I recently learned of the development of two new business theories. The first one is the “Long – Tail” theory and the second one is “Competing on Analytics”. Actually, there are books on these two theories and I haven’t bought them yet. To be quite honest, I haven’t quite grasped the concepts yet but I do think I understand something about the theories. The “Long Tail” theory is actually a business strategy theory. According to the theory, consumer preferences can actually be plotted into a graph and this will appear like a bell shaped curve with its tails extending indefinitely in both direction (the normal curve distribution pattern). The horizontal x – axis in the graph represents consumer preferences while the vertical y – axis represents the number of consumer actually interested in the specific preference (pardon me for the crude drawing).
y-axis
a max b x-axis
The apex of this bell curve (max) represents the most popular product preference/variations because this is the point where there is the greatest number of consumer who are actually interested or who have actually bought it. However in real life, most companies offer more than one choice/variations for the consumer to choose from and most of the time, they try to attract the “greatest number of consumer” at the least cost, i.e., the least number of product variations. This is because the more product variations that a company offers, the more that the company has to invest in terms of productive capacity to produce such variants not to mention the overhead costs associated with offering such variants like marketing and inventory stocking. Now if that product variant doesn’t really have that much consumer buying, then it may not be worth it to carry it in the first place, i.e., it is profitable. So therefore, most companies offer a limited product variant range that caters to the greatest number of consumer and in this case in our graph, it is the area under the bell curve between points a and b. That area is called the mass market or the regular market. Because of the huge size of this mass market, it becomes the prime target of most companies who focus their efforts in terms of money and resources on it in order to capture a significant portion of this mass market and hence, this is also the most competitive part of the entire market. However, this mass market is by no means static, i.e., its borders being fixed. With the advent of modern manufacturing techniques and business practices, companies can produce more variants cheaply and henceforth, what was once outside the “mass market” universe is now part of it. However, everything changes with “The Long Tail Theory”. What the theory suggest is that instead of focusing on the atrociously competitive “mass market” (the area under the curve between a and b), focus on the markets outside the mass market (the area under the curve beyond a and beyond b, the so – called specialty markets). The reason being is that these markets are relatively untapped and has few if not non – existent competitions and as a result, could be quite profitable as one can charge a “handsome” but not “exorbitant” price to a specific set of consumers. Furthermore, the cost involved in catering this market is no longer “exorbitant”. This is again due to modern manufacturing techniques that allow flexible, smaller scale production without cost penalties associated with small quantity manufacturing and modern business practices like outsourcing. In short, the old industrial era, mass production thinking of “the more (you produce), the cheaper (the products’ costs gets)” is no longer relevant. Scale is no longer important. Now, put together lower cost and higher price plus less competition, the result would be a nice return on investment/capital. The Long Tail Theory is similar to Niche Marketing but not the same. Niche marketing is a marketing strategy (how a company sells its products) whereas the Long Tail theory is a business strategy (where’s the direction that the business is heading). The Long Tail theory like niche marketing focuses on a specific segment of the market but more. The proponents of the theory suggests that in order to fully exploit the “long tail” of the market behavior bell curve, one needs to leverage on the internet in order to expand ones reach. This is only but logical. I mean, in a localized regional market (as in one country or one geographic part of a country), the number of consumers having that “odd” preferences from the regular market could be quite small. Probably, too small to even break – even. However, with global reach, the numbers could add up to be quite attractive. Furthermore, because the “Long Tails” of the bell curve extends indefinitely, there is infinite niche available. In short, one can indefinitely segment the specialty market into innumerable “odd” preference based market segments and with global reach, total demand for each smaller segments of this specialty market is more than enough to be profitable. Now, if we pair this Long Tail theory of business strategy along with the Japanese manufacturing concept of Mass Customization, wherein one utilizes mass production techniques to produce customized products with a lot size of one, the potential could be very, very attractive…… in turn of profit of course. On the other hand, the Long Tail theory has some serious issues to consider. Foremost of these issues is that what if the market preferences shifted? What if the market changes? I mean yesterday, being hip is wearing a low waist pant and very short t – shirt that exposes ones belly button and then all the sudden, the next day, everybody thinks that wearing clothes that covers the neck down to the toe as cool. What would happen to the business? Or for that matter, what if once the oddity of all consumer preferences becomes the “in” thing among the mass market buyers, instead of being the one and only unique and different, you become one of the many. In short, you lose the premium pricing power of being unique. Market preference shifts can either bloat a company’s customers or pull it out underneath it. Another issue that the Long Tail theory has to address is the advances of newer manufacturing technologies and business practices which increases the ability of traditional companies selling to the mass markets to produce more variants cheaply and henceforth, allows these companies to sell outside its traditional market. At any rate, I felt that the Long Tail theory is something worth to explore further.
The second new business theory that I learned recently is “Competing on Analytics”. Competing on Analytics is about utilizing Business Intelligence to develop Competitive Advantage. Business Intelligence is about extracting useful information from the data of customers’ buying behaviors. Business Intelligence also sought to quantify such behaviors. Competitive Advantage on the other hand is a strategy developed by a company in order to win its nearest competitor. Competitive Advantages usually involve being faster, better, more, or cheaper than competition. In short, Competing on Analytics is all about developing competitive advantage based on hard quantifiable facts and not just base on perception per se, which is in most cases the basis in crafting a competitive advantage. You see, most companies created their competitive advantage based on what they perceived as what customer wants according to surveys but not on the “why”. People wanted to buy a pizza that can be delivered in 30 minutes or less and your competitor is delivering it at 29 minutes. In the old perception based competitive advantage, logic tells that you have to deliver the pizza in 28 – ½ minutes or less but do companies ask why? I mean why should somebody buy a pizza from you that can be delivered in 28 – ½ minutes? What is the reason they wanted to get their pizza fast? Is it because they wanted it hot? Is it because they are busy and they have short lunch breaks? If one could know the true reason why, then it is possible that you don’t have to deliver the pizza in 28 – ½ minutes. Instead, the solution might be is to open a shop beside the office or in every office building in every corner, in every street, etc…… As of now, I haven’t read the theory yet nor have I studied it’s framework but I think this is a pretty interesting theory.
Lastly, I also happen to read a really great business quote which I got from browsing the book, “All the Teas are in China” (?). The quote states in this way, “The best revenge one can give to a lousy customer is to sell more to them!” Great quote! The best I’ve heard in years! I mean, we all have our fair share of difficult customers, the so – called “customers from hell”. Never mind that they paid well. We always think that it is a good riddance to drop these customers and we’re better off without them. In fact, we can’t wait to throw them out! However, no matter what, that customer will still buy regardless what you do to them and if they can’t buy from you, they’ll buy from your competitors. Now that’s not good either. You’re giving up a good paying customer to a competitor? Must be nuts to do so. So the best way to deal with it is to sell to them, the customers from hell. But don’t just sell, you have to take your revenge. You have to sell with a vengeance. Sell them MORE! Sell them in such a way that you milk them of every penny from his/her pocket/s but why stop at their pockets? Milk them of every penny from their bank accounts, from their children’s educational trust fund, from his/her inheritance, from his/her spouse’s assets and heirlooms, and from his/her retirement funds. Milk them of every penny until you see the whites of their eyes ..….............................................. Now, that is ………… business.
y-axis
a max b x-axis
The apex of this bell curve (max) represents the most popular product preference/variations because this is the point where there is the greatest number of consumer who are actually interested or who have actually bought it. However in real life, most companies offer more than one choice/variations for the consumer to choose from and most of the time, they try to attract the “greatest number of consumer” at the least cost, i.e., the least number of product variations. This is because the more product variations that a company offers, the more that the company has to invest in terms of productive capacity to produce such variants not to mention the overhead costs associated with offering such variants like marketing and inventory stocking. Now if that product variant doesn’t really have that much consumer buying, then it may not be worth it to carry it in the first place, i.e., it is profitable. So therefore, most companies offer a limited product variant range that caters to the greatest number of consumer and in this case in our graph, it is the area under the bell curve between points a and b. That area is called the mass market or the regular market. Because of the huge size of this mass market, it becomes the prime target of most companies who focus their efforts in terms of money and resources on it in order to capture a significant portion of this mass market and hence, this is also the most competitive part of the entire market. However, this mass market is by no means static, i.e., its borders being fixed. With the advent of modern manufacturing techniques and business practices, companies can produce more variants cheaply and henceforth, what was once outside the “mass market” universe is now part of it. However, everything changes with “The Long Tail Theory”. What the theory suggest is that instead of focusing on the atrociously competitive “mass market” (the area under the curve between a and b), focus on the markets outside the mass market (the area under the curve beyond a and beyond b, the so – called specialty markets). The reason being is that these markets are relatively untapped and has few if not non – existent competitions and as a result, could be quite profitable as one can charge a “handsome” but not “exorbitant” price to a specific set of consumers. Furthermore, the cost involved in catering this market is no longer “exorbitant”. This is again due to modern manufacturing techniques that allow flexible, smaller scale production without cost penalties associated with small quantity manufacturing and modern business practices like outsourcing. In short, the old industrial era, mass production thinking of “the more (you produce), the cheaper (the products’ costs gets)” is no longer relevant. Scale is no longer important. Now, put together lower cost and higher price plus less competition, the result would be a nice return on investment/capital. The Long Tail Theory is similar to Niche Marketing but not the same. Niche marketing is a marketing strategy (how a company sells its products) whereas the Long Tail theory is a business strategy (where’s the direction that the business is heading). The Long Tail theory like niche marketing focuses on a specific segment of the market but more. The proponents of the theory suggests that in order to fully exploit the “long tail” of the market behavior bell curve, one needs to leverage on the internet in order to expand ones reach. This is only but logical. I mean, in a localized regional market (as in one country or one geographic part of a country), the number of consumers having that “odd” preferences from the regular market could be quite small. Probably, too small to even break – even. However, with global reach, the numbers could add up to be quite attractive. Furthermore, because the “Long Tails” of the bell curve extends indefinitely, there is infinite niche available. In short, one can indefinitely segment the specialty market into innumerable “odd” preference based market segments and with global reach, total demand for each smaller segments of this specialty market is more than enough to be profitable. Now, if we pair this Long Tail theory of business strategy along with the Japanese manufacturing concept of Mass Customization, wherein one utilizes mass production techniques to produce customized products with a lot size of one, the potential could be very, very attractive…… in turn of profit of course. On the other hand, the Long Tail theory has some serious issues to consider. Foremost of these issues is that what if the market preferences shifted? What if the market changes? I mean yesterday, being hip is wearing a low waist pant and very short t – shirt that exposes ones belly button and then all the sudden, the next day, everybody thinks that wearing clothes that covers the neck down to the toe as cool. What would happen to the business? Or for that matter, what if once the oddity of all consumer preferences becomes the “in” thing among the mass market buyers, instead of being the one and only unique and different, you become one of the many. In short, you lose the premium pricing power of being unique. Market preference shifts can either bloat a company’s customers or pull it out underneath it. Another issue that the Long Tail theory has to address is the advances of newer manufacturing technologies and business practices which increases the ability of traditional companies selling to the mass markets to produce more variants cheaply and henceforth, allows these companies to sell outside its traditional market. At any rate, I felt that the Long Tail theory is something worth to explore further.
The second new business theory that I learned recently is “Competing on Analytics”. Competing on Analytics is about utilizing Business Intelligence to develop Competitive Advantage. Business Intelligence is about extracting useful information from the data of customers’ buying behaviors. Business Intelligence also sought to quantify such behaviors. Competitive Advantage on the other hand is a strategy developed by a company in order to win its nearest competitor. Competitive Advantages usually involve being faster, better, more, or cheaper than competition. In short, Competing on Analytics is all about developing competitive advantage based on hard quantifiable facts and not just base on perception per se, which is in most cases the basis in crafting a competitive advantage. You see, most companies created their competitive advantage based on what they perceived as what customer wants according to surveys but not on the “why”. People wanted to buy a pizza that can be delivered in 30 minutes or less and your competitor is delivering it at 29 minutes. In the old perception based competitive advantage, logic tells that you have to deliver the pizza in 28 – ½ minutes or less but do companies ask why? I mean why should somebody buy a pizza from you that can be delivered in 28 – ½ minutes? What is the reason they wanted to get their pizza fast? Is it because they wanted it hot? Is it because they are busy and they have short lunch breaks? If one could know the true reason why, then it is possible that you don’t have to deliver the pizza in 28 – ½ minutes. Instead, the solution might be is to open a shop beside the office or in every office building in every corner, in every street, etc…… As of now, I haven’t read the theory yet nor have I studied it’s framework but I think this is a pretty interesting theory.
Lastly, I also happen to read a really great business quote which I got from browsing the book, “All the Teas are in China” (?). The quote states in this way, “The best revenge one can give to a lousy customer is to sell more to them!” Great quote! The best I’ve heard in years! I mean, we all have our fair share of difficult customers, the so – called “customers from hell”. Never mind that they paid well. We always think that it is a good riddance to drop these customers and we’re better off without them. In fact, we can’t wait to throw them out! However, no matter what, that customer will still buy regardless what you do to them and if they can’t buy from you, they’ll buy from your competitors. Now that’s not good either. You’re giving up a good paying customer to a competitor? Must be nuts to do so. So the best way to deal with it is to sell to them, the customers from hell. But don’t just sell, you have to take your revenge. You have to sell with a vengeance. Sell them MORE! Sell them in such a way that you milk them of every penny from his/her pocket/s but why stop at their pockets? Milk them of every penny from their bank accounts, from their children’s educational trust fund, from his/her inheritance, from his/her spouse’s assets and heirlooms, and from his/her retirement funds. Milk them of every penny until you see the whites of their eyes ..….............................................. Now, that is ………… business.
