Product customization creates differentiation which is key to a winning e-commerce product strategy
In our last blog post about minimum order quantities, we mentioned that product customization impacts MOQ if there are significant fixed costs in order to produce the customized goods.
In this article we will take a deeper look at different factors which impact cost.
1. Product Development / R&D
If you’re looking to make functional changes to an existing product, the supplier is going to need to invest time in understanding the implications of the required changes, adapting their designs, making samples, and then testing samples. Testing usually reveals a need for modifications. This cycle takes time and high-level human resources.
For example, when switching electrical components, the supplier needs to test the configuration of those components to ensure the product reaches the expected functionality and performance requirements. While some suppliers may not mention any upfront costs to do this work (though often there will be), the costs will still be reflected in the price you pay for the production units.
2. Tooling
In the case of hard plastic goods or electronics, the term ‘tooling’ often refers to plastic injection molding tools, unless otherwise specified. These are large pieces of steel or other hard metals which are precision machined with cavities in the shape of the parts they produce. The tolerances of this machining must be very precise since any irregularity will cause defective final products.
The materials and process to create these tools are quite expensive, so even tools for a small plastic part can cost thousands of US dollars each. The larger or more complex the component the higher the cost. No matter whether you own the tools, or the supplier retains ownership, you will pay for the cost of these tools., either on their own or included in the product’s unit price.
3. Certification
Different markets and products have different requirements for certification. Normally certification requirements relate to safety. For example, in the US, most electronics products that connect to a wall outlet have UL certification, which means that a UL certified laboratory tested the product according to the UL standards and the product met the requirements. CE certification is used in Europe for all kinds of products, not just electronics. Some factories get certifications for their commodity products which they sell to everyone, however if you are making significant customizations to an existing design the product will likely need a new certification, which can cost thousands of dollars.
