WARNING: This post is too long by almost anyone's standards. But it's a cool and very important topic to e-commerce merchants. You might want to read it anyway.
Back in 2006, like a bunch of other people, I bought Chris Anderson's book The Long Tail: Why the Future of Business is Selling Less of More. Like a bunch of other people, I loved it. At last, it seemed that someone had intelligently outlined the forces at play in the world of e-commerce and the changing dynamics triggered by increased product choice & accessibility.
Anderson's work sent an alarm bell to many traditional merchants: it's time to start obsessing about product extensions, limitless choice and highly personalized niche "micro" assortments. For those tasked with managing inventory and running a profitable business, not an easy task.
Then, just to keep us on our toes, around the same time The Paradox of Choice: Why More is Less by Barry Schwartz was published, calling on those same merchants to avoid the pitfalls of over-assortment, to allow customers to focus on just a few choices and avoid the "overwhelm" factor.
So, what's an e-commerce merchant to do? Sell less of more and risk over-assortment and dead inventory? Or sell more of less and risk commoditization and lack of brand differentiation?
I was prompted into thinking about this again recently, when I saw a brief article in the WSJ: Study Refutes Niche Theory Spawned by Web, which highlights recently released research by Anita Elberse and her supporting Harvard Business Review article Should You Invest in the Long Tail?
As it turns out, the conclusions of Elberse's work challenge some of the Long Tail's key principles. Specifically:
- Best sellers are more important than ever (Anderson says they are losing steam to niche products)
- Scores of niche products are never purchased and are unprofitable (Anderson says they are gaining importance to retailers)
- Niche products don't rate well in terms of customer satisfaction (Anderson says that some long tail products are just bad products)
Elberse's work has spawned a very interesting discussion on Chris Anderson's blog longtail.com. Overall, while Elberse's research is solid and her conclusions worthy of debate, some aspects of her work, specifically the use of percentages vs. numbers in her reporting and her definitions differ from Anderson's. Those differences are big enough to cause loyalists of The Long Tail to stand firm, and confused merchants to perhaps become even more confused.
After reading the books, the research and the blog (all well worth your time to read, by the way), it seemed to me that it was time for a bit of merchant sensibility to be infused in the mix.
The risks of going too far with both limited "best seller" assortments and over-specialized niche offerings are well known to retailers. While the web gives us exciting opportunities to break down brick and mortar barriers, capitalizing on those opportunities takes strategy, discipline, investment and plenty of hard work. To be successful mining long tail profits, there are are few big things you need to master:
A) Know your product category. Long tail examples typically cite books and music: digital consumption or high sku count or both. If you're not in one of those categories, you need to think through how the long tail applies to what you are selling. Are there niche size ranges, colors, designs, or features that cater to an under-served market or to extreme loyalists who can't get enough of what you sell? What data do you have to support investing in long tail inventory? It's not just about carrying everything under the sun.
B) Take clues from your other channels. If you are a multi-channel retailer, talk to the merchants for stores and catalog to understand where the opportunities are for logical product extensions.
- Is there a hot category where the limits of shelf space simply don't allow for a full assortment?
- Are there areas of the catalog where space has been cut back due to tighter mailing budgets?
- Are there product lines where the amount of product information desired by the customer is inappropriate for the store or catalog to tackle?
- If you have a limited number of stores, are there opportunities to aggregate demand via the web, therefore building enough volume to justify the investment in an extended product line?
All of these areas could potentially yield insights as to where long tail merchandising could be successful.
C) Invest in customer insights. One of the key takeaways from Elberse's research is the need to have intimate knowledge of your customers and their buying behavior. There are some customers that will never venture into the long tail (such as the busy mom who always buys the same brand and size of popular jeans). Others will actively seek out long tail products (such as a petite woman who is hard to fit, or a cooking enthusiast eager to try a rare French sausage in her cassoulet recipe). Understanding who will buy in the long tail and successfully predicting what they will buy is critical to inventory management and profitability. Elberse points out that a large number of long tail products in music are never purchased. That's no surprise. The long tail doesn't let merchants off the hook; quite the opposite. We still need to intelligently select, assort, and manage inventory to our customers' needs. A good merchant is a good editor, even in....NO, especially in the long tail world.
D) Invest in product discover ability & accessibility. Herein lies the key to long tail success. Carry a lot of the right stuff, and be religious about helping people find it. Assuming you know your customer and have picked the right products, they have to be able to discover those products in a relevant context. E-commerce technologies are critical to unlocking the long tail. Among the the tools you must have in place are:
- Powerful search, preferably in guided navigation format, allowing customers to sort, edit and drill down on a wide variety of attributes, from top level to granular. Tools like this will help your customer avoid the paradox of choice. And don't underestimate the manpower and work required behind keeping your product data in search shape.
- Product recommendations. Don't think that this can be done by a merchant manually assigning "you might also like" items on every product page. That won't scale, nor will it give you the success rate of automated recommendations that draw from customer history and product data.
- Product information. Sure, amassing and maintaining a vast body of product content is hard. But a huge part of what makes that long tail product discoverable to people that might want it is what you have to say about it, or in the case of customer reviews, what other people have to say about it. The more that oddball product is described, tagged, and recommended, the more likely it will be found by the perfect prospective owner.
- Product reviews and ratings. As mentioned above, it's not just the reviews themselves, but how you use them as a discovery tool. Incorporate them into search, comparison tools and site navigation. Allow customers to ask questions and answer one another. Incorporate the terminology and attributes used by reviewers into your product descriptions and copy. And of course, read what customers are asking and saying about the product. Sometimes a long tail product is a poor seller because it's a lousy product, not because people can't find it.
E) Don't abandon best sellers. Elberse makes this a cornerstone of her article, citing her research findings indicates that retailers are selling more blockbusters, not less. Anecdotal case in point: Last week I bought a CD that would, by anyone's definition qualify as a blockbuster. The only reason I bought it was because I was on a site that offered me "top sellers" as part of my recommended products. Now that I am no longer 15 years old, I am not that savvy about what's selling in music. I would have likely never known that this CD existed or that it was appealing to me. The fact that the site I was on knows my musical tastes and offers me a multitude of ways to navigate and discover products was what drove the sale. So, just like good e-commerce merchandising tactics help people discover the long tail products, they also help less aware customers discover the blockbusters. And sometimes, it's the blockbuster purchase that drives the customer into the long tail the next time they visit.
So, is The Long Tail a tall tale or a real profit opportunity? Ultimately the question rests with the retailers who are working to execute e-commerce well. Comments and success stores are of course, welcome.
And, if you are still in the mood to read more, here are a couple of good case studies of companies successfully navigating the world of long tail retail:
The Hyper-Personalized Business Model Trend
A Niche E-tailer Size up Glamour....One Customer at a Time
And, last year's post: The Long Tail in Real Life....3 Variations on a Theme
Terrific post. From my perspective I especially believe that strength in product discovery capability is essential to driving a successful long tail strategy. Search, personalization, automated merchandising (such as top-sellers), and community-based merchandising (such as Playlists) can really drive long tail. I think we are starting to see some of that show up in apparel too, with Polyvor for example.
I also completely agree that online merchants must be great editors and guide their customers to great products that are trend right or which are from "emerging" sources.
You are right to call out that the long-tail is not universal and is not right for every business, but for those that see this as an opportunity this post is a great outline of the important dimensions to success.
Enjoyed it, thanks. - Brian
Posted by: Brian Walker | July 23, 2008 at 02:38 PM