Concentrating on a niche may be your best business strategy
In the past few years, alternative markets have been growing – vintage fashion, retro music, independent music and bookstores – mostly because they’re offered alongside the mainstream. Online shopping has given shoppers more choices, or more specifically, more time and resources to make choices. This is the so-called “long tail” effect at work, and for new and small businesses, it may be the key for breaking into the market and securing a place in the industry.
What is the long tail?
The term “long tail” was coined by Chris Anderson, editor-in-chief of Wired Magazine, in October 2004. Basically, Anderson argues that a small number of brands make up much of the market share for a product, while lower selling products form a “long tail” behind the “head” made up of the major brands. In the long tail effect, the market share of the lesser known products is collectively greater than that of the few bestsellers. For example, the number of people who watch any of ten obscure indie films may be greater than the number of people who go to two of the current blockbusters.
The long tail and online businesses
Online businesses that have specialized in niche markets obviously get the most benefit from the long tail concept. While individual businesses may not rival bestsellers on their own, their medium – The Internet – increases their chances of getting noticed. In traditional shopping, people can only spend a limited amount of time choosing, and since the popular products are the most visible, they are the most likely to get purchased.
Online shopping removes the constraints in traditional shopping, including shelf space, product size, and the amount of time and energy that shoppers are willing to spend choosing from their options. People have more time to spend browsing through their options, and are thus more likely to come across your product. It also lets them make wiser choices by offering product reviews, user opinions, and even book or music excerpts. In online stores like eBay and Amazon, people can enter search terms and get exactly what they want, instead of buying the first thing they see.
The internet also allows sellers to stock items that buyers probably won’t find in stores. Examples are rare books, old songs, and obsolete technology. For instance, of the more than one million songs in Apple’s iTunes database, each song has been bought at least once – which means there is a market for everything, just waiting to be tapped.
Final reminder
It’s true that many products in the long tail are victims of mainstream preference, but a lot of them are low-selling simply because their sector is weak, or because they are bad products. The long tail cannot raise sales or demand for bad products. But if you have a worthwhile product, the long tail effect may now mean that it can provide a profitable niche. The costs of search and distribution, particularly of digital products, may now provide you with a new nd profitble business model.
Also, the long tail effect by and large only works with existing distribution channels – it cannot create new markets or drive demand for new products. For a product to benefit from the long tail, it must fit into an existing category of products that people can search for.