The Moderating Role of Submarket Dynamics on the Product Customization-Firm Survival Relationship

In this paper, we examine how the provision of product customization services affects firm survival. Integrating literatures on industry evolution, product-related adapting services, and entry deterrence, we hypothesize that the relationship between product customization-the costly modification of a product to cater to customer needs-and firm survival differs across industries, based on the extent of submarkets. We argue that in industries that feature submarkets more prominently, the positive association between product customization and firm survival is stronger for two conceptually distinct and empirically distinguishable mechanisms: customizing firms enter new submarkets and also deter potential entry. We conclude that offering product customization services has strategic benefits that sometimes outweigh the cost of coordinating with customers.