide more customization, aggregate customers to lower my costs, and offer a range of pricing that rewards customers for being flexible?

Here's a simple example. I recently tried to purchase new tires for my car at a nearby branch of one of the big national chains. I was offered one choice at a stiff price. Then, after consulting a clipboard, a manager told me he couldn't take my car for a few days. I bought somewhere else. But think of the opportunities this retailer missed. First of all, aren't there enough customers to enable a retailer to offer me some choices and a better deal? Maybe it can't keep all of the different models on hand, but it could offer a discount to me for waiting a few days to have them shipped in--and a steeper discount if I bought the particular type of tire that several customers were interested in that day, allowing a volume purchase. As for installation, why stick to a first-come-first-served schedule? Why not offer instant service for full price, or a discount for waiting up to a week, allowing the store to call me in during a slow evening? I should have been offered a range of choices that allowed me to happily trade off between tire features, price, and installation convenience. The store would have made money no matter what I did.

In fact, businesses provide these sorts of options all the time on an informal basis. Your dry cleaner or car mechanic agrees to put a rush on things for you because you're a good customer and you're in a bind, bumping someone else. Or a jewelry store orders a dozen of a new Rolex model, after the third person in two days has come in looking for one, and sells them at a discount.

Technology now allows you to identify and cater to sudden shifts in customer needs, on the fly, even in businesses with thousands of transactions.

What's new is that technology now allows you to identify and cater to sudden shifts in customer needs, on the fly, even in complex businesses where there are thousands of customer transactions to take into account. "Now you have literally millions of people who can come to your website and express preferences easily, and on the other side you have a business that can computationally make connections and draw out what's the right thing to do on any given day to satisfy that demand," says Michael Rappa, a professor of technology management at North Carolina State University.

Iacobucci knows DayJet, which expects to launch next year, is far from a done deal. But he notes that several years of focus groups, as well as computer-simulated models of fleet logistics and demand, suggest his scheme will fly. As for what aggregated customization means for your business, it's something to think about the next time you're in Chicago waiting for a connecting flight to Appleton, Wis.

David H. Freedman (whatsnext@inc.com), a Boston-based writer and Inc. contributing editor, is the author of several books about business and technology.

Last updated: Nov 1, 2005

DAVID H. FREEDMAN

A Boston-based contributing editor, Freedman is the co-author of A Perfect Mess, which examines the useful role of disorder in daily life, business, and science.




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