diseconomies of scale

Custom Products

Companies such as Custom Made are likely to do extremely well in the coming years.  The consumer movement towards craft and customized products is not just a recent fad, as it might be easy to claim, but a long term economic trend that will likely continue and increase in the future.  For a long time, the advantages of economies of scale have outweighed the disadvantages, and we have seen a trend towards larger retail and manufacturing companies and more homogenized products.  Yet no two consumers are perfectly alike and, as such, should have unique wants and preferences that more homogenized products will not be able to meet perfectly.

It is the price then, not the product, that has really allowed large manufacturing and retail companies to flourish and they have been doing so almost unabated since the industrial revolution.  Yet as incomes rise, the relative price of a product starts to matter less than how closely it matches the preferences of individual consumers.  This can create market pressure towards more unique, customized products and the type of company that can meet this demand.  

Historically, this has been small retain or craft companies that operate in local or niche markets.  These companies aren’t going to disappear and will probably experience some growth as rising incomes allow more and more people to shop for the more unique products they offer.  But the true potential for growth lies with the companies that are able to take advantage of economies of scale while offering highly customized, individualized products.  This may come in the form of smaller companies sharing distribution networks or buying materials together for discounted rates, or it may come from larger firms that let individual craftsmen used shared workshops and equipment to reduce prices while maintaining heterogeneity in their products.  Either way though, the future belongs to the custom makers.