How to Make Money In The Long Tail

The Long Tail theory was developed by Chris Anderson, who first published the idea in 2004 in Wired magazine, and then went on to publish his 2006 bestselling book.   His theory was that when consumers were given unlimited access to variety of products (easy to do in an online world) – they would tend to migrate to more targeted offerings that were previously unavailable to them (in the “tail” of the sales curve).   While sales of individual products in the tail would be small, the huge selection would bring in more sales overall. It became known as the “profitable tail” in corporations as these items could be more profitable on a per unit basis.  The tail was a low volume, high profit model. And for retailers like Amazon, this confirmed their decision to extend the breadth of their offerings rather than consolidating around best sellers.  The Long Tail theory was counterpoint to the current market segmentation and portfolio approaches where high market share and high growth were the paths to profitability. 

An exciting part of Long Tail theory for the providers of these tail products and services was that the barriers of entry into markets would also be lowered in terms of investments in people, resources and discounting.  Business segments in which consumers want variety are the supposed winners.  Take recorded music and books as examples  - traditional publishing / distribution companies currently provide and promote limited variety, then achieve profitable market share dominance when sales exceed relatively high fixed costs.   Long tail thinking, however, says anyone can write an e-book, record an album, and be found on the internet.  Given access to much more choice, consumers would happily purchase something that perfectly fits their tastes rather than having limited choice. The democratization of the marketplace sounds great, especially if you are a smaller player.

The dilemma for the long-tail entries.  Entering a market as an unknown player using long tail-thinking can be treacherous.  The price that a vendor can charge if they are only playing in the long tail will gravitate to the costs of goods of the lowest cost provider, which eliminates any chances of profit for any of the players, or even worse, moves prices to zero of free.   If recording a piece of music or writing a book has no hard costs (other than the artist’s time and sweat), then pricing for these products will gravitate to zero.   Let’s say I was to try to charge people to read this blog.  My great points of view as well as my time and energy must be worth at least a penny or two, yet readers have too many other choices for quality content that is free (the tail in blogging is a very long one).

“Free” is a bad pricing model.  Working in the long tail is a labor of love, a hobby, maybe a fulfilling way to learn and dream.  But the laws of economics (pricing being a function of supply and demand) make it an unprofitable business.

The solution is to stand out.  Pricing leverage comes from offering truly unique, differentiated and remarkable products or services.  Author Seth Godin has been writing about pushing yourself to stand out in your chosen field (Read Linchpin and The Dip),  Mediocre is the risky middle ground that is expendable.  Standing out is no longer just a good idea, it is now an imperative.  Why?  It comes down to pricing power.  

Pricing power is everything.  To market products or services in the long tail, you must figure out a way to be a price leader – which means charging a fair price for something that is so unique that it has no equal.  This is a form of market share leadership – even if the market is tiny.  Make no mistake, Seth Godin, Chris Anderson, and even Amazon are market share leaders in their fields which allows them to charge money and make profits selling products.  The ease of entry into a category can be deceiving.  Offering what is already available, even if you do it really well, will lead to a lack of ability to charge a price that allows you to make money.  Focus only on what it takes to be the single best offering that will drive your market share to the top. 

Groupon Advertising Was Off Strategy First – Offensive Second

Companies, sometimes, overthink their messaging.  Groupon is a rather new on-line coupon service that is growing by leaps and bounds.  While they grow and have money to spend, what they need to do is to convince every mainstream mom in America to use their service.  While downloading coupons is not really new, Groupon needs to build massive brand recognition among a broad audience.  And what better place than a Super Bowl ad with over 100million viewers.

Groupon Super Bowl Ad

Crispin Porter & Bogusky created this ad, which was a bit irreverent in that it linked its money saving benefit to the plight of the Tibetan people who are being oppressed by the Chinese government.  What?? Well, actually it was intended to help build awareness to the plight of the Tibetan population. They might have been helped had they used their URL link to Savethemoney.org which was to bring donations to the Tibetan Fund.  But the advertising backfired, consumers did not get the humor, or the connection.  While Groupon’s sales did not decline (nor really grow either), the company’s CEO,  Andrew Mason, made the decision to pull the ads from further airing to minimize the negative exposure.  

Look, the reason to pull that advertising is simply because it was off strategy.  A simple lesson here is to stay true to the job at hand.  Groupon’s job is to become a household name, and it squandered its single largest exposure event trying to be outrageous and clearly overthinking what should have been a simple message and a huge opportunity. 

The Weight Loss Industry (and Public Health) Dilemma

January is generally a time of “belt tightening” after the holidays.  But in the U.S., belt tightening is not always easy.  The weight loss industry is one industry that always booms in January.  Estimated to be about a $60 billion business in the U.S., this business is on trend in a country in which almost 65% of the adult population is considered overweight or obese. Government statistics on obesity show a dramatic increase, from 20 years ago, in the percentage of the population that is overweight.

The New York Times published an article on the weight loss industry on Jan 6th.  Spending by the big three weight loss players is expected to grow by double digits.  Weight Watchers International spent close to $120 million last year and Jenny Craig spent another $34 million. 

Jennifer Hudson, the new spokesperson for Weight Watchers, looks great belting out a powerful ballad of strength “It’s a New Day” in ads that broke this fall, and dialed up big as the new year approached.  Ms. Hudson, who reportedly has dropped from a size 16 to a size 4 by losing 80 pounds on the Weight Watchers program, is known by millions from her American Idol days and then on to further fame in the movie Dreamgirls.  This is a very stylish campaign from McCann Erickson, a unit of the Interpublic Group of Companies, which began using Ms. Hudson in April 2010. Weight Watchers advertises in the Fall (Back to School), Spring (right after Easter) and Winter, (i.e., New Years resolutions), with Winter naturally being their #1 season to sign up new users at $40/month. 

Weight Watchers is a top-rate program driven on lifestyle change.  They use a simple points approach where consumers do not have to count calories, but just have to stay within their allocation of points.  Weight Watchers has overhauled its points program, now called Points Plus, with an emphasis on higher points for processed foods and fewer points for fresh fruits and vegetables (e.g. 100 calories of fruit or vegetables are free while 100 calories of potato chips add several points). There is also a clear recognition of the negative weight consequences of carbohydrates.

Weight Watchers however has struggled through 2009, declining 8.8% due to the company’s claimed effect of a bad economy reducing this type of discretionary spending.  Internationally, the declines have not been as severe as in the U.S.  Their one bright spot has been their on-line membership program that grew 5% in 2009, growing from 10% to 14% of revenues in 2 years, while all other memberships fell according to their respective annual reports.  Another issue the company faces may be that according to the research company, NPD Group, the percentage of women who say they are on a diet declined from 36% in 1991 to only 25% today. 

There seems to be more riding on Ms. Hudson and this new campaign than a great advertising idea.  It is taking more than traditional pressure to get folks to do the work of losing weight. 

Micheal Rosenwald, in a Washington Post article,  argued that our economy is structured in a way that will keep obesity on the rise for some time to come.  Our convenience foods products, fast food, quick meals on the go and large portions have replaced at-home food preparation of moderate size meals.  Our lives are sedentary, and we have come a long way from the days of true physical labor for workers where women prepared meals that required hours in the kitchen.  Women are in the workforce now.  We are an affluent society, and don’t want to go back to the lifestyles of old (where we were thin).  we are enjoying life, yet hate the result to our bodies.

So the weight loss industry lives on the promise of hope and quick results.  After we have indulged in far more calories and fewer workouts than our bodies required all year, we wake up with a renewed willpower and focus.  As if on cue, we are enticed with a success story from an admired celebrity who has a successful weight loss story and looks great.   

Is public health a victim of the shortcomings of the 30 second ad, sustained just long enough to sign up, attend a few classes, and stock our pantries with lean entrees?  As a marketer, I believe this marketing doesn’t seem to be working for the public health.  The goals of individual corporations’ sales targets seems not to be making material change in our waistline.  These ads are admirable in what they do short term, but these companies alone cannot make a dent in our growing problem.

The Retailer Opportunity to Surprise and Delight

I received an iPhone this Christmas from my wife.  It was a wonderful gift. I really wanted it.  So much so, that I had already researched it online, compared all the other phones available, including prices, features and data plans.  So when I went in to get it (with my wife), the discussion went like this: “Can I help you?” asked the assistant.  “Yes” I said.  “I would like to purchase the iPhone 4”.  “Ok – do you have any questions” he asked.  “Not really, do you have any fun cases?”  “Over there”, he said.  He put the new phone on my existing plan and I left.  Actually my wife bought it for me, and I naturally gave her a big kiss and we both went on our way shopping for the kids. 

Ok, so there are no Jingle Bells in that Christmas story, but there is an implication. 

Shoppers are reaching a point where they have more information, and know more about products, than sales associates do. 

1. Shoppers have online access to in-depth product information from manufacturers and comparisons across products from industry experts.
   
2. Shoppers have access to all competitor pricing on their mobile phone in seconds.  If they have not checked the price before getting to the store, they can scan the UPC and check competitive prices immediately.
   
3. Technology is now being tested to allow shoppers to see if a product is stocked at your targeted retailer or where the product is stocked.

Online information will replace the assistance most retailers are equipped to provide.    Certainly some shoppers will want to be helped along the shopping process.  But the trend is moving strongly in that direction.  Smaller, independent retailers won’t survive long if they try to compete with mega stores that look more like a warehouse with a cash register.

NRF's Store Magazine has a great article on some of the ways that retailers can surprise and delight.  Some of the core themes:  Get online and become a player in the social media world, enabling mobile technology and Facebook to help break out of the pack.  Put the power of QSR codes into the store, allowing shoppers to find interesting video and product explanations.  In other words, participate --  don’t ignore the online world and the control that consumers now have over the content and selection.  Secondly, allow consumers to participate in product selections and give them exciting and surprising new ways to have a say in what their experience will be in that store.

Surprise and Delight and human experience.  While the traditional information tools that in-store assistance used to provide may be moving online, the ability to “surprise” and “delight” in a human way stay squarely with the retailer.