As demand for personalized products grows, businesses are turning to product configuration as a key strategy to differentiate themselves and boost customer satisfaction.
Businesses can increase market share, increase profitability, and maintain their competitiveness by providing customized solutions.
However, the shift to configurable products requires managing complex supply chains, forecasting, and flexible production workflows, all of which are crucial for success.
Digital tools play a big role in streamlining the product configuration process, ensuring that customers receive accurate pricing and efficient customization options.
Adopting product configuration not only enhances the customer experience but also drives business growth by adapting to evolving customer demands. But how can you adopt it and what are the benefits and downsides of this process?
Let’s find out.
What is Product Configuration?
Product configuration is the process of customizing a product or service to meet specific customer needs by allowing the selection and modification of various features or components.
Common across industries such as manufacturing, electronics, and eCommerce, product configuration empowers customers or sales representatives to create personalized solutions based on individual preferences or business requirements.
As manufacturing moves toward increased personalization, the traditional one-size-fits-all approach is becoming obsolete.
Customers now demand personalized products that match their lifestyles and business needs, pushing manufacturers to adapt.
Offering configurable products provides businesses with a competitive edge, driving customer loyalty, improving margins, and expanding market share. However, this shift presents challenges, such as forecasting, sourcing, and managing more flexible production workflows.
Digital transformation, especially with tools like configure-price-quote (CPQ) software, plays a big role in enabling businesses to manage product configuration efficiently.
CPQ systems streamline the customization process by guiding users through feature selection, dynamic pricing configurations, and simplifying complex product offerings.
Product Configuration Process: How It Works
Product configuration offers a structured, systematic approach to customizing a product or service based on specific requirements, preferences, or constraints.
Here’s how the process works:
Base Product or Service Selection
Users start by selecting a base product or service, which forms the foundation for further customization. This selection triggers various paths for additional option choices.
The base could be a physical product, such as a car model, or a service, like a maintenance request. Alternatively, the process might begin with a needs-based selection (e.g., “Additional Cloud Storage”) that configures a range of options for base products.
Presentation of Configuration Options
After selecting a base, users are presented with a range of configuration options, including features, specifications, or add-ons. These options allow users to tailor the product or service to their preferences.
The system might also use a decision tree to guide users through more specific, needs-based choices, such as capacity or performance options.
Rules and Constraints
The configuration process is governed by rules that ensure only compatible and feasible combinations are selected. These constraints prevent impractical or conflicting configurations, streamlining the decision-making process.
Price Calculation
As users make their selections, the system calculates the total cost in real time, providing transparent pricing.
In B2B scenarios, pricing may also factor in customer-specific information such as location, which influences shipping, logistics, or regional pricing.
Rebates or promotional incentives can also be applied as appropriate.
Order Generation
Once selections are finalized, the system generates an order or specification document. This document serves as a blueprint for manufacturing or delivering the customized product or service.
Integration with Business Processes
Advanced product configuration systems integrate with other business processes like inventory management, manufacturing, and CRM.
In some cases, an approval workflow is initiated, especially if the order requires internal review or negotiation with the customer. Streamlined approval processes, supported by digital or email mechanisms, ensure that the right information reaches decision-makers efficiently, improving quote accuracy and speed.
Types of Product Configurations
Product configurators come in various forms. These configurations vary based on customer involvement, component dependencies, and production processes:
STO (Select-to-Order):
In this type, customers choose from pre-configured, standard products available in inventory, without any additional customization.
Once a selection is made, the products are immediately ordered and shipped. This is ideal for products that don’t require modification and are ready for fulfillment.
PTO (Pick-to-Order):
Here, customers select individual components, but the responsibility for ensuring component compatibility lies with the customer. The configurator provides no guidance on dependencies between parts.
This basic system is often seen in eCommerce, where products are picked from inventory and may involve minor assembly before shipment.
CTO (Configure-to-Order):
This process allows customers to customize products by choosing from a set of related components, typically in a modular system. For example, when ordering a computer, a customer might select the processor, RAM, SSD, and other components.
This type of configuration is common in industries like contract manufacturing, where the final product is assembled based on customer specifications.
ATO (Assemble-to-Order):
A hybrid between make-to-stock and contract manufacturing, ATO involves pre-producing individual components based on forecasted demand.
Once an order is placed, the final product is assembled based on the customer’s specific requirements, considering any dependencies between components.
MTO (Make-to-Order):
In this type, production only begins after a customer places an order. Individual components may be stocked, but the final assembly or production occurs only when a specific order is received.
MTO is common in Industry 4.0 environments, where automation is used to manage complex production processes.
ETO (Engineer-to-Order):
The most complex configuration process, ETO involves designing and engineering products from scratch to meet unique customer requirements. This process may require the creation of new components, extensive engineering work, and custom manufacturing.
ETO configurators are often used for highly complex, innovative projects where customer involvement is crucial throughout the process.
Benefits of Using a Product Configuration Tool
Implementing a product configuration tool offers numerous advantages for organizations.
Key benefits include:
- Customization and Enhanced Customer Satisfaction
Product configuration allows customers to personalize products or services to match their needs and preferences. This customization leads to higher customer satisfaction, as they receive tailored solutions that perfectly align with their expectations.
- Competitive Advantage
In markets where product customization is critical, having a robust product configuration system can give companies a competitive edge. It enables businesses to differentiate themselves from competitors that may rely on more standardized offerings.
- Increased Efficiency and Streamlined Operations
A product configuration tool simplifies the ordering and manufacturing processes by guiding users through feature and specification selections. This minimizes errors, reduces lead times, and improves overall operational efficiency.
- Simplifying Complex Product Offerings
For businesses dealing with complex products, especially in the B2B space, product configuration simplifies the process. Customers can easily assemble products by choosing from selectable options, rather than wading through vast product catalogs.
This structure makes it easier for businesses to manage diverse product lines while ensuring a seamless customer experience.
- Faster Ideation and Product Development
Product configuration tools allow businesses to move quickly from product concept to visual proof of concept, and onto manufacturing. This accelerates innovation and speeds up the time-to-market for new, configured products.
- Capturing and Utilizing Expert Knowledge
A product configurator can embed and share expert knowledge across the organization. Even employees with limited technical skills can use the tool to offer optimized solutions to customers, ensuring consistent quality in product offerings.
- Accurate and Fast Quoting
Product configuration enables companies to generate faster, more accurate quotes by automating the configuration process. This improves pricing precision and ensures quotes are tailored to customer-specific requirements.
- Error-Free Orders and Optimal Specifications
Product configuration tools ensure order accuracy and minimize human mistakes by connecting manufacturing processes with automatic product specifications. Sales teams can offer the best possible product configurations and pricing based on individual customer needs.
- Adaptability to Market Changes
Product configuration tools provide the flexibility to quickly adapt to evolving market demands and trends. Businesses can introduce new features or product variations more efficiently, ensuring they remain responsive to customer needs and stay competitive in a fast-changing marketplace.
Challenges of Product Configuration
While product configuration offers the promise of increased revenue, stronger customer loyalty, and greater market share, it also presents several challenges that require forward-thinking innovation and strategic management:
- Technological Integration
Successful product configuration relies heavily on the integration of advanced technologies. From digital sales and design tools like CPQ (Configure, Price, Quote) systems to manufacturing solutions such as 3D printing, the right tech stack is essential to streamline the customization process. Ensuring seamless integration across these tools is important for maximizing efficiency.
- Cost Management
Balancing customization with affordability is a significant challenge. Customers appreciate personalized products but remain sensitive to price. Manufacturers must innovate in production techniques and identify supply chain efficiencies to offer customized options without inflating costs. Striking this balance is key to maintaining competitive pricing while delivering tailored solutions.
- Supply Chain Complexity
Offering configurable products adds complexity to the supply chain, requiring precise coordination and communication with suppliers. Manufacturers must ensure that materials are available at the right time while keeping inventory costs and lead times in check. Effective supply chain management is essential to avoid delays or disruptions in the production of custom products.
- Customer Engagement and Satisfaction
Engaging customers in the product configuration process demands a seamless and intuitive user experience. Configurators must be easy to use and clearly demonstrate the value of customized options.
Who Uses Product Configuration?
Product configuration is necessary for industries that deal with customizable or complex products and services. Key sectors include:
- Industrial Manufacturing
Companies that produce customizable goods for specific customer needs, such as capacity, horsepower, or safety specifications, use product configuration to manage a wide range of options effectively.
- Electronics Manufacturers
Businesses in this sector leverage product configuration to allow customers to choose specifications like storage, processing power, or durability within each product offering.
- Heavy Equipment and Automotive
Product configuration enables these industries to create tailored solutions, ranging from specific load requirements to simple customizations like color, providing customers with highly specific options.
- eCommerce
For businesses offering customizable products, product configuration enhances the online shopping experience, allowing customers to personalize their purchases.
- Service Providers
Industries such as telecommunications or cloud services use product configuration to tailor plans and services to customer preferences, ensuring personalized solutions.
- Construction and Engineering
These sectors utilize product configuration to manage the customization of structures or equipment, ensuring client specifications are met accurately and efficiently.
Product configuration is particularly valuable for B2B organizations, enabling them to offer customized solutions that meet customer demands while maintaining control over the range of available options.
It streamlines both the customer experience and the sales process, benefiting businesses focused on delivering personalized and complex offerings.
