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Posts Tagged ‘80-20 rule’

Having myself dug through at least 30 companies traffic and sales data over the last decade I agree with these Wharton researchers.

The Wharton researchers also disagree with Anderson’s theory and its implicit challenge to the Pareto principle, or so-called 80-20 rule, which in this case would state that 20% of the movie titles generate 80% of sales. Anderson argues that as demand shifts down the tail, the effect would diminish. Using Netflix data, Netessine and Tan show the opposite — an even stronger effect, with demand for the top 20% of movies increasing from 86% in 2000 to 90% in 2005.

The most overlooked part of the long tail is that it typically only applies to “power users”.  The researchers correctly note that even though retailers and media companies can offer endless digital goods, they actually need to find a way to introduce consumers to the long tail goods.  And new users/new consumers/new customers typically gravitate/are pushed into the top shelf items (yet again keeping the Pareto principle alive and well).

The Wharton researchers find that the Long Tail effect holds true in some cases, but when factoring in expanding product variety and consumer demand, mass appeal products retain their importance. The researchers argue that new movies appear so fast that consumers do not have time to discover them, and that niche movies are not any more well-liked than hits.

According to Netessine, the Long Tail effect may be present in some cases, but few companies operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings in a rapidly expanding marketplace. Companies, they add, must also consider the time it takes for consumers to locate off-beat items they may want.

What’s more damning than all these reports and books is actually trying to run a business on the long tail.   I have a lot of experience in trying to do this from search engines to video sites to offline and online retail – the long tail isn’t viable to most businesses.  Consumers just don’t consume that way and products (digital or otherwise) aren’t all created equal (hits are hits for a reason…)

The Long Tail is a powerful marketing message.  It helps start ups justify ridiculous valuations. It helps search engines entice niche advertisers.   It speaks to power users who want to think they are cool.   It’s very much like what happens on Wall Street – economists and financial wizards invent a theory that SELLS their product or service.  These concepts are wrapped up as theory to legitimize them but in the end they are just a sales tactics.  A more advanced version of One Minute Millionaire type books (“buy this book and you can make a million dollars!… for me!)

Anderson did make some of these points in his original article.  He suggests that companies that are long tail and hit sales seem to be best.

By contrast, the success of Netflix, Amazon, and the commercial music services shows that you need both ends of the curve. Their huge libraries of less-mainstream fare set them apart, but hits still matter in attracting consumers in the first place. Great Long Tail businesses can then guide consumers further afield by following the contours of their likes and dislikes, easing their exploration of the unknown.

Let’s be clear though.  LONG TAIL doesn’t exist as a physical reality.  Consumers behave.  Retailers attempt to shape the behavior. … it’s about attending to various consumer behavior sets: the power users vs. new consumers vs. casual consumers.   If you only attend to power consumers  it’s hard to grow big enough to be a mass market leader (if that’s your goal).   If you focus only on hits and new consumers, you’ll never gain long term traction.  It’s pretty obvious why… the hits drive general consumer knowledge.  the long tail products have to be uncovered slowly.  Most media impressions go to hits (so the mass marketing is geared towards hits) because of the positive ROI against media spends.  The hits marketing is arbitraged into long tail products. and so on.  (for data proof just go look at the advertising spend globally…)

“Such is the power myth of the Long Tail. Its time has come gone.”

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