The Long Tail Model

For decades, products have been bought and sold based on the power-law distribution model, where a business is able to make a large amount of profit by offering a small number of hits to audiences. By stocking a larger quantity of inventory, businesses would risk losing profit because these less popular items would not be as attractive to the common customers. Therefore, it did not make sense for businesses to offer these less appealing “niche” products for a latent audience. Businesses would lose money by doing so. Today’s digital world offers a lower cost of distribution, especially with the opportunities of online commerce. Products are no longer bound by the constraints of physical shelf space and other bottlenecks of distribution. Anderson (2006) explored this phenomenon and developed a new business model for today’s market called the theory of the long tail, which explains how a larger portion of the population exists in the niche tail of the probability distribution. Therefore, businesses can profit from niche products with low demand by using alternative distribution channels. 

Not only are businesses able to profit from these niche sales, but the volume of latent commerce can collectively exceed the sale of a lower volume of hits. Marketers are actually able to make increased (or at least the same) revenue by selling to latent audiences than if they sold to the masses. Traditional businesses have only been able to stock the most appealing inventory because space is expensive. Online retailers, such as Amazon, can stock an unlimited selection of products. Given additional choice in products, consumers can gravitate towards these less popular niche products (Anderson, 2006). Therefore, it is important for social media practitioners to consider shifting their business model from targeting a mass market to a niche. Social media makes this more possible than ever before. Let’s consider the music industry for a moment. If you oversaw determining the music inventory available in a traditional big box store, you likely be bound by the 80/20 rule. You would only have a limited amount of shelf space, so you would decide to stock the artists that prove most appealing to the masses, which would ensure the greatest number of sales. Customers who purchased Mariah Carey’s album from Walmart were likely satisfied with this stocking decision. They probably enjoyed the song when it played on their local radio station, so when they went to the store to make a music selection, it was an appealing purchasing decision. If they didn’t like the song on the radio, they would likely choose to purchase a different available album from an artist that they preferred more. If they went home and ended up not liking their purchasing choice, Walmart also offered the opportunity to exchange the album for one of their other items in stock. Overall, customers felt satisfied that they were able to make informed decisions about their music purchases. While this traditional business model was working for customers and businesses alike, the digital media industry was about to change everything. The year 2005 was the first year that the number of legally downloaded digital singles outsold the physical products available in stores (Leeds, 2007). Customers were turning towards online music distributors, such as iTunes, to add songs to their personal music library rather than purchasing CDs from big box stores. They were no longer bound by the inventory of music selection that was decided by an outside agency. This shift provided a new opportunity for developing artists and independent labels. This unlimited access to music made it easier for audiences to determine music styles that fit their own unique preferences and tastes. Maybe fans of Mariah Carey became aware of less popular artists through the recommendation structure of iTunes. E-commerce makes it just as easy to purchase a song produced and uploaded from someone’s basement, as it is to purchase songs distributed from a major studio label. The real potential of the long-tail business model resides in the emotional gratifications that customers receive after making a latent purchase. Remember that businesses are not just able to profit from these niche sales, but the volume of latent commerce can collectively exceed the sale of a lower volume of hits (Anderson, 2004). Why is it that consumers were spending more money collectively on latent music products than they were on mass hits (Anderson, 2006)? The answer is simple: consumers believe that their purchasing decisions are an extension of their individual identities. 

Owning a Mariah Carey album does say something about a person’s personal musical preferences. However, when there are only 750 available music options, the selection of Mariah Carey does not make a consumer that significantly different from another consumer. One would not get that excited to hear that a stranger also likes Mariah Carey, especially since her song was the most popular hit on the radio. Therefore, this lack of differentiation makes the purchasing experience far less satisfying than if a consumer feels their selection is unique, highly personalized, and tailored towards their individual preferences. Consider a musical group or artist that you enjoy and follow, that no one in your own social network is aware of. Chances are you believe that your affinity for this music sets you apart from your friends. Your fandom for this artist becomes a large part of your identity. You may be more likely to follow that artist’s social media updates, wear their tee-shirt, or stop a stranger on the street that you see also sharing in your niche musical preference. Consumers prefer to be a part of something special and unique. While some social media sites have focused on growing broadly to appeal to a large mass audience, others have seen the benefits of targeting niche audiences. The social network ASmallWorld is a private international travel and social club with a capped membership of 250,000. It has been described as “The secret social network for the elite” (Yahoo News, 2013). BeautifulPeople is an online dating network for individuals where members vote on whether an individual is beautiful enough to join the community. It claims to be the “largest most exclusively beautiful community in the world.” Both social media sites intentionally restrict access to appear selective and elite and are capitalizing on the idea of an audience as a niche commodity (Ellison, 2007). Even social media messaging applications such as Snapchat have grown in popularity because messages are not broadcast to the masses, but rather a preselected narrow niche of friends. 

It is important to note that business models based on the concepts of the theory of the long tail are only successful if practitioners know how to best use social media to target the specific online audience that is interested in a latent product. Otherwise, the same limited audience binds organizations as traditional in-store retailers. A strong understanding of inbound marketing will help guide you in finding your latent audience. 

References 

https://www.business2community.com/marketing/the-long-tail-economy-what-you-need-to-know-02218650  

Anderson, C. (2004) Technology’s long tail 

Anderson, C. (2005) The long tail: Chris Anderson’s blog