Long tail marketing strategy refers to the strategy of targeting a large number of niche segments in markets with a product or service. Niche marketing means a marketing strategy of narrowing down focus on product/service offerings to target of small but profitable subsection of a market. Small niches in market are overlooked by dominating market leaders. The best example I can give here is of Netflix Inc. which is an American media-service provider headquartered in California, founded in 1997. The company’s primary business is its subscription-based streaming OTT (Over the Top) service which offers online streaming of a library of films and television programs, including those produced in-house. As of April 2019, Netflix has over 148 million paid subscriptions worldwide, including 60 million in the United States, and over 154 million subscriptions total including free trials.

Long Tail first came into existence because of the Internet culture seen in a significant post by Clay Shirky titled “Powerlaws, Weblogs, and Inequality” he studied why certain weblogs (the original term for blogs) had a power law distribution. It was Chris Anderson who expanded the theory to explore implication for culture, and for business, and coined the term Long Tail. He coined the term in 2004. He pointed that the products in low demand or with low sales volume can collectively make up market share or exceeds the relatively few current bestsellers and blockbusters but only if the store or distribution channel is large enough. He pointed out that the internet gave consumers choices beyond what was offered in physical stores; e-Commerce offers niche markets the chance to appeal to their audience through major marketplaces like Amazon, Flipkart, Alibaba. With the wake of e-commerce growing in popularity, coupled with affordable shipping or digital downloads, there’s always someone out there looking to buy even the most specialized products. Amazon and Alibaba can buy items in large quantities, lowering the price of the product.

In many retail stores, a small group of popular items such as  Shapewear which is shaping up to be one of the best evergreen niche product in a store. For past two years in row, this product category has made to the list. By 2022, the shapewear market is expected to skyrocket to about $ 5.6 billion in sales. What started as an undergarment has transitioned to a piece for everyday wear. Similarly, in the autumn season and early winter months, plaid shirts searches re-emerge as a seasonal trend. This fashion product item has created a standalone category in retail outlets called “Plaid,” and is considered trendy. Such new niche products help the sales to soar. Many stores automatically promote these already popular items, trying to attract as many customers as they can before their competitors do. Meanwhile, their other inventory continues to sell, without special promotion. However, some stores carry such a variety of inventory that their less popular items, in total, actually make up the bulk of sales. If they plot the number of sales of each individual product, they observe that their distribution curve looks dominant like a long tail because of niche products.

Long tail marketing concentrates on innovative yet less popular products. While many marketing strategies focus on promoting a specific product or brand, long tail marketing involves more inventory management than the product promotion. The fact is this business model is based on the 80/20 rule of the Pareto principle; Amazon and Netflix stock items in centralized warehouses, while displaying them on a virtually unlimited sales floor (their website), resulting in a much lower cost for shelf maintenance. Web-page maintenance has its costs, but they are substantially lower than physical storage which requires sorting, stocking, and maintaining shelves. Meanwhile, sellers of digital products such as iTunes, or Amazon’s Kindle books don’t even require warehouse space, further reducing the maintenance costs.

A brick-and-mortar video rental store or bookstore requires so much shelf space for staking the books and videos, and must devote a significant amount of that space to stocking enough of the most popular items to meet demand. Less popular items compete with each other for limited space, and greater variety increases costs in time and energy in stocking and sorting.

The principles of long tail marketing are also applied by microfinance businesses who offer smaller loans to large groups of people all over the world. A loan of less than $100 is enough to start a business in many places. These customers, who often have no established credit history, have long been ignored by traditional banks; but now represent a significant niche market, and an important component of economic growth in many regions of the world, including Africa and Southern Asia. The plus points of long tail business strategy are as follows:

It offers lower costs to store in terms of distribution and supply: Long tail is suitable because of the lower cost of storing/stocking and near unlimited potential for distributing products. Centralized warehouses are substantially less expensive than retail chains with local stores. Winners achieve better distribution, logistics, inventory management, warehousing, and ultimately have more data to determine how to price and scale.

Lower merchandising costs: Web and mobile storefronts have the ability to display huge amounts of inventory. By reducing the search costs for the average customer, and the cost to display inventory, long tail models increase the collective share of remote and difficult to get products.

Suggestion engines:  Both Amazon and Netflix are famous for their “and you may also like” recommendation tools. It works wonders. The recommendation engines shift demand to the long tail of the demand curve, away from the hits on popular books, media, and products that drive traditional retail demand and toward niche undiscovered products. Based on the use of collaborative filters, preference for a popular product can shift demand back to hits or popular titles.

Opinion of crowd input matters: The way users find what they are looking for is often by recommendations of the volunteers, contributing connections and collaborating directly with a company to create and organize information. Google is successful in creating a long tail of web search with the direct involvement of everyone that uses Google; this contributes linked content on the web.

Data analytics informs product development: Data analytics is famous for using the customer preference data collected over time to deliver not just a marketplace of products, but original content based on deep customer intelligence. Amazon has smartly already launched its own private label brand to sell diaper products, and most recently announced future food products.

The flipside: On the flipside there has been much debate in the academic and business community about the validity of long tail as a feasible business model, and the term is no longer popular for freshly brewed startups. Many neo-entrepreneurs are challenging the potential value of long tail. However, it is worth understanding the basic assumptions which laid the foundation for early thinking in the value of internet delivery. The idea of long tail as a business model has changed with Amazon’s domination of online retail. Amazon literally dominates every possible category. A key question to authenticate a long tail theory is would a company benefit from a wider distribution of inventory, both in terms of inventory and search costs?

 Today e-commerce is become part of our life. The arrival of e-commerce and m-commerce (mobile) has transformed the entire retail sector.  Retailers are tapping multiple channels for selling their merchandise; from traditional stores, using catalogue, through the internet and more and more via smart phones and tablets, no stone is left unturned. Technological advancement means that the store is omnipresent! It’s now everywhere, in consumers’ pockets, at their homes and at the mall too. For surviving the competition in the e-commerce world distribution has become key component of the business. Supply chain and logistics experts have become key players and the other important element being real estate – strategic locations for Distribution Centres (DC).

While retailers are developing their multichannel strategy multichannel marketing which refers to the practice by which companies interact with customers via multiple channels, both direct and indirect, distribution strategies also need to be worked at a faster pace especially when the bar has been raised with delivery models like same-day and next-day delivery at the customer’s doorstep.

Retail supply chain executives go for locating fulfilment facilities closer to their customer base in order to meet service commitment goals such as aggressive delivery schedules.

Retail chains are therefore finding online logistics more cost-effective. They rather opt for this than open more traditional stores that require an entirely different kind of distribution model. Therefore, retailers are evolving their regional distribution networks with the addition of e-commerce distribution centres. Traditional warehouses which act as stores require lesser investment and machinery and fewer staff.  The new e-commerce distribution centres, which involve direct order fulfilment, can cost three times as much and involve three times as many employees.

Retailers need to consider points such as proximity to key customers, tax incentives, sales tax and the availability of local labour which are vital for business when searching for the right location for their e-commerce distribution centres. Also, the global spread of technology into multichannel retailing has also opened up new markets in both developed and developing countries. While online sales are growing in the United States and UK, China and Hong Kong are following the trend. China’s consumers are fast embracing e- and m-commerce and are spending most of their money online. And as technology and commerce is expanding faster, retailers are finding it difficult to keep pace with logistics and infrastructure because these two fields are still emerging with newer software and newer gadgets.

In most cases domestic logistics service providers are unable to provide services to fulfil high volumes of customer parcel shipping at low costs and within a realistic delivery time frame, this noticeably impacts the direct-to-customer channel. Retailers have to thus establish their own distribution networks or rely on outsourced express shippers.  This leads to an opportunistic gap in the market for third-party (3PL) and forth-party (4PL) logistics companies and investment in industrial real estate infrastructure.

In the US for the past two decades, U.S. companies have been shifting production to markets with lower labour costs. However, as energy costs rise and labor becomes more expensive in Asian markets, companies are increasing near-shoring and on-shoring. Firms which opt for all-water options but cannot tolerate the lengthy shipping times from Asia are shifting some operations to near-shoring destinations such as Mexico or Central and South America and even back to the United States.  With production and demand closer to home, retailers can respond more quickly to trends and changes in buying patterns.

Nearly 80 percent of retailers say that online sales have increased in the past five years with some reporting increase of 25 percent or more. This has forced retailers to change the traditional distribution network for their e-commerce model. 3PL and 4 PL providers have gained a huge role to play in the e-commerce business model.

Generally, 3PL provider’s main business is to provide logistical services as its core activities. The logistics services offered are based on the range of its logistics’ function. They include freight forwarders, courier companies and other companies integrating & offering subcontracted logistics and transportation services. 4 PL differs from third party logistics in some of these ways: 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 4PL organization acts as a single interface between the client and multiple logistics service providers; ideally all aspects of the client’s supply chain are managed by the 4PL organization; and it is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.

4PL was originally defined by Accenture as a trademark in 1996 and defined as “A supply chain integrator that assembles and manages the resources, capabilities, and technology of its own organization with those of complementary service providers to deliver a comprehensive supply chain solution.” but the concept has almost changed at present.

4PLs have also been referred to as “Lead Logistics Providers”. In the present scenario, new crop of companies have emerged who are actual transportation companies too. While a 4PL is sometimes described as non-asset-owning service provider, their role is to provide broader scope managing of the entire supply chain. The 4PL model offers a platform to get companies thinking about long-term strategy; developing an idea of what they want their future supply chain scene to look like.

If you look closer, the 4PL model actually drives 3PL outsourcing. The difference between the two activities ultimately comes down to scope. In a traditional transactional role, the 3PL will hold on to scope—managing a warehouse, for example. With a 4PL model, the scope recedes and flows. The service provider scales resources depending on different skill set requirements that turn upwards.

If e-commerce brings the logistics industry closer to the point of consumption, it has boosted the demand in the logistics industry. Would it be wrong if we call Amazon and Wal-Mart logistics companies? At heart, these companies are retailers; but, actually on the basis of the economics of these two companies, Amazon and Wal-Mart are far, far better at handling the logistics of their trade than their competitors and hence they are the leaders. Distribution is their core competence.

If you read the case of Amazon.com one understands how important firm’s logistics is in e-commerce. Amazon.com has come a long way since its founder and chief executive officer, Jeff Bezos, stopped imagining the company as a virtual bookstore. It has evolved into an online retail giant that generated US $74.45 billion in revenues in 2013. It is worth mentioning that much of that came from its support of more than two million companies that used Amazon to sell their products online and distribute them to customers. Under the company’s various programs, Amazon not only provides its customers with a means of advertising and selling their products, but also offers to store those products in its fulfilment centres; pick, pack, and ship them; and provide customer service which includes handling returns.

In the process of developing its network to support those services, Amazon has built out an infrastructure which by recent account includes 145 warehouses around the world! 84 in the United States, four in Canada, 29 in Europe, 15 in China, 10 in Japan, and seven in India. This collectively accounts for more than 40 million square feet of space. Amazon has also made substantial investments in material handling systems, including the acquisition of Kiva Systems for $775 million in 2012.  Kiva is now a wholly owned subsidiary of Amazon, which designs robots, software, workstations, and other hardware that has been used in the distribution facilities of companies such as Staples, Office Depot, and The Gap. The systems produced by Kiva are expected to be an integral part of the distribution network now being developed by Amazon. Amazon has also made major investments in cloud computing. At the same time, the company has been developing transportation capabilities to support its Amazon Fresh same-day grocery business. That’s called might of an e-commerce company!