Page 258 - Marketing Management

IDENTIFYING MARKET SEGMENTS AND TARGETS | CHAPTER 8 235

Anderson’s long tail theory is based on three premises: (1) Lower
costs of distribution make it economically easier to sell products without
precise predictions of demand; (2) The more products available for sale,
the greater the likelihood of tapping into latent demand for niche tastes
unreachable through traditional retail channels; and (3) If enough niche
Marketin g tastes are aggregated, a big new market can result.
Marketing InsightInsight
Anderson identifies two aspects of Internet shopping that support
these premises. First, the increased inventory and variety afforded online
permit greater choice. Second, the search costs for relevant new prod-
Chasing the Long Tail ucts are lowered due to the wealth of information online, the filtering of
product recommendations based on user preferences that vendors can
The advent of online commerce, made possible by technology and epit- provide, and the word-of-mouth network of Internet users.
omized by Amazon.com, eBay, iTunes, and Netflix, has led to a shift in Some critics challenge the notion that old business paradigms
consumer buying patterns, according to Chris Anderson, editor-in-chief have changed as much as Anderson suggests. Especially in entertain-
of Wired magazine and author of The Long Tail. ment, they say, the “head” where hits are concentrated is valuable also
In most markets, the distribution of product sales conforms to a to consumers, not only to the content creators. One critique argued that
curve weighted heavily to one side—the “head”—where the bulk of “most hits are popular because they are of high quality,” and another
sales are generated by a few products. The curve falls rapidly toward noted that the majority of products and services making up the long tail
zero and hovers just above it far along the X-axis—the “long tail”— originate from a small concentration of online “long-tail aggregators.”
where the vast majority of products generate very little sales. The mass Although some academic research supports the long tail theory,
market traditionally focused on generating “hit” products that occupy other research is more challenging, finding that poor recommendation
the head, disdaining the low-revenue market niches comprising the tail. systems render many very low-share products in the tail so obscure and
The Pareto principle–based “80–20” rule—that 80 percent of a firm’s hard to find they disappear before they can be purchased frequently
revenue is generated by 20 percent of a firm’s products—epitomizes enough to justify their existence. For companies selling physical prod-
this thinking. ucts, inventory, stocking, and handling costs can outweigh any financial
Anderson asserts that as a result of consumers’ enthusiastic adop- benefits of such products.
tion of the Internet as a shopping medium, the long tail holds signifi-
cantly more value than before. In fact,Anderson argues, the Internet has Sources: Chris Anderson, The Long Tail (New York: Hyperion, 2006); “Reading
the Tail,” interview with Chris Anderson, Wired, July 8, 2006, p. 30; “Wag the Dog:
directly contributed to the shifting of demand “down the tail, from hits to
What the Long Tail Will Do,” The Economist, July 8, 2006, p. 77; Erik Brynjolfsson,
niches” in a number of product categories including music, books, Yu “Jeffrey” Hu, and Michael D. Smith, “From Niches to Riches: Anatomy of a
clothing, and movies.According to this view, the rule that now prevails is Long Tail,” MIT Sloan Management Review (Summer 2006), p. 67; John Cassidy,
“Going Long,” New Yorker, July 10, 2006; www.longtail.com; “Rethinking the
more like “50–50,” with smaller-selling products adding up to half a
Long Tail Theory: How to Define ‘Hits’ and ‘Niches,’” Knowledge@Wharton,
firm’s revenue. September 16, 2009.

to customers the means to design their own products. A company is customerized when it is
able to respond to individual customers by customizing its products, services, and messages on
a one-to-one basis. 61
Customization is certainly not for every company. 62 It may be very difficult to implement for
complex products such as automobiles. It can also raise the cost of goods by more than the customer
is willing to pay. Some customers don’t know what they want until they see actual products, but they
also cannot cancel the order after the company has started to work on it. The product may be hard to
repair and have little sales value. In spite of this, customization has worked well for some products.
ETHICAL CHOICE OF MARKET TARGETS Marketers must target carefully to avoid
consumer backlash. Some consumers resist being labeled. Singles may reject single-serve food
packaging because they don’t want to be reminded they are eating alone. Elderly consumers who
don’t feel their age may not appreciate products that label them “old.”
Market targeting also can generate public controversy when marketers take unfair advantage of
vulnerable groups (such as children) or disadvantaged groups (such as inner-city poor people) or
63
promote potentially harmful products. The cereal industry has been heavily criticized for market-
ing efforts directed toward children. Critics worry that high-powered appeals presented through
the mouths of lovable animated characters will overwhelm children’s defenses and lead them to
want sugared cereals or poorly balanced breakfasts. Toy marketers have been similarly criticized.