The Long Tail and the niche it creates

Chris Anderson’s “The Long Tail” proposes three lessons to be learned from the success of high volume, on-demand, online retailers. These rules for success revolve around a central observation: selling a higher volume of niche items can yield as great a gain as selling a lower volume of popular items. (5)  The clearest example of this is that Amazon makes more money off of the books that Barnes and Noble doesn’t sell than what Barnes and Noble does sell. Taking into account the overlap in merchandise offered by both retailers and the Long Tail sales, Anderson suggests that new media has ushered in a shift in the way consumers want and purchase.  If a retailer can offer a high volume of products at a low cost and with easy access, the consumer will make that retailer their primary source for the product.

Anderson makes a compelling argument, one that might even cause some to prophesy a demise to “the store” as we have known it.  However, I believe that Netflix, Amazon, and other such Long Tail retailers operate under a system that makes space for “the store” as a niche market.  Netflix, Amazon, and Itunes heavily rely on lawyer-types to negotiate their distribution prices en masse. (6)  What makes these companies viable is their ability to acquire and distribute 10s, 100s, and 1000s of copies of a product.  A niche store owner, uninterested in high overhead and legal fees, can offer the same boutique-like service (albeit on a smaller scale) and sell the experience of live conversation, dedicated space, and pleasant company and still turn a profit.

An example of one such business is an independent film store in Dallas that offers new releases (though in less quantity than your Blockbuster Video) but specializes in indie, documentary, art house, and foreign films.  For them, successfully adopting the Long Tail strategy means owning one copy of these films and an atmosphere to match.  The staff are versed in their inventory and know the genres, so while they cannot rely on algorithms to predict your film taste, they can ‘geek out” with you over the latest Audrey Tatou flick and lead you to their personal “must see” films.   Likewise, when you want to see a European import film (e.g. Pirate Radio) that is currently playing in the United States but would breach Netflix’ distribution contract, this video store can rent you a copy along with a Region 2 DVD player (at no additional charge).  And if there’s a film that you want but they don’t have, ask them and they will get a copy to keep in their store (probably from Amazon).  In terms of cost per rental, the store can not match your local Redbox or a Netflix subscription.  In fact, verbally making such comparisons will lead to expulsion from the store.  But every time this happens, the staff will say “we don’t want or need your business, and you’re free to shop there anytime.”  The irony of the Long Tail, in this situation, is that the same market forces that cause many businesses to fail has breathed new life into this old family business.

The success and confidence of this store prompts further inquiry, but it makes me wonder about the dynamics related to the deletion,  perpetuation, innovation, and qualification of old media markets given the presentation of new media markets.

3 responses to “The Long Tail and the niche it creates

  1. I have often hypothesized about the potential death of retail stores as a result of Amazon and other online outlets. In general, Amazon offers the same item for a cheaper price (generally with free shipping) and with no tax (depending on where you live, might change soon). What then is the role of the retail store?

    Retail stores provide:
    -The conversation and insight about products (as in your Dallas video store)
    -Tactile input from the product (much more important depending on industry) or a live demo
    -Ability to buy something immediately (oops! I forgot a birthday gift!)
    -Shelf space that links products

    Some of these things can significantly add to overhead expense, driving the costs and prices up. Furthermore… how many of you have gone to a store to learn about a product, then bought it cheaper online from a different store? THAT might kill retail outlets.

  2. Speaking of niche markets, I think the global nature of the internet has been a huge boon for markets that otherwise would not survive in the retail channel. Greencine and Play-asia are two great examples that come to mind. I see the posters point about the region locked dvd player but that is why as a smart consumer I own a region free player so I can play the DVD’s I bought in Greece, the UK and Japan.

    I don’t buy the retail knowledge/service angle of the long tail argument. Putting aside the specialty shops for a moment, most of the big box retail chain stores are useless when it comes to customer service; consequently, I can usually get better advice on amazon. They excel in only one real area: convenience. If you positively and absolutely need it now you are exchanging cost for convenience. Fortunately for retailers, I don’t see our desire for cheap goods outweighing the sense of instant gratification in the immediate future.

  3. I think big box retailers are learning what mdimopoulos said the hard way. In order to maintain their signature volume and variety, places like Best Buy have to hire a huge staff to provide customer service and such. But like nlyonssmith smith posted, the advice and reviews offered by netizens allows for customers to know more before they buy, to the point that they may know more than the staff. Combine this with the ease and cheapness of online purchasing, and customers will wait for the product to come to them.

    In response, I think Best Buy has cut back on the number (and I’d even say ‘quality’) of their staff in order to maintain their product stock. But Best Buy has also tried to tap into two other niche markets to compensate for the shortfall: namely 1)their Geek Squad program and 2) automated kiosks.

    In the end, as more net services allow for returns and more immediate delivery, I think the Best Buy we know today will go the way of the Gateway Store and Circuit City. But store owners willing to make a more humble profit will have a place in the local market place. Granted those places are few, but they’ll indeed exist.