The Long Tail: Democratize Production Digital Marketing Group A Andrea Arenas Estevam Sa da Bandeira Hugo Latorre Leticia Salama Matthias Holland-Cunz Natalie Jadalla Paola Martinez Tomas Junquera
BENEFITS OF DEMOCRATIZING PRODUCTION Transferring the production to customers may achieve a reduction on the cost of training, security, operating system and database
A new Business Model
Before: Pareto Principle
“80% of your sales come from 20% of your products”
Vilfredo Pareto
Id & focus on those products to reduce Stock
Limiting the extension of
supply
Don't just "work smart", work
smart on the right things
After: The Long Tail Strategy
The group that purchases a large number of "non-hit" items is the demographic called the Long
Chris Anderson
Selling small volumes of hard-to-find items
Increasing the supply of SKU
Reducing the focus on popular
items: less profitable
Businesses in which the number of items available is much higher
to their offline equivalents to their offline equivalents
Music Store & Distribution Business
Virgin Megastore ITunes Online Store
Customer seeking unlimited offer
The lack of shelf space in iTunes allows for the offer of thousands more titles and also more obscure ones at a better price.
Product Portfolio Storage & operating cost
Prices Amount of SKU`s
Convenience & Information
Prices
iTunes vs. Virgin Megastore The lack of shelf space in iTunes allows for the offer of thousands more titles and also more obscure ones.
Used-Car Business
Crowd sourcing:Cheaper and better
CarMax Store Carmax Online Store
The consumer experiences limitations when purchasing cars at the physical lot such as higher
prices & limited product availability
Product Portfolio Prices Barriers of distance
PricesProduct Availability
Information
Carmax (online) vs. physical Carmax stores and other physical car dealers: With Carmax online the consumer can view the stats, photos of cars, and availability of different cars in a particular store. If you see a car in a store in another state and want it, you can request it to be delivered to your nearest store, where you can test drive it and see it in person. Carmax online allows for their entire U.S. inventory to be available to anyone in any state. Therefore, the consumer is not limited to the cars in the physical lot…
Auction and Shopping Business
Make everything available
Traditional Bazaar eBay Online Store
eBay combines all available inventories from different location points reducing physical limitations.
Prices Global Presence Supply and Reviews
ConvenienceTry product before buying
Traditional way of shopping
eBay vs. Bazaar: On eBay for the same reasons as iTunes, the availability of products is much larger than a physical bazaar or street fair that also holds varied products. Just like carmax.com it combines all available inventories from different location points. There are no physical limitations.
Travel Business
One size does not fit all
Travel Agency Atrapalo.com
The results in atrapalo is unbiased, immediate, and in greater quantity.
Valuable Offers
Personalized Advice
Economies of Scale
Customization of Trips
Professional Advice
Non customized package offers
Atrapalo.com vs. regular travel agencies: Atrapalo automatically searches for the cheapest tickets according to your requirements (dates, location, etc…). It gathers info from all airlines and gives you all results for comparative purposes. In a physical travel agency, the results are for some reason always less, this might have to do with the programs used by the agent or purely the agent‘s willingness to help. Since there is no human element in getting the results in atrapalo, these are unbiased, immediate, and in greater quantity.
Book Distribution Business
Hit products versus niche products
Barnes & Noble Amazon.com
Inventory Space
Global Inventory High Demand Products
Niche StrategyOffers New and Old Books
High Volume Focus
A niche strategy could help to avoid price battles and focus on high profit products.
Amazon.com vs. Barnes & Noble: Amazon is the eBay of books and because of the reasons cited in eBay’s case, it is also able to offer more titles than a physical book store such as Barnes & Noble.
Why did these businesses not exist 10 years ago?
Paradox: Less time to spare but more interests to pursue
Technology was not available Faster processes wanted along with convenience
Increased usage of credit cards
Why did these businesses not exist 10 years ago? Simply because the technology was not available, the platforms were not there. As we continued to move towards a more globalized society in terms of trade, aided by the evolution of the internet, it was only natural that we began to trade online. With the end of physical storage limitations and the increased usage of credit cards, trade could be conducted across any place on the globe. As we became accustomed to this new way of purchasing, it has become and still continues to become each time more main stream. Time is each time more scarce, which leads to consumers wanting fast and easy processes. However, at the same time the increase in leisure interests has led retailers to take advantage of the online potential in offering a greater quantity of products to satisfy ever changing and multiple consumer wants.
Key benefits of the abundance of supply La
rge
Vol
ume
Item
s
Price Battle
Profitability
Capable with online distribution and retail:
+ Real-time information available+ Practically no storage and distribution costs+ No physical limitation (unlimited shelf space)= Possibility of lowering the prices
Low Volume Items
Higher amount of options to satisfy specific needs
Mass Customization Multiple Taxonomies = Higher profitability
Opportunities for Non-Famous Artists è Cultural Diversity
Capable with online distribution and retail. Ease of access to the Long Tail sheer size: Higher amount of options for customers which generates satisfying demand. Offering of mass customization. Opportunity to discover new markets and expanded in existing ones Possibility of lowering the prices Multiple taxonomies= classified within genre by genre (recent music/pop music) or offered in different forms (track by track or the whole CD), It attends all niches at the same time.
Who produces these articles: professionals or other users?What are the implications for businesses and users?
BUSINESSES USERS
INTERNET PHYSICAL INTERNET PHYSICAL
Professionals Semi-Professionals
Amateurs
INTERNET PHYSICAL
Sales
Space and Product
limitation
Serves all niches
Profitable
INTERNET PHYSICAL
Abundance of supply
Serves all needs
Accessible
Support
Face-to-face
There are two types of BUSINESSES: INTERNET: As we have mentioned before , sales will increase, due to no space limitation and the ability of attending to all the niches, which will be more profitable because margins may be bigger if cost is mainted, or even if cost is reduced the volume of sales will be higher obtaining higher profitability. Furthermore products are classified with gendre (multiple taxation) PHYSICAL STORE:Can be harmful for the company and may affect on the sales by decreasing them, The fact that they have space constraints and product limitation affects negatively, and they can´t attend all niches. There are two types of USERS: INTERNET: The user may find a wider range in the online distribution (abundance of supply) that attends to all customer needs (can supply all niches),It is more accessible (doesn’t depend on local areas).However, user do not receive neither technical support nor customer service due to the impersonal communication and it is necessary to have access to internet which may represent a barrier for users. Furthermore there is a higher risk of damage of the product due to the incapacity of checking it personally causing more devolutions. PHYSICAL STORES: Due to the space limitations they do not have abundance of supply and cannot attend to all the needs of the customers due to the incapacity of having all the niches. Another disadvantage is the limititaions to access to the store s for local area, users would only be able to access if it is in a certain range. However, the advantages that businesses have are the technical and client support that they can offer by having a physical person in the store, the communication business-client is better face-to-face and the devolution is easier and less common.
Before the era of the Internet a product was either a hit or a miss
Hit Miss
Unlimited Shelf space
What are the benefits of outsourcing the creation of content to the users?
Wikipedia benefits from:
Upgraded Quality Refocus technological and financial resources on core
Organization agility
By adding content by amateurs and professionals, the business benefits in terms of efficiency, productivity (speed up the flow of
information) and organizational effectiveness.
financial resources on core competencies.
Are economies of scale important to this business model?
Economies of scale
Hits + Misses = Niches
High Volume: High Net Contribution &
Lower Costs
Higher Volume: Increase
bargaining power over suppliers
Are hits Needed?
Yes, Blockbusters are hooks to
attract audience
Satisfy mainstream demand
Satisfy 100% customers demand
Consider Netflix for this question. Are economies of scale important to this business model? Economies of scale are important for Netflix’s business model for several reasons: In the case of Netflix they not only concentrate on the hits but also the “misses”, or better said: they satisfy “niches by the thousands”. As said before the “Misses” can add up quickly to a huge new market. To transpose this concept into economies of scale it can be said that the more volume (niches and hits) that Netflix sells, the net contribution increases while the overall fixed costs reduces. With more volume the fixed costs are distributed over many products rather than just a few. Examples of fixed costs: Rights, deliver services, geography, postal service, negotiation power, bargaining scale Do we need blockbusters or top hits? Yes The blockbusters are the ones that attract the audience and from there (either by recommendation or curiosity) search down the “long tail” In order to satisfy the mainstream demand it is necessary to have hits. If Netflix does not carry the hits there dissatisfaction may exist.
What is the impact not only on business but also on society of shifting from a culture of scarcity to a culture of abundance?
Business
• Larger customer base • Increased offering of products• Better knowledge about customers needs• More competition and a informed customer
Society
• Information is power for Consumers• People are satisfied • Increase of expectations • Higher demand of quality
Business: Larger customer base since the physical border has been overcome. Increased offering of products due to: A larger base Decreased costs because of the virtuality of the internet that there is no need for shelf space costs, rental space in an high traffic area, employees, etc. Better knowledge of what customers really want not only what the industry thinks they want. Companies will be faced not only with more competition but also with a more informed customer since now they can search for reviews and recommendations. Society: Consumers have a better knowledge of what they want. People want more products and now they have more options. Customers are happier since they can find exactly what they want not only what’s available. Consumers have more information hence will demand better quality.
