Online retailers can often make more money than their brick & mortar counterparts since there is unlimited space to sell products. Another critical factor is that products recommendations can encourage buyers to consider more. Books, videos, and music sales, where a wide range of products have benefited significantly from this approach.
Theorized by Wired magazine editor Chris Anderson, who turned the term into a book called “The Long Tail: Why the Future of Business is Selling Less of More” in 2006. The title refers to a graph showing that companies can sell fewer products in bulk rather than a large quantity sold to a small number of people.
Low-volume items spread out on the chart’s x-axis create a long tail strategy that generates more sales overall. Although a smaller quantity of each item is sold, there is a much greater variety for sale in the mass market.
Anderson says the long tail manifests itself at Google and eBay, which generate significant revenue from dealing with many customers. He also mentions blogs and wikis as a long-tail model, as more people than ever contribute editorial material.
What Is the Long Tail?
The long tail is a business strategy that enables companies to make significant profits. They do this by selling small quantities of difficult-to-find items to many customers, rather than simply selling large amounts of a small number of everyday objects.
The term was first coined in 2004 by Chris Anderson. Anderson argued that products with low demand or low sales volume could collectively create a market share that exceeds the relatively few current bestsellers but only if the store or channel of distribution is large enough.
Understanding the Long Tail Theory
Chris Anderson is a British-American writer and editor best known for his work for Wired magazine. In 2004, Anderson coined the term “long tail” after writing about the concept in which he was editor-in-chief. In 2006, Anderson also wrote The Long Tail: Why the Future of Business is Selling Less of More.
The long tail concept takes into account less popular products that are in less demand. Anderson argues that the profitability of these products could increase as consumers move away from conventional markets. This theory is supported by the growing number of online marketplaces, which facilitate competition for shelf space and traditional distribution channels and enable the sale of many products, particularly over the internet.
It is a strategy that allows companies to make significant profits from products that are hard to find.
Anderson found that less demand niche products or those that sell less in volume can potentially outperform top sellers as long as the distribution channel is large enough.
In short, it means that consumers divert their attention from the main market and focus on less popular products. However, the balance remains, as the overall demand for the items in question is even lower.
Research on the long tail effect shows that this demand for less common products could well compete with the demand for conventional products.
Look at the growing number of online marketplaces and the associated reduction in competition for limited shelf space. You can see that an almost infinite number of products can be sold over the internet, a massive market expansion. Research on the long tail effect shows that this demand for less common products could well compete with the need for conventional products.
While it is true that mainstream products on the market can get more visits through different distribution channels, the cost of acquisition is much higher and can ultimately detract from profits.
Compared to long-tail products, these stay on the market for more extended periods, have low distribution and production costs, and tend to be more available for sale.
What Does Long Tail Theory Mean in Marketing?
So what does a long tail mean from a marketing aspect? It means the strategy of using the least popular product (or service) in question to target many niche markets and is a method most used by companies that are leaders in their respective industries.
It sounds like a counterproductive course of action, especially if shifting your focus to multiple niche markets.
Still, when you combine the total sales of items it becomes a much more lucrative option. The internet is also really helping to promote this by recommending products on sites like Amazon that pique your interest.
This is an example of how long-tail marketing works. Amazon is an expert at capturing multiple niches and bringing them to customers. This form of marketing is quite familiar with these retailers because of the unlimited space. A typical store would have less room to display these less popular items, but an online business would not face these problems.
There is no competition for space, and thus it doesn’t cost a lot of money to keep inventory. Much of this is also because online stores often have central warehouses, minimizing multiple costs.
Digital retailers (think iTunes) have it even better because they don’t need any physical storage space; everything is digital. Therefore, they stand an even greater opportunity when it comes to long-tail products and related marketing.
In addition, the combination of marketing and theory allows you to expand your customer base and its diversity. Because no queue is made up of a single type of customer, but many different types. The longer the queue, the more diverse the accompanying customers.
It may seem like a significant risk at first, but more extensive and more varied inventory will bring in a more significant and more varied type of customer.
A brief example is the Chinese mobile phone manufacturers’ options to enter the foreign market through the long tail effect.
All it requires is to take the product abroad with the promise of quality, reliability, fast delivery, and low cost.
Who Implements Long Tail Marketing?
Online retailers such as Amazon and Netflix use long-tail marketing more effectively due to supply-side considerations in managing such inventory. A bookstore has a limited shelf space and must use a significant portion of that space to store enough of the most popular items to meet demand.
Less popular items compete for limited space, and greater variety increases the time and energy required to store and sort them.
In contrast, Amazon and Netflix store items in central warehouses while displaying them in a virtually unlimited retail space (their website), resulting in much lower shelf maintenance costs. Website maintenance comes at a cost but is much cheaper than physically sorting, storing, and maintaining the shelves. Sellers of digital products like iTunes or Amazon’s Kindle books don’t even need storage space, further reducing maintenance costs.
In addition to e-commerce, microfinance companies that make smaller loans to large groups of people worldwide also use the principles of long-tail marketing. A loan of less than $ 100 is enough to start a business in many places. These clients, who often do not have a secure credit rating, have long been ignored by traditional banks. Still, they now represent a significant market niche and essential economic growth in many world regions, including Africa and South Asia.
For What Kinds Of Customers Is Long Tail Marketing Effective?
The longtail marketing model allows a company to expand its diversity. By definition, a long tail does not consist of a single consumer segment but represents many different consumer segments. The longer the tail, the greater the variety of customers.
The variety of product offerings allows a company to attract more cultural groups (for example, by having more offers in their language or otherwise according to their tastes).
Additionally, it enables a business to reach more niche customers whose interests lie outside of core sales but who make purchases within their areas of interest. Meanwhile, online companies do not have the geographic limits physical stores have to reach customers without an internet connection.
How Is A Long Tail Marketing Campaign Developed?
To market long term, a business must first have/develop the ability to manage extensive inventory. Maintaining popular products cannot be ignored by a company looking to establish its long tail market.
The inability to offer the desired product to an interested customer misses the opportunity to sell.
Therefore, long tail development does not mean that many less popular products replace popular inventory, but rather that this inventory is supplemented. This is possible to a greater extent as inventory warehousing and distribution costs are reduced.
Electronic retailers that sell digital products have very low storage and distribution costs. Those who sell physical products develop efficient inventory management techniques to acquire, store, track, and ship inventory to consumers. Developing a tracking system is critical, as determining PAR (Ideal Inventory Levels).
The most important component in long-tail sales development is a search/catalog system that allows users to easily find products and obtain information about them.
To convert more inventory into sales, customers must quickly find the items. Therefore, the most critical component in long-tail sales development is a search/catalog system that allows users to find products and obtain information about them easily.
Each new product added to inventory must be added to the database by title and category. A series of descriptive search tags allow customers to find them in the online sales area.
Promoting consumer reviews is another way of providing information to interested customers, as is providing digital product previews.
A business can continue to use long-tail purchases with recommendation software. Easy access to information is essential to survive long-term competition with smaller niche providers who can offer greater knowledge.
But if done effectively, a single-seller website may be preferable for consumers than keeping track of multiple independent niche websites, each with different levels of service and reputation.
Benefits Of Long Tail To Your Business
Long Tail Profitability
Long-tail profitability is closely related to reduced marketing and distribution costs and the fact that a large part of the population is looking for niche items rather than conventional products. Take a look at the typical features of the long-tail:
Lower costs
This is the main point of the long tail business model. Today’s economy, particularly with the advent of the Internet, has made it possible to centralize warehouses instead of having large retail chains, reducing storage costs. If we think of online products that do not require a physical space (at most, a few servers if necessary), storage costs can be zero, as can distribution and logistics.
Fewer stores and fewer facilities mean fewer expenses, even when it comes to online products. What about marketing? First, web and mobile stores are capable of displaying large quantities of products. In addition, the company can invest money in advertising, knowing that this investment is aimed at the right audience.
Massive crowd contribution
We can think of Google as a community of people and organizations contributing to a large database to create and link content on the web. This is how consumers find what they are looking for.
Data Intelligence
Based on deep customer intelligence, the engines collect data to reinforce recommendations and product development.
Recommendation engines can offer undiscovered niche products tailored to customer preferences rather than providing the same hit articles to everyone.
This can be used, for example, when merchants recommend other purchases based on what the customer has bought. It also works well in terms of product development.
According to individual’s interests, producers and manufacturers can create products aimed at different niche target groups. This is why Amazon, for example, has launched its label and, like Netflix, has created new content.
Key Points
- Search, and recommendation engines have made it possible for consumers to search for specific items;
- You can find and access niche items wherever you are.
- Discover products you didn’t know existed;
- Reduction in the cost of inventory and logistical services;
- There’s less competition because of the company’s dispersed market presence
- In the current economic climate, online items are particularly useful
Final Word
Business models based on the long tail have shifted the economy in a significant way. Recently, blockbuster items have accounted for less than 50% of sales, signifying that long-tail products are gaining market share.
Just ask yourself from the start: Does my business take advantage of large and widespread distribution or focus on one particular subsection of the market?
