Even in a niche market, a well-planned expansion of consumer choices can reveal demand that was otherwise hidden -- and drive sales.
In his bestselling book "The Long Tail," Chris Anderson explored the emerging economic phenomenon observed in the on-line book, DVD, and music businesses. As the costs of production, distribution, and inventory have declined, while the assortment of available titles expanded almost exponentially, consumers embraced the choices available to them. The subtitle of his book, "Why the Future of Business is Selling Less of More," is a call to independent retailers that the future is to be found in capitalizing on consumers developing desire for an ever-expanding assortment of specialized, niche products.
The economic insight in "The Long Tail" is derived from studying a business such as Amazon.com. As Amazon was able dramatically expand the assortment it offered its customers in categories such as books, DVDs and music, the total volume of the business done by the thousands of titles that sold relatively few units rivaled the business done by the relatively few hits. When given near-complete choice, customers demand was not concentrated around the few hits, but extended to almost every title offered. The same sales pattern was found in such online businesses as Netflix and Rhapsody.
Consumers are increasingly able to self select the music they listen to, the movies and other programs they watch, the news they read and watch, and the trend will only accelerate as technological innovation advances and the cost of delivering fuller assortments declines. Customers already can find a cornucopia of niche products on eBay and Amazon's Marketplace. The Big Box retailers will still predominate in high volume, commodity items due to their enormous economies of scale, but mass marketed products are no longer enough.
The concept of the Long Tail is not confined to commerce. The emergence of the Internet as a critical means of obtaining information, for instance, and the plunging cost of providing that information, has had a dramatic impact on the way we get our news. We now can turn to many different sources, read websites and blogs, or watch YouTube, that target our interests and perspectives, Increasingly, we've gone from a world where we all watched the same news on television or read the same newspapers, selected by others, to a world where we watch and read the news that interests us, selected by us.
All of this has served to train the consumer to think in terms of expanded selection and choices that fit their specific, individual interests. They are now more aware than ever of the abundance of choices that are actually available, far beyond books, DVDs and music. They are more able to explore their favorite niches than ever before. And because customers are social animals like the rest of us, they will continue to want to shop for fresh discoveries in stores with salespeople with like interests among other customers of like interests.
The key insight here for independent retailers is that expanded offerings and selection can reveal demand that was otherwise not known to exist. An eclectic mix of products that customers expect to find, and related but unexpected treasures can create a compelling assortment that increases the units and dollars per sales transaction. High impulse, unplanned purchases that tap into the intrinsic joy of discovering something new and unique can be captured by the highly focused independent retailer to drive sales increases.
This represents an enormous opportunity for independent retailers to specialize in a niche, communicate the essence of their store through core items customers expect to find, then expand expectations with captivating discoveries and irresistible enticements.
There is an important caveat that independent retailers must remember, however. In the on-line market of books, DVDs and music, selection is enormous, because the costs of offering that degree of selection continue to go down dramatically. In the retail world, the cost of carrying inventory is real and significant.
No retailer can carry everything in any niche. They are unavoidably constrained by shelf space, hanging racks and peg hooks, by the fixed square footage of their stores, by capital and cash flow. By definition, they must limit selection, choosing to carry some things, rejecting others, in other words, cutting off The Long Tail at some point or another.
The Long Tail is not an argument merely to carry broader assortments. It is not an argument to expand into unrelated categories that stretch customer's expectations and the retailer's core expertise. It is not just about capturing the add-on or plus sale. It is rather a demonstration that there is business to be done in carefully selected items that deepen assortments in a retailer's niche that appeal specifically to the customer's imagination.
Customers will continue to shop at Big Box stores for mass marketed basics, but will increasingly look to their niche of choice to satisfy their passions. Unexpected treasures, captivating discoveries and irresistible enticements. Therein lies the opportunity of the Long Tail for independent retailers.
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