Idea 30 - The long tail (50 Management ideas you really need to know)



Idea 30 -  The long tail

The Internet changes everything, they used to say in the 1990s. That was just before they discovered that it didn't. But it changes quite a lot of things and one of them - according to the long tail theory - is the ability, over time, to make money out of very small niches.

There was a time when the profitable niche was commonplace, but the age of mass production and mass marketing has crowded it out, most notably in consumer markets. Consolidation has produced powerful retailers. They choose to stock only those items that sell in large numbers, and have reduced the variety of their ranges accordingly. Many small producers have fallen by the wayside in the process.

This phenomenon has been especially visible in the media and entertainment industries - in book and music publishing and in film production. We live in the world of the bestseller, the blockbuster, the hit. The argument of the long tail is that, in an Internet world, niche products can not only survive but their cumulative sales can equal or even surpass those of the hits.

The man who put the long tail on the map was Chris Anderson, editor-in- chief of wired magazine. In 2004, he fleshed out the idea in an article, subsequently worked up into a book. Both were called The Long Tail and both kicked off with a story about how touching the Void, a book on mountain climbing, became a bestseller ten long years after it was first published. The reason was a spiralling wave of recommendations on Amazon.com, prompted by the recent publication of a similar book. This was not merely an attractive feature of online bookselling, Anderson wrote, but 'an example of an entirely new economic model for the media and entertainment industries, one that is just beginning to show its power'.

Amazon had carried out two useful functions here. One was that it helped to circulate information about the book and the other, even more important, was that it actually stocked it. For a physical book store, shelf space is at a premium, so the tendency is only to stock sure things. As a virtual book store, Amazon can afford to have a vast warehouse in the middle of nowhere, carrying many more titles than the shop in the high street. Add in digital books (or albums) and the stock capacity soars.

The 98% rule This has a marked effect on the pattern of its sales. A team led by Massachusetts Institute of Technology professor Erik Brynjolfsson looked at the relationship between Amazon sales and Amazon sales ranking, and found that a large proportion of sales came from books that were simply not available in traditional bookshops.

Anderson tells another story, about Ecast, which operates digital touch screen jukeboxes in bars and clubs across America. What percentage of its 10,000 albums 'sells' a track at least once a quarter? The smart answer is 20%, if you believe in the 80:20 rule. The correct answer is 98%. Anderson maintains that this '98 percent rule' applies within a few percentage points to sales by other online merchants including Amazon, music retailer iTunes and Netflix, which rents out movies. In a world of instant access, consumers will look at almost everything. For students of marketing's four Ps this sheds new light on the 'place' proposition.
The extended, flattish element is known as a power-law tail, a Pareto tail (after Pareto's 80:20 rule) or a long tail. The hits, clustered on the left in what Anderson calls the short head, get a lot of downloads in the brief summer of their popularity. The tail, on the other hand, can stretch to hundreds of thousands of products; enjoying lower-frequency downloads year after year - if merchants choose to stock them. It may even eventually, rival the head in value.
Anderson says there are two big principles to remember when creating a thriving long-tail business:

·         Make everything available
·         Help people find it
He claims that the benefits of the long tail apply to many industries other than media and entertainment, and he quotes the example of Lego, the Danish toy manufacturer. Traditional toy stores typically stock a few dozen Lego products, with their interlocking plastic bricks. Lego's mail order business, increasingly organized around the Web, stocks nearly 1,000. And only a few of the products on its top-sellers list are available in the stores. Children can design their own products, which are then posted on the website for others to buy.

There is even a long tail of kitchen mixers, courtesy of KitchenAid. Stores usually stock three colours of KitchenAid mixer - black, white and one other colour that is often exclusive to the store. Though it can provide over 50 colours, retailers are conservative in their choice, so that each year only six or seven colours in all are available in the traditional marketplace. But the company now offers all its colours online and, because a long tail appears, they all sell well. In 2005, the top-selling colour was one that is not available in any store - tangerine.

Reference: 50 Management Ideas You Really Need to Know

Book by Edward Russell-Walling

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