Causes of the Long Tail Phenomenon
The concept of popularity is important to retail businesses that may seek to understand the sources of their sales. Businesses previously recognized that much of their sales came from a few popular items, such as bestselling novels or popular new movies. However, the internet may be altering this pattern to one where businesses generate a larger proportion of their revenue from selling a wide range of relatively unpopular products. In their article, “Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales,” Brynjolfsson et. al. analyze the reasons for this effect, named the Long Tail.
The Long Tail is a term coined by Chris Anderson that describes the idea that the internet affects the types of products being sold that produce the majority of the revenue, such that selling a large amount of niche product is becoming more important to the sales of companies. This contrasts with the Pareto Principle, which states that large proportion of the sales for a business come from a small number of products, such as about 80% of sales being generated by about 20% of the products. The reason for this change in markets could be caused by the fact that online stores are not limited by the physical size of a store to display products, and can have a larger selection. It also could be due to the availability of search tools and other related technologies on the internet which makes it easier for buyers to find a wider range of products.
The authors of the study were able to differentiate between the two causes by controlling for product availability and therefore studying the effects of just online shopping, which they name the supply side vs. the demand side. To do this, they studied data from a clothing store where the same clothing was available in the store, online, and in their catalogue so as to control for the supply. They chose a company that used a catalogue to control for the type of people who may use the internet; people who do not use online shopping may still use catalogues, which are similar to using the internet in some ways. The researchers found that the Long Tail still exits in the online format even when controlling for the amount of product. By also analyzing the customers’ use of online search and recommendation tools, they concluded that they are a very important factor in the Long Tail phenomenon, which is an important finding for businesses who are interested in understanding their online sales revenue.
https://www.researchgate.net/publication/227361691_Goodbye_Pareto_Principle_Hello_Long_Tail_The_Effect_of_Search_Costs_on_the_Concentration_of_Product_Sales