Strategy – Nazli Mohammad

What Is The Long Tail Theory?

Retailers are no more constrained by shelf space due to the internet revolution, globalization, and unlimited virtual shelf space, and they can stock a large number of products. As a result, consumers now have more choices and sellers can stand out by catering to a niche or micro-niche.

Photo by **Andrea Piacquadio** from **Pexels**

y Chris Andersones can benefit from this approach by stocking a variety of individualized, niche items. This approach is known as the long tail.

The concept of the long tail was introduced by Chris Anderson, editor of Wired magazine, in his book named ‘The Long Tail: How Endless Choice is Creating Unlimited Demand’.

What Is the Long Tail?

The long tail is a statistical distribution pattern in which a higher proportion of occurrences appear further out from the distribution’s center.

This business strategy enables companies to make considerable profits by selling low volumes of hard-to-find merchandise to a large number of customers rather than selling large volumes of a small number of popular items.

**The Long Tail: How Endless Choice is Creating Unlimited Demand**’ by Chris Anderson

“For too long we’ve been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching—a market response to inefficient distribution.”
– Chris Anderson

Anderson believes that now that people can find and afford products and services that more closely fit their unique interests and needs, they will move away from homogenized hits.

Sellers can create more demand for a greater number of unique items. They can focus their efforts on inventory management and sell a variety of less popular products in order to gain as much profit from the long tail as the hit head.

As a result, the wise company can sell fewer products in bulk rather than a great quantity offered to a limited number of customers.

Anderson forecasts that the many small markets in goods that do not sell well enough for traditional retail and broadcast distribution will collectively exceed the size of the existing market in goods that do cross that economic obstacle. In other words, as time passes, the shaded region beneath the curve will grow larger than the white area.

Chris Anderson explains his theory of “The Long Tail,” in the following videos:

Thanks for reading! If you enjoyed this post, please be sure to like it and drop me a comment if you have any questions or additions!

Porter’s 5 Forces Strategy vs Blue Ocean Strategy: Which One Is Better?

Are you a fan of Porter’s five forces or blue ocean? Do you want to dominate existing markets or explore for new ones to create?

Photo by **Mikael Blomkvist** from **Pexels**

Blue Ocean Strategy

Porter’s 5 Forces Strategy

A graphical representation of Porter’s five forces From Wikipedia

Researchers Andrew Burke, André van Stel, and Roy Thurik studied whole industries to determine whether an innovation strategy or a competitive strategy is better.

They examined profitability and numbers of vendors for 41 shop types during a 19-year period (1982–2000). They employed a model that dates back to the 1921 economics study by Harold Hotelling for their research approach.

It argues that as long as there are profits to be made in a certain market, more and more vendors will emerge to serve that market until it reaches a saturation point, at which everyone more or less breaks even. If an industry is successful, additional competitors will enter the market, increasing competition and lowering profits down below the marginal cost.

Looking at entire industries, they discovered that blue-ocean approach would need the creation of a new market. If it attracted consumers in the long term, industry profits and the number of vendors would both continuously increase. As a result, companies win by staking out new markets.

As I said, the study looked at profits and numbers of vendors for 41 shop types over a 19-year period (1982–2000) and they found evidence that the blue-ocean strategy is sustainable. Average company profitability and the number of businesses were positively associated in more than half of the shop categories.

They found evidence that the blue-ocean strategy is sustainable. Average company profitability and the number of businesses were positively associated in more than half of the shop categories.
Andrew Burke, André van Stel, and Roy Thurik

According to their findings, competition gradually erodes the profits from innovation. However, this is a slow process that takes around 15 years, meaning that blue-ocean approach takes the greater part of a generation to yield to a competitive strategy.

According to their research, businesses may want to consider a hybrid of the two strategies. For example, by slowing profit erosion in an existing market with an efficient competitive strategy, they can improve the funds available for blue-ocean investments and hence their chances of finding an untapped market with plenty of consumers.

Thanks for reading! If you enjoyed this post, please be sure to like it and drop me a comment if you have any questions or additions!