“Long Tail”

Chris Anderson popularized the term ‘long tail’ by pointing out the economic significance of the long tail in a typical power law (Pareto) graph. In the retail front, the usual business strategy is to maximize revenues by selling large number of a few select items. The long tail concept supports selling a few number of a large pool of items. It will collectively result in achieving a larger market share than that obtained through the traditional strategy. Customers will be delighted to see the vast variety of products available to them as well as the opportunity to demand the features that they like the most. For the company, it needs to modify its business and operational procedures to match with the customer requirements and facilitate the mass customization. Each product can be distinct and serves the purpose of the customer who ordered it. Let us look into the two companies that have utilized this strategy through the extensive use of Information Technology (IT).

Amazon is the prime example of a company that capitalized on the use of IT to reach the long tail. Unlike in brick and mortar bookstore where the shelf space is limited, Amazon can carry a vast amount of rare books. Its customers are everywhere and it does not have to worry about wasting the shelf space with books that are of less demand in the typical market. The use of technology made it possible for Amazon to develop a recommendation engine to compare its customers’ buying patterns and recommend a rare book that is most suitable for them. They also implement the concept of affiliate marketing whereby Amazon Associates can direct the web traffic to Amazon for a possible sale and earn a commission; all possible using the Information Technology.

Netflix is another company that exploits the long tail using IT. Customers are no more required to go out to a physical store to rent movies; instead they can sit at the comfort of their home and order movies or other video materials as needed. Netflix does not have to worry about the physical space for the inventory for obscure movies that a physical store never carry. It implements a recommendation engine to recommend to users based on their previous buying experience. Thus the technology can entice a customer to buy an obscure movie that he or she would not bother to check at a physical store.

I have not yet used Netflix to its full extent as I would like to do my video shopping in the ‘old fashioned’ way by going to Family Video. At the same time I wanted to support the Family video as it is reasonably priced and is the only video renting shop remaining in our town after the burst of Blockbuster. Within the next 10 years, I expect that the internet bandwidth will be so high that all of our cable and dish channels will be streamed live via internet to our smart televisions without any interruption. The Netflix or similar movie renting will continue to increase their market share and there are possibilities of Family Video and similar brick and mortar stores go out of business unless they change their business strategy. There will be room for more than Netflix in the new online market for video rentals. I believe Family Video and similar video rental companies might collaborate and start an online presence right away if they really want to survive.

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