What is Product Configuration? 

Product configuration is the process of offering options to customize a product or service to meet specific customer needs. This involves choosing from various features or components to create a personalized solution, and is common in many kinds of B2B transactions, outside of highly commoditized products.  

In business, product configuration is important for several reasons. It allows the customer to select a product and the exact specifications that will solve their need and improve their satisfaction. On the seller’s side, it offers those companies a competitive advantage in customer retention, plus efficiency, operational streamlining, simplicity in complex product offerings, and adaptability to market changes.  

Product configuration systems often employ dynamic pricing software that can simplify the customization process by guiding users through the selection of features.  Implementing product configuration helps businesses:  

  • Improve customer satisfaction 
  • Reduce lead times  
  • Enhance operational efficiency  
  • Manage the complexity of offering a diverse range of customizable products, within reasonable guardrails 

The product configuration process can be crucial for meeting customer expectations, and in remaining competitive, optimizing operations, managing complexity, and adapting to ever-shifting market conditions. It’s a key element of ongoing business success.  

Who is Product Configuration Relevant For? 

Product configuration is crucial for various industries, particularly those dealing with customizable or intricate products and services.

This includes: 

  • Industrial manufacturing companies – groups that produce customizable goods to meet the specific requirements for a customer’s manufacturing facility such as capacity, horsepower, or environmental and safety specifications; and product configuration helps manage those diverse sets of options  
  • Electronics manufacturers– groups that utilize produce configuration to choose specifications within each product offering, such as storage, processing power, or durability 
  • Heavy equipment and automotive sectors– businesses that use product configuration to create tailored solutions with specific features, which can be as complicated as specific load needs or as simple as the color 
  • eCommerce– businesses offering customizable products that use product configuration for a unique shopping experience  
  • Service providers – groups that use product configuration to tailor plans based on customer needs (such as in telecommunications or cloud services) 
  • Construction or engineering – organizations that use product configuration to manage customization of structures or equipment based on client specifications 

The process is valuable to B2B organizations because it means business can provide customized solutions to meet their customers’ demands, while staying within specified ranges of options. Organizations focusing on customization, complex offerings, and diverse customer needs benefit from product configuration, by streamlining the customer experience and commercial process.  

Product Configuration Process: How It Works 

Product configuration management is an expansion of the C in CPQ (Configure – Price – Quote), where the configure aspect typically refers to a simple quote configuration. Product configuration builds upon the principles of quote configuration works by providing a structured and systematic approach to customize a product or service based on specific requirements, preferences, or constraints. The process typically involves: 

  1. Users select a base product or service
    The base selection serves as the foundation for customization, and that selection kicks one of multiple paths of option selection. This could be a physical product, such as a tractor model or a service like a maintenance request. Additionally, users could start with a needs-based selection, such as “Additional Cloud Storage,” which would then configure a range of options of base products.    
  1. Configuration options are presented
    After the base selection is made, range of configuration options, including features, specifications, or add-ons that can be selected or deselected based on their preferences. Or a decision tree could present other needs-based options, such as capacity-based options.    
  1. Rules and constraints guide the process
    These rules help prevent the selection of combinations that may lead to conflicts or impractical configurations, instead ensuring what’s selected is compatible and feasible.  
  1. Price calculation creates transparency
    The product configuration tallies the total cost as users make selections, which helps to create transparency in pricing that is essential for all involved parties. In the B2B space, this is often related to other customer information, such as the customer’s location, which will only present prices related to the seller’s region or business unit. This can be critical when factoring in freight and logistics costs, or potential to apply any rebate or promotional incentives.    
  1. Order generation occurs
    The system generates an order or specification document with the chosen options that acts as a blueprint for manufacturing or delivering the agreed-to options.    
  1. Integration with business processes
    More effective product configuration systems integrate with other business processes, such as inventory management, manufacturing, and customer relationship management. Depending on your business process, an approval workflow will be initiated ahead of the order generation. Especially if the order requires additional internal review and price negotiation with the customer. Advanced approval workflows can dramatically improve quote efficiency, by giving those in the approval team the right information at the right time, with various digital or email approval mechanisms.    

Product configuration involves guiding users through the selection of options, which ensures compatibility, helps with calculating accurate prices through robust pricing tools, and generates accurate orders. This helps to deliver profit optimization to the organizations offering product configuration, as well as a customized product or service to customers that meets their unique needs.  

Configuration Process Types 

The product configuration process involves various types based on complexity, customization, and the products or services involved. Four of the most common types include: 

  • Rules-based configuration – involves a set of predefined rules and constraints that govern the customization options that are available to users 
  • Knowledge-based configuration – involves a knowledge base that stores data about relationships between features, components and constraints for better decision-making 
  • Constraint-based configuration – focuses on defining constraints that restrict possible combinations or features, like technical limitations, cost constraints, or incompatibility 
  • “Intelligent” configuration – Intelligence CPQ utilizes behavioral modeling to understand the client’s purchase patterns, needs, and pricing expectations, comparing them with other similar customers, and recommends options and delivers a price built around what that customer is willing-to-pay for a configure product package.  

Product configuration processes provide businesses with flexibility to adapt to shifting situations and customers’ needs, including different industries, product complexities, and customization requirements.  

What customers choose depends on many factors, including the nature of the products involved, their level of customization, and their specific business objectives.  

Technology Solutions for Product Configuration 

CPQ tools, either presented internally to the sales teams, or externally with customer portals, are the most common technological solutions for product configuration. But most CPQ tools are rather simplistic in their capability to choose configurable options, as they primarily focus on straightforward quote configuration. One example would be a customer that needs five off-the-shelf products, at a certain price.  

More advanced tools now combine some or all of the process types mentioned above to efficiently produce product configurations. This is done by walking the internal or external audience through the steps to achieve a “customer” product designed around their exact specifications. In scenarios where a customer already knows what they want and does not have the time to walk through a standard process, an upload option is given. In these cases, CPQ systems may allow the users to upload an order request, either PDF or Excel-based, that includes those specifications, thereby removing the configuration process and getting to the quote as quickly as possible.  

Other non-CPQ new systems have also emerged to focus on highly complex configurations, where advanced logic and behavioral models are employed to sift through a wide range of options in a very efficient manner. Most focus only on the configuration aspect and are embedded into CPQ or other ordering tools, leaving the pricing, approval, and quoting functions to the other system.  

Top Benefits of Using a Product Configuration Tool 

There are many benefits involved in product configuration for the organizations that employ such strategies. Implementing a product configuration tool can lead to: 

  • Customization and customer satisfaction 
    Product configuration allows customers to tailor a product or service to their specific needs and preferences. This level of customization enhances customer satisfaction by providing them with a solution that precisely aligns with their requirements.  
  • Competitive advantages 
    In industries where products are highly customizable, offering robust product configuration options can provide a competitive edge. It allows companies to stand out and stay ahead of competitors that may offer more standardized solutions.  
  • Efficiency and operational streamlining 
    Product configuration systems streamline the ordering and manufacturing processes by guiding users through the selection of features and specifications. This helps to minimize errors, reduce lead times, and improve overall operational efficiency. 
  • Support for complex product offerings 
    Managing complexity can be challenging for businesses that deal with a wide range of products and options. Product configuration provides a structure approach to assembling components, making it easier for businesses to handle diverse product lines.   
  • Adaptability to market changes 
    Product configuration allows companies to quickly adapt and introduce new features or options as market demands and trends evolve. This flexibility enables businesses to stay responsive to changing customer needs and preferences.  

In essence, product configuration is crucial for meeting customer expectations, staying competitive in an ever-changing business environment, optimizing operations, managing complexity, and adapting to dynamic market conditions.  

Having the right tool or expert to guide you through the product configuration process is crucial to seeing the results your organization needs. You don’t need to tackle this process alone. For help with how your company can tackle product configuration, revenue management, or other related business needs, reach out to a Vendavo expert today.  

Frequently Asked Questions (FAQ) 

What is product configuration? 

Product configuration is the process of customizing a product or service to meet specific customer needs. This involves choosing from various features or components to create a personalized solution, and is commonly involved in industries like automotive, electronics, manufacturing, and software, among others.  

How does product configuration work? 

The product configuration process works by selecting a base product, then choosing from a list of configuration options such as features, specifications, or add-ons. Rules and constraints guide the process to ensure every selected option works in tandem. Price calculations are created based on selected options, and an order is generated. This entire process can be integrated with the rest of your business process to work well with inventory management, manufacturing, and customer relationship management, among other options.  

What are the best technology solutions for product configuration? 

CPQ and product configuration tools are best suited for this process, as many of them are built around the evolving complexities of today’s marketplace. Most of these tools are specific to certain industries and types of businesses, and it is recommended to include a vendor’s industry experience when evaluating potential options.  

What are the benefits of using a product configuration tool? 

The benefits of using a product configuration tool include customization, customer satisfaction, competitive advantages, efficiency and operational streamlining, support for complex product offerings, and adaptability to market changes.