Spoilt by choice? Understanding the effects of customization and variety increases on service performance: the role of service modularity

We empirically examine the effects of customization and variety increases on service and business performance and explore the role of service modularity. A survey was conducted using a sample of 692 service firms providing varying levels of customization. Using structural equation modelling (SEM), the results suggest that service modularity plays as critical a moderating role in supporting the mass customization - cost efficiency relationship in services as product modularity plays in manufacturing. Consequently, satisfactory cost and customer service performance are achieved by a mass customization approach in services. Also, expansion beyond a core service may not guarantee financial improvement, and firms should consider operational challenges and their capabilities to effectively implement a modular approach. In addition, customer service performance was found to be more dependent on the level of customization offered rather than the variety offered. We provide guidance and insights for researchers and industry managers on how to improve service-related business performance through understanding the roles of service customization, variety and modularity.