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The Long Tail

The answer to scarcity

David Pruitt

on 29 April 2010

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Transcript of The Long Tail

The long tail theory explains that niches in our demand curve are
becoming increasingly popular due to changes in our culture. People
want products that are unique, different, and catered to their taste. The long tail represents a shifting away from categorizing
our consumptions into "one size fits all" categories. One example is the lack of supply in traditional bricks and mortars
stores. Shelf space limits the ability for variety in each product
category, thus creating the existence of the long tail. The long tail is the yellow portion of the tail where the niches reside.
This portion is expected to see expanded growth in the future in comparison
to the red, "hits" (mainstream products and markets) section that has dominated
our culture over the last century. Long tail is a term first coined by Wired Magazine's Chris Anderson in 2004
to explain how the advances in technology have allowed for a market of niches...
by the millions! With a decrease in production and distribution costs, especially online, the long tail business model now has a stable platform to be successful.
Why is such growth expected? What it is... What it means... What it says... Example Going back to our previous example of bricks and mortars stores,
the internet now provides us with the abundance of choice in a
product that a brick and mortar store usually does not. Why is it important... Below is a graphical illustration of how revenue and profit can be generated from the long tail versus the Pareto principle (80/20 rule). This is merely an example: revenue and profit percentages can be drastically different depending on the business model. Popular long tail businesses The Netflix model in action Selling small volumes of more rare items to many customers instead of selling large volumes of more popular items can be just as profitable. Let's take a look at a few more companies that employ this strategy. Less of More http://rivals.com Check out the Rivals webiste here: Rivals.com was engineered to be the leader in collegiate football and basketball recruiting coverage, but now delivers brief coverage in other high profile collegiate sports, such as baseball, as well. After acquisition in 2007, Rivals.com is now a sub-unit to Yahoo! Sports. Their website boasts that they are one of the fastest growing brands in sports media, reaching more than 11.5 million unique users in January 2009. Rivals.com services the long tail portion of the demand curve by operating 110 specific college team websites in conjunction with 47 High School websites. They also have a specific baseball site, 2 hockey sites, and 2 JUCO (Junior College) sites. More than just recruiting, Rivals.com strives to be the #1 source in team-specific sports coverage. They provide the inside scoop on most all facets of the athletic department from board meetings, coaching hires and assignments, contracts, etc. The demand curve in this economy is for college sports information in general. The head contains information pertaining to national news found in the headlines of major sports information sources such as ESPN, Yahoo! Sports, Fox Sports, etc. The long tail creates a market for more depth and content in major athletics sports information at the collegiate team level. This level of information well surpases local area coverage. The founders of Rivals.com failed in their first attempt at starting the company, relying solely on advertsing revenues. Rivals.com now operates under a "freemium" model which allows casual fans to search the sites with limited content , but charges a subscription fee for those more interested in the "Ultimate Ticket" - an upgraded service with deeper content, access to local experts, and message boards. By providing a large breadth of niche segments, the site(s) allows a user access to inside information concerning their favorite team(s) and provides an online community in which they can interact and discuss the topics of their choice. Engagement is a key concept in this type of market. To set themselves apart and attract customers, Rivals.com provides national and state player rankings, team recruting rankings, recruit video highlights, searchable player database, their own interviews, various recruting funtion tools, text message alerts, and much more. As of 2007, subscriptions (185,000 of them, which is 80,000 more than 2005) accounted for more than half of the revenues for Rivals.com. With monthly subscriptions for $9.95 or annual subcriptions for $99.95, that's roughly $18.5 million in annual subscription revenue. Because of the engaged customer base, the company averaged 2.75 million unique visitors in September 2007, which accounted for 10 - 75 million page views a day in the same time period. Experts suggest the company made around $18 million in advertising for the year in 2007 based on these numbers. The Vermont Teddy Bear company specializes in handmade teddy bears for all occasions. They invented the Bear-Gram concept which includes a Vermont Teddy Bear dressed to suit a special life event, occasion or holiday. The bear is placed in a colorful gift box complete with air hole and game printed on the inside, and enclosed with a personalized greeting and treat. The website has at least 12 occasions (new baby, retirement, wedding, etc) and 12 holidays (4th of July, Secretary's Day, Sweetest Day, etc.) to choose different bears from. The long tail in this market is expressed by the ability to customize. The head would include generic teddy bears spanning multiple categories. These can usually be found in masses around Valentine's Day and Christmas in most retail stores. However, other products are available in gift shops year round, but again, with very limited choice. Today, Vermont Teddy Bear handcrafts more than 350,000 Bear-Grams a year, of which 80% are ordered online. Vermont Teddy Bear uses much more than just its vast array of customization, which, by the way, includes things like optional embroidery service, design your own bear outfit, flowers, chocolates, other gifts, and special collections such as the Fragrant Bear or the new Go Green Bear. They also provide a lifetime guarantee, a proven track record, bear counselors (a hotline), and customer interaction forms for suggestions and ideas. The value of choice is, however, premium in this case. Bears range from $49.95 to $199.95, although there are few at these ends of the spectrum. The average price for a 15" bear without much customization is around $75. First up is... And the final company we will look at is... Continuing the trend, Vermont Teddy Bear also strives to create a strong connection with their consumers. All bears are proudly made in Vermont, and the company encourages you to come visit their bear factory for a tour! On the tour, you can create your own 13" bear for $19.99 (as you'll see below, that's a steal!). In addition, the company operates a blog and multiple programs such as Big Hero, Little Hero, which helps to provide children with special bears during a life crisis. Multiply that times 350,000 and you have a "beary" nice business (I apologize for the awful humor, but I couldn't help myself). Let's see how they entice us to spend this much money on a teddy bear... Next, let's take a look at... Founded in 1908, SIGG has become the leading global design brand in reusable water/drinking bottles. http://VermontTeddyBear.com Virtually unbreakable, SIGG bottles are made from a single piece of aluminum or stainless steel and constructed with no seams to ensure a long-lasting, leak-proof performance - one reason Backpacker magazine deemed it the "World's Toughest Water Bottle." The brand leader in comprehensive, high-quality drinking systems for leisure and sports use, SIGG producst are distributed in over 50 countries worldwide. Although the Swiss company had nearly 100 years experience in making the bottle, TIME magazine listed the SIGG among the Most Amazing Inventions of 2005. SIGG offers many different sizes and shapes, but has more uniquely created a product base for most all audiences. With over 200 designs from skulls to flowers, you can base your selection over numerous categories such as kids, men, women, classic, or simply design your own bottle in a variety of ways. In a 2007 examination of bottled water consumption by Americans, National Geographic discovered we spent nearly $11 billion on over 8 billion gallons of bottled water, and then, of course, dumped over 22 billion empty plastic bottles in the trash. In the more than 70 million bottles of water consumed a day, the US drains 1.5 million barrels of oil over the course of one year in bottle production alone. Until the arrival of SIGG in the US in 2004, the options of reusable water bottles were limited to clear and tinted plastic. SIGG has clearly taken advantage of the long tail with their website by offering consumers an abundance of choice in the reusable water bottle market with a safe, stylish alternative to plastic water bottles. Because SIGG is so environmentally conscientous, consumers not only feel that their bottle makes a difference, but the company they support makes a difference as well. With so many unique designs and interchangeable caps, consumers can create more than 1,000 different configurations to meet their style. They have created a distinct edge by being the only place where you can personalize your SIGG bottle. We again see a company who is tuned in to their consumers. They provide the highest standards of Swiss quality and craftsmanship while producing a 100% recyclable product that has an estimated life of 10-20 years, yet still comes with a lifetime warranty. SIGG provides customer benefit to backpackers, fashion enthusiasts, concerned moms, and ethical environmentalists alike by supporting organizations such as 1% for the Planet, where SIGG donates 1% of all sales to environmental causes. While exact numbers are not accessible, perhaps these are a few of the reasons sales are estimated to be around $100 million a year while the average price of a SIGG bottle is around $20. Get your own SIGG bottle here http://mysigg.com
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