The long tail phenomenon is a key economic concept that describes the tendency of businesses to focus on selling large volumes of popular items, while neglecting smaller, less popular items. This results in a situation where the total revenue from sales of these less popular items (the “tail”) can actually exceed the revenue from sales of the more popular items (the “head”).
The term “long tail” was first coined by Chris Anderson in an 2004 article in Wired magazine, in which he argued that the growing accessibility of information and technology was giving rise to a new economic model where businesses could succeed by catering to niche audiences.
Since then, the long tail phenomenon has been widely discussed and applied to various business models, including e-commerce, media, and even healthcare.
There are a few key factors that contribute to the long tail phenomenon:
– Economics: The marginal cost of production and distribution is often much lower for less popular items than for more popular items. This makes it easier and more profitable for businesses to sell these items.
– Technology: Advances in technology have made it easier to produce and distribute less popular items. For example, the advent of digital printing has made it possible to print small quantities of books at relatively low costs.
– Customer behavior: Customers are increasingly willing to purchase less popular items online, thanks to the increased availability of information and reviews.
The long tail phenomenon can have a significant impact on business models and strategies. Businesses that are able to effectively capitalize on the long tail can enjoy increased profits and market share.
The Long Tail is a marketing technique in which a large number of items are sold, but each one has a relatively small quantity. Chris Anderson popularized the term “long tail” in his Wired article, which described how this approach was used by firms such as Amazon.com.
The long tail strategy is often used by firms which operate in markets with low marginal costs. This is because such firms are able to sell a large number of goods at a low price per unit, and still make a profit. In other words, the revenue earned from selling a large quantity of goods outweighs the opportunity cost of not selling them.
This strategy can be contrasted with the more traditional “head” strategy, which involves selling a small selection of goods in large quantities. The head strategy is often used in markets with high marginal costs, as firms are only able to sell a limited number of goods at a high price per unit. In this case, the opportunity cost of not selling all the goods is higher than the revenue earned from selling them.
The long tail strategy has proved to be successful for many firms, as it allows them to reach a wider range of consumers. Moreover, it is often easier and cheaper to implement than the head strategy. However, there are some drawbacks to this strategy, such as the difficulty of managing a large inventory and the risk of over-investing in low-selling items. Overall, the long tail strategy is a viable option for firms operating in markets with low marginal costs.
The World these days is moving from mass marketing to individual service, from a focus on common products to the popularity of one-of-a-kind and customized goods. This idea is encapsulated in Long Tail theory, which explains why revenue from a large number of items that are out of the top positions outweighs considerably that generated by a short list of “hits.”
There are two key factors that play major role in developing the Long Tail effect: technological advances in production and distribution (due to which marginal cost of production close to zero) and changes in consumer behavior (when customers are willing to buy less popular items).
The first one results in a larger variety of goods being available on the market. With 3D printing, for example, it became possible to produce unique items in small batches at a low cost. The second factor is related to the changes in customers’ preferences. In the past, people had to choose from a limited number of options that were available in stores near them. Nowadays with access to the Internet people can find anything they want with just a few clicks.
Even though the Long Tail effect exists for quite a while, only recently it started having a significant impact on business models and Economics as a whole. It allows businesses to focus on niche markets and serve smaller groups of consumers who are willing to pay more for a personalized product or service.
The Long Tail is not just about niche products, it’s also about the way we consume media and make decisions. With the increasing popularity of streaming services like Netflix and Spotify, we are seeing a shift from mainstream content to more niche and personalized options. And with the rise of AI, we are starting to see tailoring in our everyday lives, from the ads we see to the music recommendations we get.
Sellers of all kinds no longer have to limit themselves to a physical space because they are operating in a virtual world. They don’t rely on local clients or restricted distribution networks, either. As a result, companies may now disregard the need for “to put goods and consumers into one-size-fits-all boxes,” as Anderson puts it (2006). E-commerce organizations must expand their lists of offers endlessly in order to be more successful; narrowly targeted items nowadays earn the same amount as popular products.
It is called “the long tail”, because if one eliminates the most popular items that constitute only a small section at the head of the demand curve, there is a long, thin line extending to the left. And this line represents a huge number of items that collectively make up significant portion of total sales (Anderson, 2006).
The economics of long tail are very different from those of traditional businesses. For example, while it costs almost as much to carry one more unit of an item in inventory as last one, cost of offering one more title in digital form is effectively zero. Thus, marginal cost for long tail products is close to zero, which lets organizations to offer them without any inventory carrying costs and without any need to forecast demand (Anderson, 2006).