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How to Create a Customer Paradise By Chris Anderson From the book THE LONG TAIL. Reprinted by permission of Hyperion. All rights reserved.  The secret to creating a thriving Long Tail business can be summarized in two imperatives:1. Make everything available. 2. Help me find it. Now that you've got the big picture, here are nine rules of successful Long Tail aggregators: Lower your costs Rule 1: Move inventory way in ... or way out. Sears blazed the trail. It achieved its first big efficiencies with the old mail-order advantage of large, centralized warehouses. Today, the online sides of Wal-Mart, Best Buy, Target and many others are using their existing warehouse networks to offer far more variety online than they do in their stores, because centralized inventory is so much more efficient than putting products on shelves in hundreds of stores. To offer even more variety, companies such as Amazon have expanded to "virtual inventory" – products physically located in a planner's warehouse but displayed and sold on Amazon's site. Today, its Marketplace program aggregates such distributed inventory, products held at the very edge of the network by thousands of small merchants. Cost to Amazon: zero. Digital inventory – think iTunes – is the cheapest of all. We've already seen the effect the switch from shipping plastic discs to streaming megabits has had on the music industry; soon the same will come to movies, video games and TV shows. News has left the paper age, and podcasting is challenging radio. Eliminating atoms or the constraints of the broadcast spectrum is a powerful way to reduce costs, enabling entirely new markets of niches. Rule 2: Let customers do the work. "Peer-production" created eBay, Wikipedia, Craigslist, MySpace, and provided Netflix with hundreds of thousands of movie reviews. At the same time, self-service enabled Google to sell advertising for a nickel a click and Skype to sign up 60 million users in two-and-a-half years. Both are examples where users happily do for free what companies would otherwise have to pay employees to do. It's not outsourcing, it's "crowdsourcing." The advantage of crowdsourcing is not just economic; customers can do a better job, too. User-submitted reviews are often well informed, articulate, and most important, trusted by other users. Collectively, customers have virtually unlimited time and energy; only peer production has the capacity to extend as far as the Long Tail can go. And in the case of self-service, the work is being done by the people who care most about it, and best know their own needs. Think niche Rule 3: One distribution method doesn't fit all. Some customers want to go to stores. Some customers want to shop online. Some customers want to research online, then buy in stores. Some want to browse in stores, then buy online. Some want it now; others can wait. Some customers are near stores; others are scattered to the winds. Some products have concentrated demand; others have distributed demand. If you focus on distributing to just one customer group, you risk losing the others. It may sound like metaphysics, but the best Long Tail markets transcend time and space. They're not constrained by any geographic boundaries, nor do they make any assumptions about when people want what they want. iTunes' advantage comes primarily from its huge variety and convenient downloads, but being open 24/7 doesn't hurt either. Rule 4: One product doesn't fit all. Once upon a time, there was one way to buy music: the CD album (so few CD singles were sold that many artists didn't bother offering them). Now consider the choice you have online: album, individual track, ringtone, free thirty-second sample, music video, remix, sample of somebody else's remix, streamed or downloaded, all in any number of formats and sampling rates. Umair Haque calls this "microchunking." Increasingly, the winning strategy is to separate content into its component parts ("microchunks"), so that people can consume it the way they want, as well as remix it with other content to create something new. Newspapers are microchunked into individual articles, which are in turn linked to by more specialist sites that create a different, often more focused, product out of content from multiple sources – the blogger as DJ, remixing the news to create something new. We've seen this before in the form of product and brand segmentation – a dozen different kinds of spaghetti sauce for a dozen distinct palates. Now that trend is being extended to everything from individual video-game characters and levels (mix your own game) to selling cookbook chunks one recipe at a time. Each recombination taps a different distribution network and reaches a different audience. One size fits one; many sizes fit many. Rule 5: One price doesn't fit all. One of the best understood principles of microeconomics is the power of elastic pricing. Different people are willing to pay different prices for any number of reasons, from how much money they have to how much time they have. But just as there's often room for just one version of a product in traditional markets, there's often room for only one price, or at least one price at a time. In markets with room for abundant variety, however, variable pricing can be a powerful technique to maximize the value of a product and the size of the market. Lose control Rule 6: Share information. The difference between an overwhelming shelf of look-alike products and the bliss of "rank by best-selling" is information. In one case, the store knows what sells best but doesn't tell its customers. In the other, it does. So too for "rank by price," "rank by review," and "sort by manufacturer." All that data already exists; the question is how best to share it with customers. More information is better, but only when it's presented in a way that helps order choice, not confuse it further. Likewise, information about buying patterns, when transformed into recommendations, can be a powerful marketing tool. Deep information about products, from reviews to specifications, can answer questions that would otherwise have halted a purchase. Explaining why a consumer is getting a certain set of recommendations builds confidence in the system, and helps consumers use it better. Transparency can build trust at no cost. Rule 7: Think "and," not "or." One of the symptoms of scarcity thinking is assuming that markets are zero-sum. In other words, the mistake of assuming that everything is an either/or choice. Release this version or that version. Sell this color or that color. On shelves or broadcast channels, that's natural enough. There really is room for only one product in any single slot. But in markets with infinite capacity, the right strategy is almost always to offer it all. Rule 8: Trust the market to do your job. In scarce markets, you've got to guess at what will sell. In abundant markets, you can simply throw everything out there and see what happens, letting the market sort it out. The difference between "pre-filtering" and "post-filtering" is predicting accurately versus measuring, and the latter is invariably more accurate. Online markets are nothing if not highly efficient measures of the wisdom of crowds. Because they're information-rich, it's relatively easy for people to compare goods, and spread the word about what they like. Rule 9: Understand the power of free. Free gets a bad rap, evoking piracy and other such evaporations of value. But one of the most powerful features of digital markets is that they put free within reach; because their costs are near zero, their prices can be, too. Already, one of the most common business models on the Internet, from Skype to Yahoo! Mail, is to attract lots of users with a free service and convince some of them to upgrade to a subscription-based "premium" one that adds higher quality or better features. Because digital services are so cheap to offer, the free customers cost the company so little that it can afford to convert only a tiny fraction of them to paying customers. |
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