Michael Meltzer, Managing Partner, Active Management Techniques

Transcription

1 CRM s Long Tail Michael Meltzer, Managing Partner, Active Management Techniques The Long Tail 1, a phrase coined by Chris Anderson of Wired magazine, is originally a statistical expression that he saw could be used as a means of describing the phenomena of products that are less popular than the top sellers but when their combined sales were aggregated are still able to easily outsell top sellers. A Long Tail for CRM is just what the doctor ordered for a number of companies searching for ways of accessing niche markets. Organisations from travel to banking want to apply CRM and customer centric technologies to help the customer with their purchase activities and their actual purchasing decisions. The idea is to make the process of purchase as easy and as painless as possible. They want to improve the purchase experience to further differentiate their brand in a crowded market. The online companies to copy today that are making use of the Long Tail concepts are Amazon and its look-alikes. Amazon by understanding the way customers shop and their need for support in their purchases have raced ahead of the competition. By providing recommendations based on past purchasing behaviour and the opportunity to know that Customers who bought this book also bought, or what other readers/listeners/viewers have thought of the product offer an opportunity to the customers to make informed decisions and potentially extend their purchases. What we can now see in this process has been the Long Tail phenomena in the making. Amazon, Napster and Netflix have all found that they actually sell many items that are just not best sellers. In many cases they have opened up the world of the customers to a chose what was never available before. For example, the average Barnes & Noble store stocks 130,000 titles. ''Yet

2 more than half of Amazon's book sales come from outside its top 130,000 titles,'' Anderson writes. The endless virtual store capability has enabled countless consumers to discover new authors, musicians, and directors. Blockbuster titles remain the backbone for the companies, but low-cost visibility, access to the web and low cost trusted distribution has enabled consumers to exercise their very eclectic tastes. And these specialised titles outsell the blockbusters when added together. This phenomenon is not limited to the consumer market however. The ASP s (application service providers) believe that this business model and approach if used to offer software applications will be a winner. By offering their software applications via the web they will enable many minor software niches to have an appropriate solution provided and when these small niches sales are aggregated, the value could be awesome! Some providers want to fulfil the needs of the "long tail" of enterprise applications; customized, low-demand applications tailored for specific business needs. Using on-demand tools these customers will be able to use the same technologies that some of the most successful web based services providers use so that they can develop software to meet individual needs. Another business that is benefiting from the Long Tail phenomena is retail and wholesale banking. For many years banks have been using technology in their quest to understand the customer and their needs. They have studied, modelled, interviewed and simulated customers as they interact with their banks. For many they still have not got it right in a commoditised style marketplace where they seem to destroy their very fragile base of trust with the customer. Yet some of the smart ones have understood the real opportunity they have with the many and varied products and services they can offer. The

3 very number of niche sales opportunities they can create if they get it right could easily improve overall customer profitability. To be successful they must focus on customer needs and experience through more sophisticated customer modelling. This customer modelling approach enables the banks to take advantage of the long-tail concept. Banks sell many different types of products and services that in a retail and wholesale bank can number, with more than a hundred variations. The offerings may be loans, mortgages, leasing or discounting, factoring or letters of credit, life or re-insurance, the list is indeed very long. Many of these potential offerings may be unknown to the customers that take the core set of anchor products such as loans, consumer accounts or active business accounts, payment cards and currency. Yet the other products and services that make up the long tail are of great value to the unaware customer and to the bank that has not spotted the connection and/or need. By the use of the law of distribution we can get a picture of the potential. There is a small number of popular products that are used by most customers and a long tail of less well known products that for many niche requirement customers will be of high value. By using the data and tools they currently have, they can explore these niches for the customers; get their sales teams to offer solutions at the right time, place, price that are tailored to customer needs. This creates a powerful method for increasing value driven sales and reduce sales cycle times. Bit by bit these niche offerings could provide greater value/margin than the popular core products that everyone offers. It also creates the opportunity for the first mover to build niche differentiators that competitors just cannot match.

4 The long tail has the ability to be applied to many industries with a little creativity. Chris Andersen with tongue in cheek tried to identify just what the long tail could be: A) The Long Tail is the infinite shelf-space effect--the new mass market of niches that rises when the existing bottlenecks in distribution that favours hits are removed. B) The Long Tail is the myriad of niche products whose collective market share can rival the blockbusters. C) New efficiencies in distribution, manufacturing and marketing are resetting the definition of what s commercially viable across the board, turning sub-economic customers, products and markets into economic ones and creating a Long Tail of demand. D) The Long Tail is about the economics of abundance what happens when the bottlenecks that stand between supply and demand in our culture start to disappear and everything becomes available to everyone. E) The Long Tail is the story of how formerly sub-economic products and customers are suddenly becoming the biggest market of all. F) None of the above. Please try harder. The application of customer centric practices plus a dose of innovation and creativity will make use of the long tail in many novel ways in the future just you wait and see! Michael Meltzer

5 1 *The Long tail Chris Andersen Wired Magazine October 2004