NICHES TO RICHES
PURPOSE OF THE ARTICLE: The purpose of the article is to explore the impact of seamless internet its related technologies on retailing and business environment globally. The impact of internet on account of its speed and cost is unique on business communication where e-commerce is possible on the net just by click of the mouse. The borderless connectivity despite quite a few dotcom failures is a most fascinated sales communication tool ever invented and today boasts of about a billion consumers. The article traces various techniques such as Pareto Curve or The Long Tail or the impact of the Yellow Line as used by the researchers to arrive at the demand side or supply side drivers and their effect on sales and in effecting consumer surpluses by remaining on the bandwagon of success adopting internet related technologies which impact business world wide.
Forget squeezing millions from a few mega hits at the top of the chart. the future of the entertainment is in the millions of niche markets at the shallow end of the bit stream is what has been truly said by Chris Anderson.
Power of internet is unparalleled when considered in the light of information related technologies on present day business environment with instant connectivity as against brick and mortar retail set up with limitation of store space and limited consumer preferences as against high demand blockbuster scenario. Now there is gigantic expansion of the markets be it books, software, beer, other products or services.
The researchers have gone to prove that the internet and related technologies have helped consumers in locating different kinds of products which even the producers did not ever anticipate due to long tail effect with availability of the reviews and personalised opinions made available online blogs.
Researchers E. Brrynjolfsson, Smith, Hu have signified the effect of search that price dispersion is higher on line and their concept of frictionless commerce illustrates the usefulness of internet in such a way that companies reap substantial profits by producing products which they never anticipated earlier directly due to consumer behaviour and by use of Pareto Curve and using data on sales/sales ranks to calculate proportion of unit sales at Amazon over a particular rank in order to visualise the impact on line of product variety.
Wired editor Chris Anderson came up with the phenomenon of The Long Tail associated with the Pareto Curve use which revealed on line customers were most likely to buy niche products, the share of such products collectively would result in more even distribution of on line products. There is 80/20 rule made applicable to internet channel by providing access to products in the long tail as against the 72/20 in the catalogue channel as revealed by the researchers Hu, Smith and Brynjolfsson.
The concept of Long Tail is used also in statistics or statistical distribution wherein it is described as Heavy Tail or Pareto Tail wherein high frequency population is followed by low frequency which then tails off, the low amplitude or frequency events –the long tail is replicated by yellow portion of the graph in the diagram to mark the effect. The portion can outdo the effect of start of the curve if viewed cumulatively it shows the majority effect.
In English vocabulary also where the concept is usable, the long tail comprises of the rare words like “Barracks” even though 12% of the words in 60K , it is word “The” and the rare word “Barracks” which constitutes less than 1% out of 60K yet cumulatively the rare words make up for a third of all texts.
There is demand and supply side drivers and active as well as passive tools as well as repeat order effect and the emergence of Web2 tools aiming at social engineering and information sharing and the impact of blogs on the sales.
Active tools permit the consumers to locate easily a product in which they are interested and it becomes important under the long tail phenomenon for the retailers to provide tools to facilitate the discovery of products through active as well passive searches.
IMPLICATION OF TECHOLOGIES:
The internet and the related technologies have helped business entrepreneurs as well as enhanced on line product utilities in terms of welfare of consumers in billions and have resulted in enhancing the value for them by lower prices on line market by seven to ten times.
The implication of sales by a mid size retail clothing company in respect of catalogue channel over internet website, using empirically tested Pareto Curve, researchers found that the internet customers were likely to buy niche products and even obscure products. On account of lower search cost on internet channels the collective share of Niche products would increase resulting in even distribution of product on line. The long tail which identifies IT related markets where consumers’ preferences have far greater depths when it is compared with brick and mortar channels. The implication of long tail anatomy as expounded evokes our concern to know the factors that are responsible for driving the change and their implication on structure of markets. Such factors are supply side drivers and demand side drivers coupled with effect of second time repeat orders.
Supply side factors: In brick and mortar business stocking decision are marred by constraints of limited shelf space whereas in internet channel the cost of stocking a additional line of a product data base is to generate a page by mere click. One billion internet consumers outpace brick and mortar retailers working under constraints of geographical area where one in million choice could work a thousand like minded consumers who may be sharing Niche quality. Information technology systems can lower cost as was noted in the case of Sharon Deubren, the authoress who required an illustrator for her children book on Guru.com and got overwhelming response from 46 experienced illustrators across globe which enabled her to reduce her project cost. The sites as one above have become popular for new small publishers. The same effect was seen on MySpace.com for the new artists who can connect to their fans.
Demand side :factors: On demand side , the impact of long tail makes it imperative that retailers provide for tools for discovery of their products by active as well as passive searches to overcome the effect of poor choices that existed there for the consumers who found it difficult to locate their choicest products.
The Long Tail is a potential market and a distribution channel created by internet. It enables the business to reap profits from such markets. The low priority article in Encyclopaedia Wikipedia collectively create higher demand than limited mainstream articles in Britanica Encyclopaedia. Same is true of Amazon‘s book inventory or movie inventory of Netflix or Rapshod’s music preferences and total inventory of Wikipedia articles in respect of bottom line as against vertical axis representing the popularity rating.
The primary value of the internet comes to the consumers from the new source 80/20 rule which applies to the to the internet channel by providing access to the products in the long tail. Consumer surplus emanating from access to increased product variety in on line book store is ten times more than the benefit they derive from access to lower prices on line even though value of internet hums around lower prices. The impact of lowering search cost and IT related technologies in general and internet in particular could substantially increase the collective share of Niche products thus creating long tail in the distribution of sales as propounded by the researchers.
"The law of trivial many and the critical few which is known as 80/20 rule, to say that 80% of the benefit can be realised by only 20% of the efforts or Pareto Law the same can be tabulated further as under:
It is said that you can half the value of information technology initiative for 1% of the cost if you choose right thing...Pareto Law.
Researchers have shown that 30 to 40% of Amazon’s book sales are of those titles that did not normally be found in traditional stores and consumer surplus created by these obscure book titles is seven to ten times the value the consumers receive from lower prices on line. Passive tool comprising of revealed preferences from past purchases, page reviews and product blogs for instance Gizmodo.com or gadgeteer.com both of which have been popular for small and big business. Batheys Watch company after being discussed on the Gizmodo blog saw the sales shooting up by 300% for the watch company. The company said their sales and web sites hits went through the roof. Repeat order gives the positive feedback showing the type of product the consumers demand and the profitability resulting in the long tail. Lulu.com and CafePress.com both cater to the needs of Niche authors they have 2300 new books published for these authors who would dread approaching reputed publishers. The market of new products was created by blogs and Tecnhnorati.com traced such 40 millions blogs.
The long tail facilitates second order changes in consumer preferences. Web2 tools also emerge powerful in social networking and information sharing which is not easy in brick and mortar set up.
Niches to Riches the researchers have brought forth the impact of their empirical tested data as to the effect of internet and related technologies in creating demand for niche products and how it becomes profitable for the producers as well as for the consumers to result in surpluses. This they have replicated in the effect of Long Tail which particularizes consumers’ preferences with flow of information about Niche products as was the case with Professor Clemons who refined his taste for Indian pale ales by logging in at “rateer.com”.
The speed and connectivity by adopting latest technologies would be of immense significance both to the producers and the consumers, new authors and musicians and even the service providers. The internet helps bloggers to post their views and reviews about a product which even companies seek. The technologies help the tracing preferences of buyers and through cookies built up some sites like the Googles are able to track the visitors’ likes and dislikes. The internet has distinct advantage over traditional stores or brick and mortar business in overcoming the constraints of store space. Therefore, the Niches is a delightful path to riches. But it may not always be true if viewed in the light of the fact that sometimes there may be constraints in the form of political, societal and cultural factors where consumers’ taste are Balkanised and experiences become less common. The strategies in business need to be evolving process to take advantage of the dynamics of supply and demand.
Contributor: CA Vijay Kumar Kalia
Address: C-207 Nirman Vihar
Vikas Marg Delhi-110092
Anderson Chris (2006), ‘The Long Tail, why business is selling less of more Hyperion’.ISBN 1-4013-0237-8 viewed on 30April2007, from
Anderson Chris, ‘The long Tail public diary themes around a book’, May15 2007, ‘Mathematica Demonstration of the Long Tail’, viewed 2 May 2007, from
The world’s largest market place for freelance talent, viewed on 30 April2007, from
Australia Myspace, viewed on 30 April2007, from
Shop, sell or create what’s on your mind, viewed on 30 April2007, from
Amazon.com viewed on 30 April2007, from
Gizmodo.com viewed on 30 April2007, from
Productwiki.com viewed on 30April2007, from
Gadgeteer.com viewed on 10May2007, from
Lulu.com Publish and sell world viewed on 10May2007, from
The Institute’s site has also been visited for the material on the subject and I was lucky to find it in I T Harmony for the concept explained.
CA Vijay Kumar Kalia
Dated:22nd of May,2007