In 2004, writer Chris Anderson introduced a very interesting term: “Long Tail”. Fifteen years have passed, and long tail has since become an effective business strategy. So, what is “Long Tail”?
In short, long tail strategy refers to “niche” items that don’t sell very often. Yet when they do sell, especially in large businesses that also sell a wide variety of popular products, they generate substantial profit. Their profitability – especially when compared to popular items that aren’t very profitable – has let to the assumption that businesses should sell these items to as many customers as possible.
How is Long Tail Strategy Implemented?
Long tail items are niche items. Let’s take a large home improvement retailer, for example. The retailer’s most popular items are hammers, nails, drills, cables, etc. These items are sold by the buckets, yet their profit margins are very thin. Niche items such as butterfly nets, fishing gear and stuff for kids are sold in much smaller volumes, yet are much more profitable. So naturally, the home improvement retailer decided to try to sell his niche items to as many customers as possible. They will never sell in bulk like hammers or nails, but they’ll generate great profit as one-time purchases.
One way to implement a long tail strategy is to create product clusters. Customers shopping at the store or online are encouraged to pick up interesting niche items along with their main purchases. At the store, these encouragements can include special offers and signs pointing to certain items in stock. Long tail items can also be positioned in strategic places inside the store.
Customers shopping online can be easily referred to as long tail items. Smart e-commerce engines can refer customers to items based on items they have already inserted into their cart. These engines analyze customer clickstreams and user journeys inside retailer websites to inform them of specific niche products they might like.
Where does Dynamic Pricing Come In?
Long tail strategy is never complete without a pricing strategy. Naturally, the pricing versatility of niche products is higher than that of standard items. As such, their pricing is also much more dynamic.
To increase the purchasing of long tail products, their pricing must account for a wide variety of fluctuating factors and trends. First of all, retailers must understand who buys these products, and in what situations. They must analyze the customer’s entire purchase – what other products did he or she purchase? Is it easier to sell these items online or at the physical store? Is it easier to sell these products on the weekends or during the week? Are there specific hours when these items sell more?
Retailers relying on an effective dynamic pricing strategy – and a state-of-the-art dynamic pricing engine – will find it easier to sell niche products as part of customers’ entire product clusters. They will have access to essential market trends and user behaviors that will help them make better pricing decisions in real-time. They will be able to sell more butterfly nets with every hammer – and therefore their profitability will increase.