Four abilities to do a good job in the long tail market

? Four abilities to do a good job in the long tail market. The marginal cost of serving a single customer is low enough and even tends to zero. , need a rich enough commodity library, multiple high-frequency customers reach, differentiated pricing.

What is the core competitiveness of Internet companies? This question is not to ask what the core competitiveness of a specific Internet company is, but if most successful Internet companies are regarded as a whole, what are their core competitiveness?

After thinking about this question repeatedly, I tried to think from the perspectives of product ability, marketing ability, organizational structure, talent strategy and corporate culture, but I still couldn't give a satisfactory answer. But I can list one of them, which is what most internet companies are pursuing. Internet companies with this ability can do well in at least one segment. Compared with non-internet companies, internet companies are better at doing long tail market on a large scale.

First, the characteristics of the long tail market

Most markets will reflect this curve. The green part is the "head customer", which contributes most of the orders and sales, and the rest is the yellow "long tail customer". In the past, many enterprises believed in the "28" principle, thinking that 20% of green customers generated 80% of sales and profits, and there were a large number of yellow customers left, but in fact the sales and profits generated only accounted for 20%. Long-tail customers have diverse needs and are difficult to operate. Just manage the head customers well. This is the idea of the past.

The rise of Internet economy has broken this business philosophy. In Amazon's sales data, long tail products account for about 50% of total sales, instead of 20% as previously thought. If the long tail market is not covered, Amazon's sales revenue will be reduced by half.

Second, what is the ability to operate the long tail market?

Many people understand the basic logic of the long tail market, but it is difficult to eat this market. Because the demand of the long tail market is scattered and non-standardized, it is tasteless for enterprises and a pity to abandon it. But why can Internet companies eat the long tail market? After our analysis, the core competence is four, and only by doing these four things well can we be like a duck to water in the long tail market.

These four things are:

The marginal cost is as low as zero.

A sufficiently rich commodity library

Multi-element high frequency customer contact

Differentiated pricing

1. The marginal cost of serving a single customer is low enough and even tends to zero.

Marginal cost is an economic concept, which can be simply understood as the incremental cost of serving a new customer. This article can show how strong the management ability of an enterprise is. Let's look at a few examples:

When placing advertisements on Google search engine, you need to submit many materials, including company website, paid account, graphic and video content of advertisements, search keyword settings, etc. This process takes a lot of time and money, but for Google, as long as the advertising background is set up, the process of advertising by customers will hardly generate new costs.

They don't even provide customer service staff. When encountering difficulties, we can only help ourselves or look for answers through robots provided by Google. So for Google, the marginal cost of obtaining and serving our customers is close to zero, which is very different from traditional advertising companies. It can be clearly felt that Google is a highly unmanned digital enterprise.

Take a look at Amazon's cloud service AWS. Before the advent of cloud computing, the cost of building a data center was very high. Selecting servers and network service providers to configure operating systems, domain name resolution and Web servers takes a long time and is prone to errors.

Every service provider needs to provide a lot of help to make customers' websites run, so the builders of data centers like to serve big customers, but they are helpless to small customers. After the popularity of cloud computing, things have become very simple. If you simply build a website to display the content, you only need to click the mouse to open a mirror image of Word press, and the function is perfect and touching. The marginal cost of Amazon's whole process is basically zero, and it is completely unmanned.

Economic situation of different departments of science and technology enterprises

Speaking of nobody, you will definitely think of the unmanned supermarket that once attracted much attention. At that time, many people were asking, what is the use of driverless driving? The customer experience has not improved. Yes, the real purpose of driverless driving is actually to reduce marginal costs. Because the cost of training a national and standardized store team is too high.

How important is marginal cost? It directly determines the capital efficiency of a company. We often see internet companies competing for "who burns more money", not who spends more money, but who has higher capital efficiency. Who gets more output per1100,000?

When this figure comes out, the investment institution will know who to give the money to. "Burning more money" means lower marginal cost. When it comes to the efficiency of burning money, we can pay more attention to the US Mission, which has participated in many rounds of activities such as group buying, take-away, hotels, taxis and enjoying bicycles. Most of them can laugh at the end, and the level of marginal cost optimization is worth learning.

The take-away cost of the US Mission, in billions.

When seeking growth, any enterprise should not only consider how to do a good job in marketing and transformation, but also think deeply about the marginal cost of its own business. What is the marginal cost of obtaining a customer lead, completing sales transformation, completing orders and responding to customer after-sales? If the marginal cost is high, it will be difficult to achieve growth, the cost will rise faster than the sales, the income will rise, but the profit rate and profit will decline.

It's easy to say, but extremely difficult to do. A high degree of digitization is needed to reduce marginal costs. We can observe the representative Internet companies, who have considered the issue of reducing marginal costs in advance when they created their business models. This is the so-called native digital company. This is the first core competence that the long tail market needs: the marginal cost is as low as zero.

2. The long tail market needs a sufficiently rich commodity library.

After opening the long tail market, there will be more and more customers and more diversified demands. At this time, enterprises need to establish a very rich commodity library (goods = products+services) to provide a large number of SKUs (SKUs, units to measure inventory in and out). There are millions of books in Amazon's book mall, and 99% of the books you can think of are here. Google search engine has searched tens of billions of web pages, and most people can't run out of this range.

Universal Taobao has more than 800 million commodities, and Universal WeChat has more than 20 million official WeChat accounts and 5 million applets. To build such a huge commodity library, we should first consider how high the marginal cost of acquiring a new commodity or category is and how high the marginal cost of maintaining a large number of SKUs is. This goes back to the topic of 1 point, so I won't go into details. We assume that the enterprise has passed this barrier and can put new products on the shelves at zero cost.

The next question is, how to recommend massive SKUs to customers? We go to the bookstore to buy books, and the bookstore will try to sort out all the books for customers to choose from. But how many books can each customer browse in an hour? If you only look at the names, there may be dozens of books, dozens of books that can browse the catalogue, and four or five books that can read the contents carefully, although the bookstore will provide computers for retrieval.

But few people use it, and the computer can only tell you which bookshelf to go to in which area, not directly. This way is definitely not a long tail market. Amazon's approach is to recommend+search, and recommend matching books according to each customer's taste. If the customer has a clear goal, the search is also very convenient. It also shows that digital commerce has its own characteristics, and it is easier to handle massive SKUs.

User-based Collaborative Filtering of "Birds of a feather flock together"

We went to see the representative Internet companies, all of which have rich catalogues and various product packages. We also attach great importance to the recommendation algorithm of thousands of people, because it not only affects the conversion rate of goods, but also directly affects whether the business model is established. Many internet companies choose to introduce a large number of cooperative businesses and provide rich SKUs, which can easily evolve into a platform-based model.

So when the scale of the long tail market is large enough, it is easy to produce a platform. The long tail market is characterized by the relatively low value of individual customers, so they are sometimes called sinking markets.

3. Multi-element and high-frequency customer contact

Many enterprises will provide special sales and service teams for big customers, often visit them, and often walk around to maintain customer relationships even when there is no demand. In order to expand new big customers, they also rely on the sales+pre-sales team to visit them or organize online meetings. For the long tail market, this way is obviously unable to reach customers. Let's look at an example of grounding gas: more products.

Pinduoduo is an Internet company that is very good at the long tail market. Let's recall the marginal cost and large-scale SKU mentioned above. They are all very good at it, but we will leave this example here, because it has done an excellent job in contacting customers and deserves a special chapter.

Comparison of shopping styles between traditional e-commerce and social e-commerce users

The key points of customers in the long tail market are diversity and high frequency. When it comes to diversity, you may think of multi-channel concepts such as App, applet and SMS. But when we say diversity, we don't mean this, but we are saying, "How many channels are there for information transmission?" Take Pinduoduo as an example. If it sends us coupons or recommends products directly through SMS, it is called direct marketing, that is, Pinduoduo directly contacts the end users. This is also the way many marketing activities are carried out: direct contact with customers.

It is difficult to achieve direct results, because coupons sent by SMS are likely to be deleted. But what if your relatives and friends ask you to chop them up as fake products? It's hard for you to say no. At this time, Pinduo did not contact you directly, but conveyed it to you through your relatives and friends.

This way of reaching has many names, such as user fission, six-degree propagation and so on. If there are many channels, such as parents, colleagues and classmates, who are sending you the message of "a lot of goods", these people are not overlapping and have no contact with each other, but they are sending you the same message, which is the significance of multi-touch. Although "cutting the knife" is criticized by people, this diversified and high-frequency information transmission channel deserves our consideration.

High frequency is easy to understand. Is it once a year or several times a week? If a message can be delivered to you in many ways and with high frequency, you are likely to accept it quickly and feel curious. This is based on psychological theory. When different people send you the same information, you will soon believe it.

Pinduoduo's Social Grouping Mode and Its Difference from Traditional E-commerce

Looking back on our own business, how many customers have achieved diversity and high frequency? Is the dissemination of information the spontaneous behavior of the crowd or the result of our active management? What are the key nodes in the communication path that can spread information deeper and further? What effective methods have we mastered to influence this information network? The answers to these questions help us to understand the secret of the rapid growth of top Internet companies.

When considering the return on investment of marketing activities, we also need to think more. For example, a user A, we market him according to the direct communication path, but he doesn't buy anything, and the ROI is zero. However, if we change to multi-touch thinking and trace back to his communication link, he may be a key information node, which can spread this information to many people, and all the seven aunts and eight aunts have caught the net, resulting in many purchase transformations. According to the idea of multi-touch, A is a high-quality node and should be given more marketing rights.

4. Differentiated pricing

We sometimes get lost in a question: What is the long tail market for? The problem seems simple: for scale. Is scale a goal or a means? Personally, I think the goal of business activities is to return to profitability. For the long tail market, the gross sales profit that different customer groups can bear is definitely different.

If they all adopt higher gross profit pricing, they will inevitably lose some customers, and the gross profit margin will increase but the total profit will decrease. The ideal situation is to subdivide customer groups and make differentiated pricing for different subdivided customer groups.

The differentiated pricing here needs to be distinguished from "big data killing". The typical feature of big data killing is that "very similar goods" set different prices for "different people" and are "opaque" to each other. This is a violation of the anti-monopoly law and is not an option we should consider. At the same time, this behavior is not rational enough from a commercial point of view. If the same goods give long-tail customers lower prices, it will inevitably lead to a strong rebound of head customers.

Therefore, we should consider the core issue of differentiated pricing: how to design differentiated goods and corresponding prices for different target customers, and publish this information to all customers for them to choose. In this way, we can use standardized basic commodities with low gross profit prices to obtain customers with weak price tolerance.

Use differentiated scarce goods with high gross profit prices to obtain customers with strong price tolerance. This can not only obtain the scale of the whole long tail market, but also obtain relatively high profits. Its theoretical basis is "price discrimination and consumer surplus" in economics, and interested readers can consult it themselves, so this article will not repeat it.

The easiest example to think of is air tickets. Nowadays, there are all kinds of dazzling cabins when buying tickets from any airline, not to mention the regular categories such as first class, business class and economy class. In addition, there are all kinds of eyesight, such as air first class, smart economy class, preferential economy class, comfortable economy class, etc., which are packaged for different goods and displayed to customers for their own choice.

Different products of airlines

A more subtle example is Taobao Double Eleven. The platform launches preferential activities with complicated rules and diverse thresholds. Consumers can choose which ones to participate in. The more time and energy they spend and the more social relationships they contribute, the lower the price they can get. In essence, it is also testing the price tolerance of consumers.

Hotels are also very good at this trick. They design many rooms, give different facilities and design different prices for consumers to choose from. Whether you are willing to pay more for breakfast in 38 yuan and a better mattress in 99 yuan is a test of the price tolerance of different customers.

The most effective way of differentiated pricing is to anchor the customer's experience and time, and testing the price tolerance according to experience and time is the most effective way. Therefore, the pricing of goods in the long tail market must be designed according to the customer's experience and time, not according to the cost of goods.

At this point, we have finished the four most important abilities to operate the long tail market, and I hope readers will gain something. Maybe you will ask, "How do I know if I am facing a long tail market? In fact, any market will reflect the head-tail structure at the beginning of this article, so we should pay attention to how much share the long-tail customers occupy in the market, and whether you should occupy the market from the perspective of business development strategy, which is a decision that needs to be made in business development.