The Long Tail Economy

Our economy is shifting from a few mass markets to millions of niche markets. Technology, such as the internet and sophisticated search engines, has made it is easier for consumers to find and buy niche products.

Traditional retail stores only stock items that appeal to mass markets because shelf space is expensive. That said, online retailers, such as Amazon and iTunes, can stock virtually everything. Those millions of niche products have created what Chris Anderson, the editor-in-chief of Wired Magazine, calls the “Long Tail of Retail.”

Until the advent of the internet, the sale of custom or niche products had been largely neglected. Thanks to the infinite shelf-space of online retailers and new distribution mechanisms (e.g., digital downloads) and peer-to-peer markets (e.g., eBay and Uber) the bottleneck of distribution has been virtually eliminated.

According to Chris Anderson, the Long Tail Economy is rooted in the theory that our culture and economy is increasingly shifting away from a focus on a relatively small number of mainstream products and markets at the head of the demand curve and toward a huge number of niche products in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into a one-size-fits-all container.

In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream ones.
Three economic triggers have given rise to the Long Tail Economy:

1. Falling technology costs give individuals access to tools formally too expensive.

2. The internet has opened up channels that lower transaction costs, opening up markets for niche products.

3. Powerful search engines allow potential buyers of niche products to search while recommendation engines and user ratings have made it easier for buyers to locate products.

How does the “Long Tail of Retail” affect your industry?

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