Are you shifting to discount pricing to maintain revenue levels? Please STOP! That’s a tell-tale sign you may be in a saturated market space. In saturated markets, customers readily find more than sufficient replacement products to satisfy their needs. In a saturated market, experts advise that to achieve new growth, one must develop new products, improve existing ones or go head-to-head and compete on price. But beware, cutthroat price competition is the kiss of death and quickest way to bankruptcy. There is another way – monetizing the long tail.
What is the long tail?
A long-tail business strategy enables organizations to realize new profit opportunities from selling small volumes to many under-serviced niche clients, contrary to the traditional model of selling large volumes to a few. That’s not “differentiating” your products. Product differentiation is the process of distinguishing a product from that of its competitors. When successful businesses are in a saturated market, they’ve probably already separated themselves from the “no-frills” operators through exceptional customer service, product quality, durability or service. Increasing sales in the long tail of your distribution stream allows you to offer that same selling proposition to a multitude of under-serviced smaller businesses. It’s these small but steady revenue streams that can incrementally add up to a sustainable revenue that could be larger than the combined revenue of your larger customers. However, understanding the long tail involves research. That means entering the swamp of the revenue tail to unearth niche businesses. What are their unmet needs and how you can service them? It’s the application of this differentiated knowledge that can achieve revenue growth in a saturated market.
Leaders of the long tail strategy
Let’s look at Amazon to demonstrate the sheer size of the long tail. In 2004, Chris Anderson noted that half of Amazon’s book sales came from outside its top 130,000 titles. That meant that the market for books that weren’t even sold in the average bookstore was larger than the market for those that were. That was a huge untapped long tail market. While Anderson’s analysis applied to online businesses with infinite virtual inventory space, brick-and-mortar shops can discover new markets by applying a long tail revenue strategy.
Brick-and-mortar long-tail strategy: Know your production and your margins
By convention, brick-and-mortar retailers concentrate on the 20% of customers that bring in 80% of their business. They avoid serving smaller-volume niche market clients. That translates into a potential market of 80% that’s under-serviced. This is where these shops can effectively use their management information systems (MIS) to discover excess capacity and differentiate its product lines – into star performers, cash cows, dogs and question marks. Armed with this knowledge, sales staff can expertly match the firm’s supply with the unmet demands of long tail clients.
Benefits of long-tail strategy
Volume. Offering less-popular products and excess production capacity to a large number of niches lowers production costs and expands one’s distribution channels. That’s a win/win situation. Selling a few products to many customers requires employees to be flexible and schedules to be malleable. Production managers must know how to maximize equipment utilization and still remain within safe operating parameters. Achieving these objectives requires dedicated staff who are cross-trained and can move smoothly from one job to the next across production roles. That also translates into less downtime and full employment.
Less competition. Because of the research and patience required to develop a long tail revenue strategy, the market space is less crowded with competitors.
Messaging. Equal effort must be spent on modifying websites and promotional messages in a way that resonates with potential long-tail clients.
Think like Holzhauer
Shop owners who want to move to a long tail revenue approach need to think like James Holzhauer, the 2019 Jeopardy sensation. He didn’t walk into Jeopardy’s studios with a “let’s see how it goes” strategy. Rather, he researched, practiced and deployed a strategy that gave him the confidence to endure and succeed. Catering to niche clients lurking in the “tails” of the distribution curve can unearth significant untapped revenue. Once your transition to a long tail revenue strategy is complete, it’s only a hop, skip and jump to re-developing your presence online to market to these under-served clients.