Two Revolutions Based on Imagination
The industrial revolution of the late 18th century was a precursor to the Internet. They have both made possible access to goods that people were previously unable to purchase and or were unaware of. Both revolutions have changed distribution by making products accessible and less expensive through a combination of mass production, availability and communication of need.
The industrial revolution, through mass production and mass distribution thanks in part to the creation of railways, made possible retailing and the catalogue developed by Sears Roebuck. The stores stocked products that would be big sellers. There was no physical room for products that did not sell in reasonable volume. The mass market was coined and the push and pull marketing model was created. The choice that consumers had was dictated by the stores, based on the acid test of revenue return on shelf space.
The Internet is the new Catalogue
The catalogue offered more choice while offering the ability to browse at any time you wished in the comfort of your own home. This was closer to the online transactions we are capable of today thanks to Web 2.0. However, the catalogue was still a mass marketing tool that determined choice by shorting supply.
What the Internet does now is to make a customer’s choice broader and deeper. It has moved from push/pull marketing to dialogue and Long Tail choice. The Long Tail refers to the strategy of selling a large number of unique items in relatively small quantities along with selling fewer items in large quantities. This is never more evident than where Apple’s iTunes sell at least one of their two million plus tracks at least once. Additionally, Netflix calculated that ninety five percent of its 90,000 DVD’s rent out at least once a month. As Chris Anderson, Editor of Wired magazine, wrote “Increasingly, the mass market is turning into a mass of niches”.
Niches offering Mainstream Profitability
The old 80:20 rule that stated twenty percent of products produce 80 percent of the revenue, is no longer true in the internet. Thanks to the Long Tail, a company such as Amazon works on the basis that ninety eight percent of the products they sell produce eighty percent of the revenue.
In retailing terms, space costs money. However, if your space is free, as in iTunes’ case where songs are stored on a server, you can introduce niche products into your product mix and benefit from selling them infrequently. Amazon understood earlier than most, that the old retail model only worked on picking winning products where volume was paramount and choice was limited. Amazon embraced the old model and spliced the new one, of infinite choice, on to it. This model demonstrates that you can have your volume winners as well as the idiosyncratic products, that sell occasionally, sitting side-by-side in your product mix.
Aggregating the small numbers
What is of further interest is that aggregating small numbers to meet customer needs and profiting from it, can also apply to manufacturing. In the February 10th issue of The Economist, an article appeared under the title of “Print me a Stradivarius”. It stated that a new manufacturing technology will change the world. This new technology is three-dimensional printing that enables someone with a computer and a room to make a single item as cost-effectively as thousands of them: from bicycle frames, panels for cars, even aircraft parts.
This is the democratization of manufacturing and marketing combined. We are indeed in a brave new world of customer choice and the winners will be those with the most courage and imagination. Referring back to the instigators of the industrial revolution, some things never change.
Garry Titterton 11.2.2011