The Long Tail, death of the 80:20 rule

For many years marketers (and market researchers) have adhered to the conventional wisdom of the 80:20 rule, e.g. that 80% of profits come from 20% of customers, or 80% of revenue from 20% of products. But it could be that the Internet is changing that long established paradigm.

Since 2004 Chris Anderson, editor-in-chief of Wired Magazine, has been advancing the Long Tail proposition, and Anderson has now published his ideas in a book (The Long Tail, published by Hyperion).

Anderson has looked at the way that reduced production costs (often through outsourcing), reduced distribution costs, and most importantly the endless shelves of online retailing are shifting the focus away from one-size-fits-all products towards niche products.

As an example of the Internet creating the long tail Anderson quotes Robbie Van Adib (an ex-CEO of Ecast, a digital juke box company offering more than 150,000 tracks). Van Adib asked the question “What percentage of the top 10,000 titles in any online media store will rent or sell at least once a month?”. Evidently most people guess 20%, based on the conventional 80:20 thinking. The true answer is 99%, showing how long the tail of demand truly is.

Anderson uses Wal-Mart to illustrate the difference between a large conventional store and the endless online store. Wal-Mart needs a CD to sell 100,000 copies before it makes sufficient profit. If a CD is unlikely to hit that figure it won’t be stocked, disenfranchising the 50,000 who might want one CD and the 60,000 who might want another. By contrast www.rhapsody.com stocks over 2million tracks and its top 400,000 are each being streamed at least once a month – that is a long tail.

Another example Anderson quotes is Barnes and Noble (a major US bookstore) and Amazon. Barnes and Noble stock a truly impressive 130,000 titles. But Amazon finds that over 50% its sales come from books outside its top 130,000 titles.

The concept of the long tail raises some interesting and challenging questions about market research. In classic market research we ask closed questions to a sample of 200 – 1000 people. Our questionnaires and techniques are not well suited to explore 100s, 1000s, or even millions of options. Much of classical research is firmly locked into the 80:20 rule. Procedures such as TURF are designed to find out which 4 flavours from a list 8 a brand should offer – this is fundamentally inappropriate from researching the long tail.

Researching long tails will depend on massive sample sizes, ridiculously low costs, and integration with CRM and marketing. This raises the question whether the research industry will develop these approaches or leave it to other business sectors?

For more information you can visit Anderson’s website at www.thelongtail.com.

Comments

[panasianbiz.com]

I have been coming across so many mentions of Chris Anderson's book that I feel remiss in not having picked up a copy already so I can better join into these fascinating discussions. I will remedy this promptly!