The Long-Tail Effect Will Revolutionize Business. Yeah…About That.

Some folks at Wharton found that the Long-Tail Effect isn’t all it’s cracked up to be.

The Wharton researchers find that the Long Tail effect holds true in some cases, but when factoring in expanding product variety and consumer demand, mass appeal products retain their importance. The researchers argue that new movies appear so fast that consumers do not have time to discover them, and that niche movies are not any more well-liked than hits.
According to Netessine, the Long Tail effect may be present in some cases, but few companies operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings in a rapidly expanding marketplace. Companies, they add, must also consider the time it takes for consumers to locate off-beat items they may want.
“There are entire companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets,” says Netessine. “Our findings show it’s very rare in business that everything is so black and white. In most situations, the answer is, ‘It depends.’ The presence of the Long Tail effect might be less universal than one may be led to believe.”

The researchers used data from Netflix who made their numbers available as past of a $1 million competition to improve predicting consumer ratings by 10%.

Posted by on September 21st, 2009 at 9:44 am


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