1 Introduction

1.1 Background and motivation

For more than two decades, mass customization (MC) has become increasingly popular in industries (Jost & Süsser, 2020). Levi Strauss & Co. is one of the pioneers of customization services, allowing consumers to name their jeans (Levi Strauss & Co., 1999). Subsequently, many fashion firms, including Brooks Brothers, Lands’ End, Ralph Lauren, Nike, and Adidas, launched their own MC product lines (Guo et al., 2022). Samsung created a customized refrigerator product line Samsung’s Bespoke Refrigerator, which provide a personalized and unique design for consumers in terms of a range of door color options, different number of refrigerator door types and refrigerator sizes (Menafn, 2022). Tesla offers many outlook options to consumers and let they design and customize their own cars (Seabrook, 2022). Recently, MC products emerged in industries such as fashion, food, furniture, home appliances, and automotive (Gandhi et al., 2014).

In the past decade, new technology such as 3D printing, robotic manufacturing, and the Internet of things drove the next wave of MC (Ivanov, 2021, 2022; Shen et al., 2019). The Internet of things can easily and cost effectively detect consumers’ preferences, 3D printing technology can assemble affordable and scalable products that consumers want, and robotic manufacturing can improve production efficiency and reduce losses (Gandhi et al., 2014; Ivanov et al., 2021). In industry, Adidas built its Speedfactory, utilizing 3D printing, robotic manufacturing, and an advanced information system. Meanwhile, Nike developed its Nike Zoom Vaporfly Elites product line by using a customizable 3D-printed textile upper. By considering consumers’ unique feet shape, customized footwear can also incorporate consumers’ original designs and features, such as outlook, posture, materials, and style of walking, into MC products (Guo & Choi, 2022).

Customizers offer individually tailored products on a large scale (Dolgui & Ivanov, 2021; Zipkin, 2001). Customization often entails a long waiting time owing to configured customization but provides a product that perfectly fits consumers’ unique design tastes through the use of the self-design fun function (Esenduran et al., 2022). Waiting time and product quality are potential tradeoffs for consumers in choosing between standardized or customized items (Gandhi et al., 2014). First, MC waiting time is a disutility for consumers to purchase customized products. MC waiting time can be shortened through the use of smart algorithms, improved data-processing capacity, and automation. For example, a US pizza company may invest in a smart algorithm design to shorten the waiting time for customized pizza (Gandhi et al., 2014). However, shortening the waiting time may be costly (Piller, 2021) as well as improving the accuracy of smart algorithms, enhancing data processing capacity, and investing in automation technology. In addition to the tradeoff between waiting time and product quality, customization creates value for consumers by providing a co-design function. Self-design fun is part of co-design in the process of MC. The fashion brand Lacoste allows consumers to use self-design functions and produce items with robotic tools (Esenduran et al., 2022). Consumers can gain positive utility by experiencing self-design fun. Therefore, if the individual customization process has been designed more effectively, then consumers can experience more self-design fun from purchasing customized products on an MC platform.

Supply chain integration can enhance supply chain competitiveness (Shen et al., 2022a). In practice, MC supply chains are integrated. Specifically, the customizer can integrate with the manufacturer, which is known as manufacturer–customizer integration (Fung et al., 2021). For example, Ralph Lauren, which is a famous fashion retailer, works with a third-party company to develop on-demand colored polo shirts in stores, in which consumers can choose the color of the dye. In addition, the customizer can integrate with the retailer, which is known as retailer–customizer integration (Fung et al., 2021). For instance, Nike opened its Nike by You Studio at 45 Grand St. in New York, which completes the customization process by merging digital designs in the store (Kicksonfire, 2017; Shen et al., 2021). The sportswear retailer Adidas developed its Speedfactory to sell MC shoes using robotic manufacturing and 3D printing (Boute et al., 2022). Motivated by actual practices for supply chain integration with MC, we try to answer the question of which integration strategy is ideal for the customizer and other supply chain members.

1.2 Core research questions and contributions

In this study, we aim to investigate the effects of MC waiting time and self-design fun on supply chain integration with MC. We consider a supply chain consisting of one standardized product manufacturer, one retailer who sells standardized products, and one customizer who sells customized products. The customizer can decide whether to integrate with the retailer or with the manufacturer. We take the case in which the customizer works with neither the retailer nor the manufacturer as the benchmark. If the customizer works with the manufacturer, then the manufacturer sells the standardized products through the retailer but the customized products to consumers directly (manufacturer–customizer integration). However, if the customizer works with the retailer, then the retailer sells customized ones to consumers directly (retailer–customizer integration) and the standardized products ordered from the manufacturer. Motivated by actual practices, we present the following research questions (RQs):

  • RQ1: What is the impact of waiting time on supply chain integration with MC?

  • RQ2: How can an all-win outcome be realized through supply chain integration with MC?

  • RQ3: What is the effect of self-design fun on an all-win outcome with MC in the supply chain?

We provide new perspectives on the impact of MC waiting time on supply chain integration. When the MC waiting time is short, customized products are attractive, because they are of high quality, whereas if the MC waiting time is long, then consumers will likely purchase standardized products that are readily available. As a result, a short MC waiting time can reduce the profits of standardized product manufacturers and retailers, and vice versa.

Our study contributes to the literature on the incentives of supply chain integration with MC. We find that manufacturer–customizer integration can achieve a win–win–win outcome for all three supply chain members, but retailer–customizer integration cannot achieve such an outcome. Our analytical results show that when the MC waiting time is within a moderate range, retailer–customizer integration can achieve a win–win outcome for the retailer and customizer, but the manufacturer will not benefit, because integration weakens the competitiveness of retailer and customizer. However, the manufacturer cannot earn high profits in such an integrated supply chain owing to the drop in the market demand for standardized products. Thus, retailer–customizer integration benefits the involved members but harms the uninvolved member (i.e., manufacturer). Moreover, we find that manufacturer–customizer integration can achieve a win–win–win outcome for the involved members in the supply chain when the MC waiting time is moderate. Consumers will likely buy a standardized product that is readily available if the product has a high likelihood of being able to satisfy them. All the supply chain members can benefit from launching MC products, as the incremental demand generated by standardized products can benefit the retailer.

Furthermore, we highlight the effect of self-design fun on supply chain integration with MC. Our results indicate that integration reduces the customizer’s investment in the level of self-design fun. The logic behind this result lies in the competitiveness of supply chain integration. As a supply chain is highly competitive with integration, the customizer can reduce its investment in the level of self-design fun. The negative effect owing to the low level of self-design fun in the supply chain integration can be compensated by the competition mitigation effect owing to supply chain integration. With endogenized self-design fun, the achievability of a win–win–win outcome for all three supply chain members remains unchanged, though the condition for an all-win outcome is strict in manufacturer–customizer integration. Specifically, the product quality level should not be too low.

1.3 Organization of the paper

This paper is organized as follows. Section 2 reviews the relevant literature, and Sect. 3 introduces the basic model. Section 4 presents the equilibrium analysis, and Sect. 5 shows the impact of supply chain integration. Section 6 evaluates endogenous self-design fun, and Sect. 7 summarizes the conclusions, managerial insights, and future research directions. All the technical proofs are included in Online Appendix B.

2 Literature review

This study is relevant to three research streams: MC in supply chains, MC waiting time, and supply chain integration with MC.

2.1 MC in Supply Chains

Product variety and price competition are examined jointly in the literature on MC in supply chains. Dewan et al. (2003) investigated a market selling standard and customized products and found that customization reduces product differentiation between standard products but does not increase price competition. Alptekinoğlu and Corbett (2008) assessed the interaction between MC and mass production for variety and price competition and determined that a mass customizer will decrease product variety, and a mass producer will reduce prices in competition. Alptekinoğlu and Örsdemir (2022) developed a model to evaluate sustainability in the fashion industry with MC. A firm maximizes its profits by deciding the optimal product variety, price, and inventory level. The authors proposed that MC can achieve a win–win outcome for profitability and sustainability but may increase overproduction and hurt the environment.

Lead time is important in the evaluation of the interaction between standardized and customized products. Lead time refers to the time interval between the time of customer initiating an order and the arrival time of the order at the buyer’s place. Lead time is an important consideration for supply chain members. Xia and Rajagopalan (2009) compared the standardization and customization decisions of two firms in a competitive setting with product variety and lead time and reported that increasing product variety will not consistently intensify price competition. Alptekinoğlu and Corbett (2010) examined the tradeoff between lead time and product variety for MC and identified that with lead time competition for customized products and product variety for standard products, hybrid product lines with customized and standard products could make a firm perform better compared with either an all-custom or all-standard product line.

Consumers gain extra utility from co-designing when placing orders from MC platforms. Syam et al. (2008) found that consumer regret aversion causes unwillingness to purchase a standard product rather than a custom one despite the co-designed customized products reflecting the attributes of the available standard products. Basu and Bhaskaran (2018) developed a model to evaluate the impact of customer co-design on a firm’s decisions and showed that the provision of a co-design function could encourage the firm to improve its standard product quality. Esenduran et al. (2022) investigated how product returns affect MC decisions and defined and modeled the “I designed it myself” effect into the consumer utility function when purchasing customized products. The authors reported that offering product returns may be an optimal strategy for selling customized products.

Choi et al. (2019a, 2019b) assessed the impact of risk aversion on supply chains that sell customized products and found that in the competitive market environment, consumers can enjoy MC services, but the supply chain performance may decline in terms of degree of risk aversion. Yazdani et al. (2020) evaluated the effect of customers’ fit sensitivity on MC and observed that customizers can earn higher profits when consumers’ fit sensitivity is relatively high, whereas traditional firms can earn more when consumers’ fit sensitivity is moderate. Our study contributes to the literature on waiting time, self-fun design, and price competition in MC. By contrast, different from the extent literature, the focal point of our study is the achievability of an all-win outcome in supply chain integration with MC, the all-win outcome is crucial in supply chain network since although supply chain members are competing for the consumers, they are also cooperating for improving the entire supply chain’s profitability. The achievability of an all-win outcome in MC supply chain network is underexplored in the literature.

2.2 MC waiting time

Consumers are satisfied with a short waiting time for receiving products (Liu et al., 2020). Mendelson and Parlaktürk (2008) evaluated a market consisting of traditional and customizing firms competing in prices and product variety, with lead time for standard products and waiting time for customized products. The authors identified that consumers who purchase customized products incur waiting costs until they receive their order. Su et al. (2005) studied the total supply chain cost and expected customer waiting time for MC and provided solutions for shortening MC waiting time. Su et al. (2010) examined how customers’ waiting time can be shortened in an MC system and found that delayed differentiation could lead to a shortened waiting time. Shao (2013) compared a centralized system with a decentralized one selling customized products and argued that demand for a customized product is sensitive to the waiting time. The author found that the mixed MC strategy dominates pure standard product strategies in the centralized system, which is not always the case in the decentralized system. Guo et al. (2022) studied the use of 3D printing in MC, with additional self-design fun, and incorporated waiting time for customized products into their model. They found that MC products with the self-design fun function can enhance consumer surplus. Following the extant literature, we regard the waiting time as an important factor that affects the consumers’ utility. Therefore, in this paper, we incorporate the waiting time into the utility function of consumers. This implies that consumers who choose customized products need to wait for a certain time before obtaining them. Waiting time in our paper is similar to the lead time to a certain extent, but our perspective focuses on consumers rather than supply chain members. Waiting time always brings a negative utility to consumers, and the length of waiting time determines the size of negative utility. We also examine the effect of waiting time on consumers’ willingness to purchase MC products, and our results show how the waiting time for MC products affects supply chain integration.

2.3 Supply chain integration with MC

Several supply chain members, who are integrated as one group, are involved in supply chain integration (Shen et al., 2022a). MC supply chains are restructured through channel integration. First, a customizer can be integrated with a retailer. Wang and Lesmono (2013) evaluated the value of product customization enhancement in a vertically differentiated market and developed an integrated model in which production and marketing decisions are incorporated. The authors found that if consumers can be involved in the supply chain, then the level of customization can be enhanced. Zhang and Zheng (2021) investigated the effects of the integration of customized and standard products for e-tailers and retailers and observed that e-tailers’ profits will increase with the customization cost if an extra standard product line is introduced. Their results indicated that with channel integration, omnichannel e-tailers should offer customized products online and standard products offline.

Moreover, a customizer can be integrated with a manufacturer. Li et al. (2015) examined a supply chain in which the manufacturer sells standard products through the retailer but customized products online directly. The authors considered a supply chain optimization problem with consumers’ level of acceptance of the online channel and fixed costs. They asserted that the manufacturer is more likely to sell customized products in a decentralized supply chain than in an integrated one because of horizontal competition alleviation. Shao (2020) assessed an integrated firm that balances product lines between customized and standard products and showed that a high-level MC system may not necessarily improve the firm’s profits. Guo et al. (2020) investigated supply chain coordination with MC and utilized a two-part tariff contract to achieve win–win coordination with different levels of flexibility. Meanwhile, Jost and Süsser (2020) studied the effect of MC in a manufacturer’s production process with opportunity costs of buying standardized products and observed that selling MC products is profitable for the manufacturer. The manufacturer has an incentive to offer reduced-price standardized products when the cost of the MC products is relatively high. In this study, motivated by actual MC practices, we compare the supply chain performance of manufacturer–customizer and retailer–customizer integration. To the best of our knowledge, our study is the first to evaluate the value of supply chain integration (manufacturer–customizer and retailer–customizer integration) in mass customization. The customizer can decide to work with the retailer or manufacturer to achieve an all-win outcome for the entire supply chain. The results of our research can provide guidelines for supply chain integration with MC.

Table 1 shows the positioning of our study compared with the literature.

Table 1 Positioning of current study compared with the literature
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3 The model

In this study, we consider a supply chain consisting of one manufacturer, one retailer, and one customizer. The manufacturer sells standardized products through the retailer, and the customizer produces and sells customized products. Consumers can decide to buy standardized/customized products or nothing. We let s and c denote the standardized and customized products, respectively. The unit price of product i (\(i \in \left\{ {s, c} \right\}\)) is \(p_{i}\), where \(p_{c} > p_{s}\), and the unit wholesale price of the standardized products is w.

Consumers can purchase standardized products directly from retailers without waiting. However, ordering customized products requires consumers to wait owing to on-demand production and distribution. Thus, we consider the waiting time for buying the standardized products as zero but that for purchasing the customized items as nonzero. Following Su et al. (2005), we use t to represent customers’ waiting time to obtain the customized products. For consumers who are sensitive to the waiting time of products, a long waiting time will bring them great losses. Therefore, the customizer should pay attention to waiting time reduction. In order to improve production and transportation efficiency and reduce the waiting time of consumers, the customizer will be charged additional costs to purchase advanced equipment and develop technology. Following Xia et al. (2009), we denote this additional cost is \(\frac{\mu }{t}\), where \(\mu\) refers to the coefficient of the production and transportation costs for the customized products, and the shorter the waiting time t, the higher the customization cost.

Product quality is included in consumer’s utility for purchasing the products. Product quality refers to outlook and functions. The customized products could provide unique outlook and advanced functions. We consider the perceived product quality level as having \(\alpha\) probability of being high quality q (i.e., level of product quality that is satisfactory to the consumers) and \(\left( {1 - \alpha } \right)\) probability of being low quality \(q_{L}\) (i.e., the product is useless), where q implies the highest quality that can be achieved. For simplification, we assume that \(q_{L} = 0\), that is, the consumers consider the product to be useless. Thus, the expected product quality of the standardized products \(q_{s}\) is \(\alpha q\), that is, \(q_{s} = \alpha q\), where \(\alpha \in \left( {0,1} \right)\). The customized products can satisfy the consumers’ need for product quality. Hence, we consider the expected product quality of the customized products \(q_{c}\) to be equal to the highest product quality that the consumers perceive, that is, \(q_{c} = q\).

The consumer utility for purchasing the standardized and customized products is as follows:

$$ U_{s} = q_{s} v - p_{s} ,\;{\text{and}}\;U_{c} = q_{c} v - p_{c} - \beta t, $$

where \(v\) represents the consumers’ willingness to pay for a product, and \(\beta\) (\(\beta > 0\)) represents sensitivity to the waiting time. We assume that \(v\) is uniformly distributed \(v \in \left( {0,1} \right)\), with a density of 1. The production cost of product \(i\) is \(c_{i}\), where \(c_{c} > c_{s}\). For simplification, we normalize \(c_{s}\) as zero. The market demand for product \(i\) is \(D_{i}\). Table 2 summarizes the major notations used in this paper. All the thresholds used in this paper are summarized in Appendix A.

Table 2 Major notation used in the paper
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In the basic model, we evaluate the impact of the customizer in the supply chain. We take the non-customizer case (Case N) as the benchmark and compare the results of Case Y (with customizer presence) with those of the benchmark. The sequence of the game for Case N is as follows: the manufacturer first decides the wholesale price of the standardized products, then the retailer decides the corresponding retail price. For Case Y, the customizer enters the market and sells the customized products. Thus, similar to Case N, after the manufacturer first decides the wholesale price of the standardized products and the retailer decides the associated retail price, the customizer determines the retail price of the customized products on the basis of the retailer’s decision. Figure 1 illustrates the supply chain structure and game sequence for Cases N and Y.

Fig. 1
figure 1

Supply chain structure and game sequence for Case N and Case Y (numbers in circles indicate the sequence of the game in the two basic strategies)

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4 Model analysis

4.1 Case N: non-customizer

In this subsection, we consider a case in which the customizer does not exist in the market, and the manufacturer sells standardized products through the retailer. The consumer utility for purchasing the standardized product is \(U_{s} = q_{s} v - p_{s} = \alpha qv - p_{s}\). Consumers will purchase a product if and only if \(U_{s} \ge 0\). Thus, the market demand for the standard products is \(D_{s} = 1 - \frac{{p_{s} }}{\alpha q}\). The profit function of the retailer and manufacturer is as follows:

$$ \mathop {{\text{max}}}\limits_{{p_{s} }} \pi_{r} = \left( {p_{s} - w} \right)D_{s} ,\;{\text{and}}\;\mathop {{\text{max}}}\limits_{w} \pi_{m} = wD_{s} . $$

Using backward induction, we can obtain the equilibrium outcomes for the retailer and manufacturer. The equilibrium results are presented in Table 3.

Table 3 Equilibrium results of Case N and Case Y
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4.2 Case Y: presence of customizer

In this subsection, we consider a case in which customized products are provided by the customizer, and the customized products compete with the standardized ones. Deriving the consumer utility functions for purchasing the standardized and customized products \(U_{s} = q_{s} v - p_{s}\) and \(U_{c} = q_{c} v - p_{c} - \beta t\), the market demand for the standardized and customized products is \(D_{s} = \frac{{p_{c} + \beta t - p_{s} }}{{\left( {1 - \alpha } \right)q}} - \frac{{p_{s} }}{\alpha q}\) and \(D_{c} = 1 - \frac{{p_{c} + \beta t - p_{s} }}{{\left( {1 - \alpha } \right)q}}\), respectively. We denote \(\pi_{j}\) (\(j = m,r,c\)) as the profits of supply chain member j. The profit function of the retailer, manufacturer, and customizer is

$$ \mathop {max}\limits_{{p_{s} }} \pi_{r} = \left( {p_{s} - w} \right)D_{s} ,\;\mathop {{\text{max}}}\limits_{w} \pi_{m} = wD_{s} ,\;{\text{and}}\;\mathop {max}\limits_{{p_{c} }} \pi_{c} = \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t}. $$

Using backward induction, we show the equilibrium results of Case N and Case Y in Table 3.

4.3 Equilibrium analysis

In this subsection, we compare the results of Case N and Case Y.

Proposition 1

  1. i.

    The retail price and wholesale price of the standardized products in Case N are lower than those in Case Y, that is, \(p_{s}^{Y*} < p_{s}^{N*} ,\) and \(w^{Y*} < w^{N*}\).

  2. ii.

    The profits of the manufacturer and retailer in Case N will be higher than those in Case Y if and only if \({\text{t}}\) is sufficiently small, that is, \(\pi_{r}^{Y*} < \pi_{r}^{N*} ,\) and \(\pi_{m}^{Y*} < \pi_{m}^{N*}\) if and only if \(0 < t < t_{1}\).

Proposition 1(i) implies that the wholesale and retail prices of the standardized products are reduced with the presence of the customized products, because the customized products provide the consumers with a new option, and the manufacturer and retailer will reduce the wholesale and retail prices to maintain the competitiveness of the standardized products in the market.

Conventional wisdom implies that price reduction and competitor entry are unprofitable for firms. However, Proposition 1 (ii) shows that the manufacturer and retailer can benefit when the customizer enters the market. When the MC waiting time is sufficiently short, the profits of the manufacturer and retailer will be lower than those in the case without the presence of the customizer. However, when the MC waiting time is sufficiently long, the profits of the manufacturer and retailer will be higher than those in the case without the presence of the customizer. Customized products have higher product quality but longer waiting times compared with standardized ones. A short waiting time for MC products can help the customizer earn a market share and increase the market demand for customized products. As a result, when the MC waiting time is short, standardized products will be less competitive, and the profits of the manufacturer and retailer will be reduced. Meanwhile, if the MC waiting time is too long, consumers will likely buy standardized products readily available in stores. As a result, the profits of the manufacturer and retailer will increase.

Shortening the MC waiting time could enhance market competitiveness. However, its heavy investment may be less profitable or unprofitable for the customizer. If the customizer is not willing to invest in technology to shorten the waiting time, then consumers may wait a long time for customized products. However, if the customizer invests substantially in technology to shorten the waiting time, then consumers will likely purchase customized products, and investments to shorten the MC waiting time will increase. The production process will not only be detrimental to the profits of the manufacturer and retailer if the customizer has adequate investments in waiting-time reduction technology but may also be unprofitable for the customizer if its waiting-time reduction technology is inefficient.

5 Supply chain integration

5.1 Case RI: retailer–customizer integration

In this subsection, we consider a case in which the customizer is integrated with the retailer (Case RI). The game sequence is as follows: the manufacturer first determines the wholesale price of the standardized products, then the retailer and customizer decide the retail price of the standardized and customized products, respectively.

Similarly, the consumer demand for the standardized and customized products is \(D_{s} = \frac{{p_{c} + \beta t - p_{s} }}{{\left( {1 - \alpha } \right)q}} - \frac{{p_{s} }}{\alpha q}\) and \(D_{c} = 1 - \frac{{p_{c} + \beta t - p_{s} }}{{\left( {1 - \alpha } \right)q}}\), respectively. We use \(\pi_{RI}\) to express the total profits of the members when the customizer and retailer are integrated. In Case RI, the profit functions are as follows:

$$ \mathop {{\text{max}}}\limits_{w} \pi_{m} = wD_{s} ,\;{\text{and}}\;\mathop {{\text{max}}}\limits_{{p_{s} ,p_{c} }} \pi_{RI} = \pi_{r} + \pi_{c} = \left( {p_{s} - w} \right)D_{s} + \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t}. $$

Using backward induction, we show the equilibrium results of Case RI in Table 3. We compare the results of Case Y and Case RI. The results of the comparison between the two cases are presented below.

Proposition 2

The retail price of the standardized and customized products in Case RI is higher than that in Case Y, that is, \(p_{s}^{RI*} > p_{s}^{Y*}\), and \(p_{c}^{RI*} > p_{c}^{Y*}\), and the wholesale price of the standardized products in Case RI is lower than that in Case Y, that is, \(w^{RI*} < w^{Y*}\).

This result implies that the retail price of the standardized and customized products is higher, and the wholesale price of the standardized products is lower in retailer–customizer integration compared with in Case Y. The manufacturer will reduce the wholesale price and induce the retailer to sell more standardized products, because retailer–customizer integration weakens retail competition between standardized and customized products. Thus, a group with an integrated retailer and customizer will increase its prices.

Proposition 3

  1. i.

    The profits of the manufacturer in Case RI are lower than those in Case Y, that is, \(\pi_{m}^{RI*} < \pi_{m}^{Y*}\).

  2. ii.

    The profits of the retailer in Case RI will be lower than those in Case Y if and only if \({\text{t}}\) is sufficiently small, that is, \(\pi_{r}^{RI*} < \pi_{r}^{Y*}\) if and only if \(0 < t < t_{2}\).

  3. iii

    The profits of the customizer in Case RI will be higher than those in Case Y if and only if \({\text{t}}\) is sufficiently small, that is, \(\pi_{c}^{RI*} > \pi_{c}^{Y*}\) if and only if \(0 < t < t_{3}\).

This result implies that with retailer–customizer integration, the manufacturer’s profits will be lower than in the case in which the customizer is integrated with neither the manufacturer nor the retailer, because though the reduction in the wholesale price will lead to increased consumption by the retailer, it will not be sufficient to compensate for the profit loss due to the price reduction.

When the MC waiting time is sufficiently short, retailer–customizer integration will reduce the retailer’s profits but increase the customizer’s profits. A possible reason for this outcome is that retailer–customizer integration weakens retail competition between retailers and customizers. This finding is consistent with the actual case of Nike By You, which is a Nike customized product. Nike Makers’ Experience opened the Nike By You Studio at 45 Grand St. in New York, which completes the customization process by merging digital design (dynamic object tracking and projection systems) with traditional footwear manufacturing and allowing consumers to customize their shoes in less than 90 min (Kicksonfire, 2017). As the waiting time for Nike’s MC products is short (i.e., 90 min), the customized products are competitive, and consumers are inclined to purchase such products, making them profitable to the customizer. By contrast, the market demand for standardized products decreased as well as the retailer’s profits.

When the MC waiting time is sufficiently long, standardized products will be more competitive than customized ones, and consumers will prefer the standardized products that are readily available. Thus, the retailer’s profits will increase. Although the price of customized products will increase, it will not be adequate to compensate for the customizer’s profit losses; thus, the customizer’s profits will decrease. Adidas built its state-of-the-art sneaker Speedfactory in Germany in partnership with the Silicon Valley additive manufacturing startup Carbon. The two firms integrated Carbon’s technology to produce unique SKUs of 3D-printed sneakers through continuous liquid interface production, whose R&D investment increased by 35%. In 2020, Adidas closed its Speedfactory owing to an unbalanced investment and return (Hernández, 2020). Our results can provide guidelines for developing and selling customized products in retailer–customizer integration.

In this paper, we evaluate the achievability of an all-win outcome in supply chains. The all-win outcome is crucial in supply chain network since although supply chain members are competing the profits, they are also cooperating.

Corollary 1

Retailer–customizer integration will lead to a win–win outcome for the retailer and customizer only when t falls into a moderate range, that is, when \(t_{2} < t < t_{3}\), \(\pi_{r}^{RI*} > \pi_{r}^{Y*} ,\) and \(\pi_{c}^{RI*} > \pi_{c}^{Y*}\), but cannot lead to a win–win–win outcome for all the supply chain members.

This result implies that when the MC waiting time is moderate, the customizer and retailer can benefit from retailer–customizer integration. Thus, the retailer and customizer have an incentive to integrate. With retailer–customizer integration, retail competition is weakened. When the MC waiting time is moderate, the retailer and customizer will not be competing aggressively and will be able to gain sufficient benefits through integration and achieve a win–win outcome. However, when the MC waiting time is too short, customized products with a high retail price will generate considerable profits for the customizer, whereas the low consumer demand for standardized products will be unprofitable for the retailer. This situation is reversed when the waiting time is too long. The retailer–customizer integration can achieve a win–win result under the certain circumstance but is detrimental to the manufacturer. The potential reason is that the manufacturer can attract the retailer to order standardized products only by lowering the wholesale price, but the advantages of customized products stimulate consumers to purchase, which leads to the lack of demand for standardized products in the market. The profit brought by the reduction of the wholesale price of standardized products is always insufficient to make up for the loss brought by the lack of demand for the standardized products. Owing to this barrier, the manufacturer will not be able to benefit from the retailer–customizer integration.

MC waiting time deserves considerable attention. If the MC waiting time is sufficiently short, then the customizer may benefit, whereas if it is too long, then the retailer may benefit. Only when the MC waiting time is moderate can a win–win situation be realized for the retailer and customizer. However, regardless of the length of the waiting time, the manufacturer will consistently be the victim and reluctant to participate in a supply chain in which integration occurs between the retailer and customizer. Our results suggest that retailer–customizer integration can benefit the involved parties but is detrimental to the interests of others.

5.2 Case MI: manufacturer–customizer integration

In this subsection, we consider a case in which the customizer is integrated with the manufacturer (Case MI). The game sequence is as follows. First, the manufacturer determines the wholesale price of the standardized products. Second, the retailer decides the retail price of the standardized products. Finally, the customizer decides the retail price of the customized products. We use \(\pi_{MI}\) to express the total profits of the members when the manufacturer and customizer are integrated. In Case MI, the profit functions are as follows:

$$ \mathop {max}\limits_{{w,p_{c} }} \pi_{MI} = \pi_{m} + \pi_{c} = wD_{s} + \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t},\;{\text{and}}\;\mathop {max}\limits_{{p_{s} }} \pi_{r} = \left( {p_{s} - w} \right)D_{s} . $$

Using backward induction, we obtain the equilibrium results of Case MI, as shown in Table 4. We compare the results of Case Y and Case MI. The results of the comparison between the cases are presented below.

Table 4 Equilibrium results of Case RI and Case MI
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Proposition 4

The retail price of the standardized and customized products and wholesale price of the standardized products in Case MI are greater than those in Case Y, that is, \(p_{s}^{MI*} > p_{s}^{Y*}\), \(p_{c}^{MI*} > p_{c}^{Y*} ,\;{\text{and}}\) \(w^{MI*} > w^{Y*}\).

This result implies that with manufacturer–customizer integration, the wholesale price of the standardized products and retail price of both types of products will increase, because the manufacturer may intentionally increase the wholesale price. Thus, the retail price of the standardized products will also increase. The high retail price of the standardized products may weaken their competitiveness in the market. As a result, the retail price of the customized products may also be increased to earn considerable profits.

Proposition 5

  1. i.

    The profits of the manufacturer in Case MI will be lower than those in Case Y if and only if t is sufficiently small, that is, \(\pi_{m}^{MI*} < \pi_{m}^{Y*} \) if and only if \(0 < t < t_{4}\).

  2. ii.

    The profits of the retailer in Case MI will be lower than those in Case Y if and only if t is sufficiently small, that is, \(\pi_{r}^{MI*} < \pi_{r}^{Y*}\) if and only if \(0 < t < t_{5}\).

  3. iii.

    The profits of the customizer in Case MI will be higher than those in Case Y if and only if t is sufficiently small, that is, \(\pi_{c}^{MI*} > \pi_{c}^{Y*} \) if and only if \(0 < t < t_{6}\).

This result implies that when the MC waiting time is sufficiently short, integration will decrease the profits of the manufacturer and retailer but increase the profits of the customizer. A possible reason for this outcome is that the standardized products will be at a competitive disadvantage, and the market demand for such products will decrease, so the integrated manufacturer will reduce its production of customized products. Meanwhile, the market demand for the customized products will increase, so the customizer can gain increased profits.

Corollary 2

Manufacturer–customizer integration (i.e., Case MI) will lead to a win–win–win outcome for the manufacturer, retailer, and customizer when \(2 - \sqrt 2 < \alpha < 1\) and \({\text{t}}\) is moderate, that is, when \(2 - \sqrt 2 < \alpha < 1\) and \({\text{t}}_{5} < {\text{t}} < {\text{t}}_{6}\), \(\pi_{m}^{MI*} > \pi_{m}^{Y*}\), \(\pi_{r}^{MI*} > \pi_{r}^{Y*} ,\) and \(\pi_{c}^{MI*} > \pi_{c}^{Y*}\).

When the probability of a product being of high quality is high and the waiting time is moderate, the customizer and manufacturer participating in manufacturer–customizer integration may obtain higher profits than when they are independent. Standardized and customized products are differentiated in terms of product quality. The manufacturer and customizer in the upstream supply chain are integrated to realize a win–win situation. The nonintegrated retailer will benefit from the change in the standardized products owing to product quality differentiation. Thus, ultimately, manufacturer–customizer integration can achieve an all-win outcome for all the supply chain members. Our results imply that Ralph Lauren should strategically postpone the delivery of customized products to consumers regardless of whether its on-demand colored polo shirts are completed in the store and consumers’ waiting time may be very short. Moreover, Ralph Lauren should provide more color choices to consumers, who can choose the dye color for their customized polo shirts. Thus, the probability of the product being of high quality will be high. In a supply chain in which the customizer is integrated with the manufacturer, the importance of the probability of a product being of high quality cannot be ignored. The manufacturer should work on improving consumer perception of the probability of a product being able to satisfy consumers as much as possible. In addition, managing the waiting time for MC products within a moderate range is necessary for the customizer.

When the MC waiting time is sufficiently short, the nature of the customized product to satisfy consumer demand will make it highly competitive. As the price of customized products is high, such products are highly profitable for the customizer. Standardized products are bound to be eclipsed by strong competitors, and the manufacturer and retailer will suffer. When the probability of a product being able to satisfy consumers is low, even when the MC waiting time is moderate, an all-win outcome will not be achieved. A possible reason for this outcome is that when consumers’ probability of obtaining a satisfactory product is low, though the MC waiting time is not very long, the consumers’ utility loss from the waiting time will be relatively large compared with that for a standardized product that can be obtained immediately. As a result, more consumers will buy the standardized product, which will be profitable for the manufacturer but detrimental to the customizer. As the retailer endures the high wholesale price dominated by the manufacturer, the profit margin will not be adequately large to compensate for the profits generated by the increased demand at this time, which will be unprofitable for the retailer.

6 Endogenous self-design fun

In recent years, more and more personalized customization that only focuses on the personal taste of consumers has appeared. The increasing number of customized products is allowing consumers to participate in product design and manufacturing. Consumers can design products as the designer and experience enjoyment through self-design. Compared with traditional mass customization, customization with self-design is free and more flexible in product function and design, which can enable consumers to enjoy a high degree of product satisfaction. Therefore, customization with self-design fun attracts consumers inject special needs into their unique preferences through self-design and create new selling points for mass customization. We propose that if the customizer invests substantially, then consumers can experience considerable self-design fun. The customizer can decide the level of self-design fun n, and its cost is \(\frac{1}{2}n^{2}\) (Guo et al., 2022). That is, a large n (\(n \ge 0\)) implies that consumers experience a high level of self-design fun, and the customizer pays a considerable amount of money. The utility that a consumer gets from a customized product follows \(U_{c} = q_{c} v - p_{c} - \beta t + n\).

With self-design fun, the market demand for the standardized and customized products is as follows:

$$ D_{s} = \frac{{p_{c} + \beta t - p_{s} - n}}{{\left( {1 - \alpha } \right)q}} - \frac{{p_{s} }}{\alpha q},\;{\text{and}}\;D_{c} = 1 - \frac{{p_{c} + \beta t - p_{s} - n}}{{\left( {1 - \alpha } \right)q}}. $$

We indicate the customizer’s profit function as \(\mathop {{\text{max}}}\limits_{{p_{c} ,n}} \pi_{c} = \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t} - \frac{{n^{2} }}{2}\) in Case Y and the total profit function of the retailer integrating with the customizer as \(\mathop {{\text{max}}}\limits_{{p_{s} ,p_{c} ,n}} \pi_{RI} = \left( {p_{s} - w} \right)D_{s} + \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t} - \frac{{n^{2} }}{2}\) in Case RI. In addition, we indicate the total profit function of the manufacturer integrating with the customizer as \(\mathop {{\text{max}}}\limits_{{w,p_{c} ,n}} \pi_{MI} = wD_{s} + \left( {p_{c} - c_{c} } \right)D_{c} - \frac{\mu }{t} - \frac{{n^{2} }}{2}\) in Case MI. The customizer maximizes its profits by determining \(n\) and the price of the customized products \(p_{c}\) simultaneously, and the other game sequences are consistent with those in the previous section.

Through backward induction, with endogenous self-design fun, the level of product quality \(q > \frac{1}{2 - 2\alpha }\) will ensure that the Hessian matrix is negatively definite in the three cases (i.e., Case Y, Case RI, and Case MI). This assumption is realistic, because the product quality should be adequately high; otherwise, the market demand may be negative. We show the equilibrium results of Case Y, Case RI, and Case MI in Table 5. With endogenous self-design fun, we compare the results of Case Y and Case RI and Case Y and Case MI. The main results with endogenous self-design fun are consistent with those in the previous section. Therefore, we omit them here.

Table 5 Equilibrium results of Case Y, Case RI, and Case MI with endogenous self-design fun decision
Full size table

Proposition 6

The customizer will invest less in self-design fun if it integrates with the retailer or manufacturer, but the level of self-design fun will be higher when the customizer integrates with the retailer than when the customizer integrates with the manufacturer, that is, \(n^{MI*} < n^{RI*} < n^{Y*}\).

This result implies that the level of self-design fun from purchasing MC products decreases with integration and is the lowest in manufacturer–customizer integration. A possible reason for this decrease in the level of self-design fun in integration is that first, an integrated supply chain is highly competitive. When the customizer integrates with the retailer or manufacturer, the competitive relationship between the two involved parties will be diminished. Second, for both involved members in the supply chain, setting high prices for high profits will become the guideline for their actions. As a result, the integrated customizer will not invest considerably in self-design fun.

The level of self-design fun from purchasing MC products when the customizer integrates with the retailer is higher than when the customizer integrates with the manufacturer. The intuition behind this finding is as follows: in retailer–customizer integration, the customizer and retailer sell both types of products directly to consumers and set a higher retail price than in the case in which they are not involved in the integration. In manufacturer–customizer integration, customized products will have a high retail price only when the MC waiting time is sufficiently short. If the MC waiting time is sufficiently long, then the price of the customized products will be low, because they will not be fully competitive. In retailer–customizer integration, the high retail price is undoubtedly a barrier for consumers to purchase customized products. The customizer should raise its investment in self-design fun and enhance the attractiveness of purchasing customized products through a high level of self-design fun. Compared with retailer–customizer integration, the customizer must also evaluate the MC waiting time when setting the retail price in manufacturer–customizer integration. Only when the MC waiting time is sufficiently short can customized products be relatively competitive. Thus, though the retail price will be high, investing considerable effort to improve the level of self-design fun from purchasing MC products will be worthwhile. Conversely, when the MC waiting time is sufficiently long, the customizer will not increase its investments to improve the level of self-design fun from purchasing MC products.

Proposition 7

With endogenous self-design fun, when the MC waiting time is sufficiently short, the retail price of the customized products will increase with integration, that is, \(0 < t < t_{7}\), and \(p_{c}^{Y*} \le \min \{ p_{c}^{MI*} ,p_{c}^{RI*} \}\), whereas when the MC waiting time is sufficiently large, the retail price of the customized products will increase in retailer–customizer integration but decrease in manufacturer–customizer integration, that is, \(t > t_{7}\), \(p_{c}^{RI*} > p_{c}^{Y*} > p_{c}^{MI*}\).

Proposition 7 implies that with endogenous self-design fun, in manufacturer–customizer integration, when the MC waiting time is sufficiently short, the retail price of customized products will increase with supply chain integration owing to their product competitiveness in the market. In addition, customized products can bring about self-design fun for consumers. Therefore, the customizer will become price dominant and increase the price to get increased benefits. When the MC waiting time is sufficiently long, the retail price of customized products will decrease with integration, and consumers will likely buy standardized products owing to the long MC waiting time. However, in retailer–customizer integration, the waiting time is not a factor affecting the price setting. Retailer–customizer integration weakens the competitive relationship between the retailer and customizer. As both sell products directly to consumers, the retailer and customizer will consistently raise retail prices to maximize their profits regardless of the length of the waiting time.

Corollary 3

When \(\left\{ {\begin{array}{l} { \frac{1}{2 - 2\alpha } < q < \frac{\sqrt 2 \alpha + 2 - 2\alpha }{{2\left( {\alpha^{2} - 4\alpha + 2} \right)}} } \\ {q \ge \frac{\sqrt 2 \alpha + 2 - 2\alpha }{{2\left( {\alpha^{2} - 4\alpha + 2} \right)}} \;{\text{and}}\; 2 - \sqrt 2 < \alpha < 1} \\ \end{array} } \right.,\) manufacturer–customizer integration will achieve a win–win–win outcome for the manufacturer, retailer, and customizer if \({\text{t}}\) is medium, that is, when \(\frac{1}{2 - 2\alpha } < q < \frac{\sqrt 2 \alpha + 2 - 2\alpha }{{2\left( {\alpha^{2} - 4\alpha + 2} \right)}}\) or \(q \ge \frac{\sqrt 2 \alpha + 2 - 2\alpha }{{2\left( {\alpha^{2} - 4\alpha + 2} \right)}}, \;{\text{and}}\; 2 - \sqrt 2 < \alpha < 1\) if \(t_{9} < t < t_{10}\), then \(\pi_{m}^{MI*} > \pi_{m}^{Y*}\), \(\pi_{r}^{MI*} > \pi_{r}^{Y*} ,\) and \(\pi_{c}^{MI*} > \pi_{c}^{Y*}\). Thus, retailer–customizer integration cannot realize a win–win–win outcome for the manufacturer, retailer, and customizer.

In contrast to Corollary 2, product quality that satisfies consumers becomes a factor to be considered. When the quality of the satisfactory product and waiting time are moderate, or when the quality of the satisfactory product and probability of the product being of high quality are sufficiently high and the waiting time is moderate, the three supply chain members (the manufacturer and customizer are involved in the integration) may gain higher profits through the integration and achieve a win–win–win outcome than in the case in which the customizer is not integrated with the manufacturer and retailer.

If the level of self-design fun is endogenous, then self-design fun can generate extra utility for the consumers, which can reduce their need for product quality. However, our results imply that customization can bring about self-design fun and prompt consumers to require product quality, because self-design fun is a special factor for consumers who devote their time to designing customized products and experiencing fun while expecting a product to be highly satisfying.

If consumers have high quality requirements for products they are satisfied with, then customized products are bound to fulfill them, and the additional utility that self-design can bring to consumers will make customized products highly attractive. For example, Samsung has realized the necessity for consumers to freely match their own tastes on refrigerators. Samsung’s Bespoke Refrigerator opens a personalized and unique design journey for consumers. Consumers need a certain waiting time to obtain their customized Bespoke Refrigerator after ordering. Samsung’s Bespoke Refrigerators are modular and come in a range of door color options, different number of refrigerator door types and refrigerator sizes (Menafn, 2022). Moreover, in the United States, Samsung’s Bespoke Refrigerators launched “Design an Original Fridge with MyBespoke Custom Panels”, which allows consumers to print their favorite panels on the refrigerator door (Samsung US, 2022). Samsung also provides a lot customization options of intelligent refrigerator technology based on the existing refrigeration preservation technology. The customized choices ensure sufficiently high product quality. However, standardized products have a high degree of uncertainty in satisfying consumers’ needs, so only when \(\alpha\) is sufficiently large (i.e., when the probability of a consumer receiving a satisfactory standardized product is high) will demanding consumers make a tradeoff between the effects of “the long waiting time but a satisfactory product” and “readily available but a potentially unsatisfactory product.”

With self-design fun, the realization of a win–win–win situation depends on the coordination of three factors: the probability of the standardized product being of high quality (\(\alpha\)), the quality of the product with which the consumer is satisfied (\(q\)), and the customization waiting time (\(t\)). The manufacturer and customizer should strive to avoid producing low-quality products. If consumers do not have a high standard for product quality, then the customizer must maintain the MC waiting time at a moderate level. However, if consumers have a high standard for product quality, in addition to a moderate MC waiting time, the probability of a product being of high quality should be increased as much as possible to satisfy demanding consumers and realize the profits of all supply chain members.

7 Conclusions, managerial insights, and future research directions

Motivated by actual MC practices, consumers can tailor their unique tastes into customized products. In the era of new technology boom, technology such as 3D printing, robotic manufacturing, and the Internet of things can shorten the time for manufacturing MC products, enhance consumers’ self-design fun, and improve channel integration connectivity. In this study, we consider a supply chain consisting of one standardized product manufacturer, one retailer who sells standardized products, and one customizer who sells customized products. The manufacturer produces and sells the standardized products through the retailer, and the customizer sells the customized products to consumers directly. The customizer can decide whether to integrate with the manufacturer (i.e., manufacturer–customizer integration) or with the retailer (i.e., retailer–customizer integration). We provide new perspectives on the impact of MC waiting time on supply chain integration. In addition, we find that manufacturer–customizer integration can achieve a win–win–win outcome for all three supply chain members, but retailer–customizer integration cannot achieve such an outcome. Our study highlights the effect of self-design fun on supply chain integration with MC. Furthermore, we find that integration reduces the customizer’s investment in the level of self-design fun. The main managerial insights into supply chain integration with MC are summarized in Table 6.

Table 6 Managerial insights into supply chain integration with MC
Full size table

Our study has several limitations. First, we consider a supply chain system in which the manufacturer sells standardized products through the retailer, and the customizer sells customized products to consumers directly. This setting is intentional, because it is consistent with actual industry practice. In future research, extending the supply chain network and considering that the manufacturer can also be the customizer may be interesting (Choi et al., 2019a, 2019b; Dong et al., 2019). Second, we deem demand to be deterministic for standardized products. The main reason for this setting is that we focus on examining pricing problems in the supply chain instead of inventory problems. In future research, evaluating the effect of demand uncertainty on the interaction between standardized and customized products in a supply chain may also be interesting (Shen et al., 2022c). Third, in future research, it would be interesting to incorporate emerging technologies such as blockchain into MC supply chain network (Cao & Shen, 2022; Shen et al., 2022a, 2022b, 2022c).