24 July 2005

Longtailing brands

Amazon, Apple, Malaysia Tourism, Google, Yahoo. They're all at it! And it could be why they're so profitable. But what is it? Essentially, it's about using technology, and the data revealed by using that technology effectively to shift from mass markets to niche markets and to make a profit doing it. Amazon realised some time ago that due to space constraints, a traditional book store has a limited number of books it can stock (around 130,000 for all you anoraks), and, understandably, prefers to focus on those very popular books that sell well rather than a store full of niche market titles that do a great job of gathering dust but little else.

Amazon doesn't have such shelf space problems and can therefore offer a greater range. Using some neat software, collaborative filtering, your purchase history is analysed and similar books, often at the end of the longtail, are listed in one of the margins on the next page you look at. This neat little service that often consistst of niche titles related to your initial search, now contributes more than 30% to Amazon's sales.

In the mass economy that no longer exists, firms, with some exceptions, would manufacture a product, use the 4 P's to sell it and hope for the best. Basically, try to guess what the market wants. If a product didn't sell (despite millions spent on A&P - but let's not got there!), it was withdrawn and the firm simply tried again, with a different product. Longtailing allows firms to put the whole lot out there, and see what demand there is for what. But you need to get it right. Provide information and use filters. Supermarkets, Department stores, Electronics stores, even cinemas now have a bewildering array of choice on their shelves that can intimidate shoppers. Once the shopper makes a purchase, the filters will ensure you conitnue to give shoppers what they want, the information you provide will ensure they have enough data to make a rational choice.

But what are the implications for brands? In the short term, the impact will be minimal and will be focussed primarily on the technology sector or those firms that use technology - Amazon, eBay, Asiatravelmart, Yahoo, Google and so on. But in the long term, in much the same way that the net has impacted travel, your future purchases will be influenced by what you learn from the net. If you can research a product and learn about its features and benefits you will be more inclined to purchase it. Assuming the company uses the data it has on you, it will then notify you of related products as and when they are available. This will have a significant effect on profitability as time and resources are not wasted developing products that fail.

This should also be of interest to any Malaysian firm looking to make the move from a cost focused strategy to a niche focused strategy.
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