The value of introducing customer‐to‐manufacturer model by the online retailer

Abstract An increasing number of online retailers are introducing customer‐to‐manufacturer (C2M) models to offer consumers customized products in addition to standard products. Customized products can satisfy consumers’ aesthetic preferences that are unmet by current products. Thus, companies can minimize their misfit costs. Given the trend of this emerging online retail model, this study analytically explores whether and how the introduction of the C2M model affects firms’ profits, consumer surplus, and social welfare. Our analyses reveal that the introduction of the C2M model always benefits the retailer; moreover, under certain conditions, a win‐win situation occurs among the retailer, the incumbent manufacturer, and the new manufacturer. Further, the introduction of the C2M model can increase or decrease consumer surplus and foster or hinder social welfare growth, depending on the customization cost and consumers’ misfit costs.