International Business Opportunities in the Long Tail

Chris Anderson was the first one to deal with the concept of ‘The Long Tail’ in his article published by Wired Magazine in October 2004. The term came into reference later in the book released by Hyperion during mid-2006. The term describes a business strategy that is fundamental to any business. This strategy emphasizes the advantage of having more customers to whom smaller quantities can be sold. The strategy envisages that all the small sales to more people can be accumulated to create a large market potential. Here digital and web technology could be of great help to boost the sales. (Armstrong 2008). The objective of this paper is to analyze and report on the influence of the internet on the business prospects of different companies. The paper also discusses the conceptual base of the first and second-order effects of the Long Tail. The international business opportunities that can be garnered by adopting a long-tail approach are also discussed.

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Traditionally business organizations focused mainly on capturing the mass market whenever a new product or service is introduced in the market through heavy advertising and sales promotion efforts. However, presently the marketing efforts for the introduction of a new product are greatly aided by the internet and related web technologies. New and expanded markets can be captured by properly designed promotional ideas through the internet. With limited storage, utility internet can accommodate storing information on a wide range of products and product lines. This enables the organizations to cut down the costs of sales promotion and storage. The ease with which the customers can transact their businesses is another distinct feature of business through the internet. The consumers can analyze the product features, evaluate the products, make their choice, and order the products online without physically moving from their place of residence. For instance, the internet provides the possibility of ordering several copies of books and storing them in one’s computer which otherwise may not be possible physically. The changes brought in by the internet in the business realm have resulted in changed consumer behavior and preferences. The Internet offers a wide variety of products to the customers to choose from and through online browsing, the consumer can find out the availability of the product of his/her choice. A typical example may be found in the online sale of a variety of books by Amazon.com. This company along with other major online companies retails through the internet approximately three million books a year. There are more than 100,000 titles stored by these stores which can be browsed online to select the book a customer needs. Such a facility to sell online drastically increases the chances of achieving more sales volume for the sellers and at the same time reduces the cost of time and efforts of the buyer for searching the required title or book. Internet, therefore, enlarges the business opportunities for the retailers who have their presence on the internet to reach new markets and customers by increased reach and thereby enhances the profitability of their businesses (Business Wire, 2004).

First–Order Effects

Impact on Supply-Side

The foremost advantage of marketing through the internet is that the companies can drastically reduce the costs involved in the storage of a large number of products as compared to those retailers who use brick-and-mortar facilities. The companies can provide information on the availability of a large number of products online through the internet on their designated web pages. Based on the customer responses the companies can complete the process of distribution once the customer conveys his preference online. Therefore the storage does not involve any additional cost. On the other hand in the traditional brick and mortar business, the retailers have to physically allocate shelf space for each product which increases the cost of storage of stock items for the retailer (Fitzgerald 2006). For instance, selling books online through the internet enable the companies to keep more volume of stocks which will encourage the publishers to consign their products to networks than keeping the physical stocks with them. This would enhance their sales revenue as it is better to sell at any price rather than keeping the stock (Klaassen2009).

Another distinguishing feature of internet marketing is that there is a high potential for creating a wider demand for the products when sold online because it reached more consumers globally. This is distinct from the limitation of brick and mortar business where the retailers can meet the demands of the mainstream of buyers because of the constraints placed by geographical locations of brick and mortar facilities to cater to consumers with different tastes living in the same locality (Daily Herald, 2009).

Increased use of advanced information technology in production designs and processes leads to a reduction in costs of products aimed to meet the demands of niche customers. With innovative technology and additional functional features, the demand for the products can be met at a time when there is increased customer demand. For example, certain titles of books can be printed for meeting specific demands of customers instead of incurring printing and storing costs on books with unknown demand.

 Demand-side Effects

With the offering of a wider selection of products by the retailers, the consumers are often confronted with confusion in making their choice of products. With an organized presentation of the available options, the consumers are at ease to choose. Therefore the Long Tail approach can be treated as a vitally important marketing concept as it encourages the retailers to make an organized presentation of their products. By using effective online tools the consumers are enabled to discover products based on a passive online search. The customers can search leisurely by using the database containing the history of past purchases and other consumer choices and preferences. Informative printable catalogs can also guide the consumers in making their choice. Similarly, the retailers would be able to collect information and data on past purchases of customers to forecast the market demand for particular product lines. Internet through the browsing and recommendation tools available on the internet would have a positive impact on the product sales. However, there may not be enough information available on the product on the website which may lead to the purchase of a poor quality product which is a serious drawback of buying through the internet.

Second-Order Effect

Positive feedbacks and customer responses are the Second-order effect of the Long Tail marketing approach. This is beneficial for both the consumers and manufacturers of products. Corrections in product choices and production designs are facilitated through the second-order effect. Therefore there is a significant impact of the second-order effect both on the supply and demand sides.

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Supply-Side Impact – On Producers

The Long Tail approach leads to changes in the types of products the producer should focus on based on profitability. Since the approach considers the introduction of innovative and new products to niche customers in a mass-market environment, the approach is more helpful in educating the producer to increase profitable product lines. The producer can also decide on the manufacture of those products which cater to different customer tastes and preferences. Thus, the second-order effect would increase the incentives for developing new products. The most successful companies in the business world consistently introduce innovative products matching the tastes and preferences of customers.

Demand Side Impact – On consumers

Changes in tastes and preferences are the natural consequence of the Long Tail approach. This leads to changes in the demand patterns due to the discovery of new products matching new tastes and preferences. The Consumer tastes are more varied, but they have limited choice in products in brick and mortar stores. This means that consumers who do not like one brand would try to go for another brand because several consumers are existing in the world who do not like popular brands and all these small numbers of consumers collectively put together would create a large market for using digital and web technology. Apart from that, consumers would derive more value for the products by exercising their choice to buy specialized and sophisticated products based on positive feedback. Buying online through the internet can increase their share in total sales of niche products.

International business opportunities and Long Tail Approach

Businesses striving to boost their sales and profitability through online marketing consider the Long Tail marketing approach as an essential component of their internet marketing. Internet marketing has enabled businesses to sell items that otherwise cannot be sold and make profits from such sales. It has also enabled buyers to buy different products. The long Tail approach entails better prospects for international businesses with the concept of selling fewer products for more customers across different markets globally. This enhances the chances of capturing niche global markets for such types of products or services.

Long Tail strategy is prominent in Australia where many international business houses use the approach to enlarge their customer base globally. The geographic breakdown of sales in this region is divided between 30% Australian and 70% International customers. Chris Anderson in his article has referred to empirical data from American online music to substantiate his strategy. However, the application and suitability of The Long Tail theory are challenged based on the fact a reported 10 million out of 13 million tracks available on the internet remained unsold during the year 2008.

Companies that intend to make huge profits in international business trying to reach several foreign markets with small sales. These businesses keep huge stocks emanating from different foreign locations on websites to meet the demand for products on small sales orders.

However, Will Page based on his study suggest that the niche market on the Long Tail is nothing new and the approach has already been used by many retailers. In addition, he is of the view that the increased sales in such cases are not achieved by catering to mass-market customers (Foster, 2009).

Another shortcoming of the Long Tail strategy is that because of its dependence on the internet it faces all the challenges of internet markets such as lack of credible information on products on the websites. In general, the Internet markets generally are exposed to two types of challenges. They are -:

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  1. Issues relating to internet privacy and security prevent many customers from preferring to do online transactions.
  2. Physical visits to brick-and-mortar stores are preferred in the case of some products where the customers do not feel comfortable with online purchases.

Distribution to international locations becomes another drawback as Long Tail’s strategy depends on distribution to customers in varied locations across the world. Distribution to customers in different geographical locations presents several issues to the retailer. Issues related to exchange risks and political risks add to the problems of doing business in different locations. Based on the customer location business following Long Tail approach is confronted with the problems arising from the exchange and political scenarios.

Long Tail marketing strategy can be regarded as one of the effective marketing models of the present day based on the recommendation of Chris Anderson contained in the book The Long Tail which details the salience of the features of internet marketing and its positive impact on retailing (Foster2009). According to this article, there have been vast changes in the tastes and preferences of consumers based on the extensive product knowledge acquired through the internet. This has necessitated a complete change in the marketing strategies for businesses with positive effects on the first and second-order of the Long Tail. Despite few shortcomings in distribution and other related issues, the Long Tail approach has a positive outlook on improving international business opportunities. Therefore it can reasonably be stated that the Long Tail marketing strategy would result in an expanded market base by enabling businesses to reach international markets with ease through online marketing using the internet and other web technologies. There can be an improvement in profitability also because of reduced costs of production and storage.

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