Wednesday, July 16, 2008

Pegasus's Long Tail.

Since I consider Pegasus Books a "Long Tail" kind of a store, the article below was interesting. I use the term pretty loosely --I'm not sure if I technically qualify, since the theory really seems to involve the Internet. But it's a good approximation of what I'm trying to do.

Good approximations is how I think.

Most of what I do at Pegasus is the result of trial and error, of constant experimentation, of keeping what works and discontinuing what doesn't. I try to test presumptions on a regular basis, and if my experience runs counter to the 'common wisdom' so be it.

I've found that professional business advice is a dangerous thing to follow -- mostly because they aren't really talking about mom and pop business. Especially the advice you find in books and magazines -- which are really designed to sell more books and magazines. Yet...some of the tidbits I've picked up over the years have been immensely valuable. It's trying to figure out what's useful that's hard.

I think of Pegasus as a general pop culture emporium; much like a general store in a small town, it behooves me to carry as much variety as possible. (In a sense, I'm dealing with such a small minority of customers who like what I carry that I'm a small town within a larger one.)

The smaller the customer base, the wider the aperture needs to be to catch them. The wider the customer base, the smaller the aperture can be.

Admittedly, I am still swayed by the general consensus if I don't have direct evidence to the contrary. For instance, I took it for granted for years that I should only carry product that turns over at some arbitrary number of turns -- 4 or 5 times a year.

But just in the last few years, I've found that I can get away with much slower turns than that.
It's not as if I could take the time, money and space I devote to the slow moving product and move it into faster moving product. My store is at the point that the 'faster' product is already fully supported, and doing more wouldn't help. In other words, I've already explored those options and they don't quite get me to where I need to go. We reach a saturation point: carrying 10 boxes is enough, and carrying 15 boxes won't speed it up.

So, I add slower moving products with certain caveats. That they not take up too large a footprint; that they don't require too much customer support; that they don't distract me from supporting the faster moving product.

Same thing with profit margins. Since I've been involved with toys and cards almost from the beginning, I've never had the luxury of "keystoning" and became used to smaller margins.
Again, like with turnover, it would be pretty stupid to invest in lower margin product if I could put that money into good selling higher margin product. And again, I've already done that and it didn't get my store to where I needed it to be. Again, I've reached the saturation point.

So I accept lower margins on some product lines, I accept lower turnover, because it has broadened the appeal and reach of the store. I can carry the best 20% of each sideline, and everyday someone comes in who wouldn't have bought anything else in the store. There is a kind of self correcting mechanism in sideline product; whatever you carry is usually more than anyone else, and the infrequent customer is usually delighted to find it at all. I ameliorate much of the problem by being constantly vigilant for sales and bargains and being opportunistic.

On most sidelines, I accept the fact that 80% of the possible customers will walk away --

All this can be done if I buy within cash-flow; borrowing money to bring in slower moving, lower margin product would probably be a case of 2 steps forward and 3 steps back.

I know of comic shops who survive -- who flourish -- with just carrying superhero comics. But I could fill my entire store with that narrow a product line and my sales still would get me no more than 20% of the way to survival. I finally just started throwing more and more ingredients into the stew until it tasted good.

Messy and time-consuming. But if it was easy, if it was formula, if it was a science and not an art, then anyone could do it. Especially the chain-stores, who I've learned will always win in the end.

I've created such a hybrid of a store -- a pop culture extravaganza -- that no one else would be willing or able to reproduce.


Nearly four years ago, first in a widely cited article and later in a best-selling book, Chris Anderson posited that the Internet, with its vast inventories of books, albums, and movies, would liberate the world from blockbuster schlock. Anderson, the editor of Wired, labeled his concept "the Long Tail," after the shape our digital desires leave on a graph: When we buy stuff online, we can reach beyond big hits and into the "tail" of the demand curve, where we're free to indulge our most obscure passions. Anderson argued that serving our niche interests could also make for booming Web businesses. This was the thrill of the Long Tail—it seemed to offer a way for art and commerce to thrive side-by-side.

Now, just in time for The Long Tail's paperback release, the book has fallen under critical scrutiny. Anita Elberse, a marketing professor at the Harvard Business School, recently examined several years' worth of American movie- and music-sales data. The entertainment business has indeed seen its inventory shifting toward a Long Tail curve, Elberse writes in the Harvard Business Review. The shift is slight, however, and Anderson's Long Tail is also "extremely flat."

It's true that we're now buying more obscure movies and music than ever before. But we're merely nibbling on these niches, Elberse reports, while we continue to gorge on a small selection of hits. In 2007, 24 percent of the nearly 4 million digital songs available for sale through stores like iTunes sold only one copy each, and 91 percent of available tracks sold fewer than 100 copies each. The story is the same for the movie business, where, between 2000 and 2005, the number of titles that were purchased only a few times "almost quadrupled." The Internet offers us a buffet of everything—and yet we're mainly settling for the likes of The Love Guru and You Don't Mess With the Zohan.

Elberse's findings are more than a little surprising. The Long Tail wasn't just a pet theory; as Anderson sketched it, the phenomenon arose out of actual innovations in commerce. Take Anderson's signal example of Long Tail success, British mountain climber Joe Simpson's Andean-survival story Touching the Void. When it was released in 1988, the book saw only modest success and then essentially disappeared from stores. But a decade later, after Jon Krakauer published Into Thin Air, a mountaineering-survival hit, Simpson's book enjoyed a sudden boom. The cause was online word of mouth—recommendations for Touching the Void on Amazon's Into Thin Air page pushed people to purchase a book they'd never heard of. After it was reissued as a paperback and made into a documentary, Touching the Void's sales eclipsed those of Into Thin Air. Before the Internet, such out-of-the-blue success for a deep-in-the-tail book could never have occurred.

But according to Elberse, that sort of anecdote is the exception. The reason? We're not very adventurous. Elberse examined the rental habits of customers at Quickflix, a Netflix-like service in Australia. She found that no group of customers exhibited "a particular taste for the obscure." Sure, a small number of customers regularly rented films from deep in the catalog—but they tended to be people who watched a lot of movies generally and so had much more "capacity" for venturing into the Long Tail. And still they chose a lot of hits: The most widely traveling Quickflix customers picked only 8 percent of their rentals from the least popular of available titles and 34 percent from among blockbusters.

In the 1960s, sociologist William McPhee argued that obscure cultural fare faced a further hardship in attracting an audience. McPhee said that for any product category—books, movies, songs—there are generally two kinds of customers: those who buy a lot and those who buy a little. Or, if you prefer, there are buffs, and there are boors. Boors flock to the popular stuff. The buffs, too, like what's popular, but they're more willing to try obscure fare. It would be a mistake, however, to consider buffs open-minded; if you've ever audited an undergrad film class, you understand that such people are often insufferably critical. Here's the hitch, then: The customers who are most likely to try an obscure book, movie, or song are also the most likely to pan it.

Elberse saw evidence of this phenomenon at Quickflix, where obscure titles received, on average, lower ratings than popular ones. Success stories like that of Touching the Void depend on positive online ratings, but the propensity of buffs to rate down titles in the Long Tail limits such possibilities. Maybe Touching the Void just got lucky—more often, what's in the Tail stays in the Tail.

Anderson, who has worked with Elberse before, told me he's happy that his theory is receiving serious academic attention. But he dismisses most of her findings. In particular, he contends, she's picturing a much bigger "head" of the demand curve than he is. Anderson says, for example, that every song that's not available at a Wal-Mart store should qualify as a Long Tail title. Everyone agrees that sales of tracks not available at Wal-Mart account for a significant part of the music business.

There is no winning this technical debate. (Elberse calls Anderson's definitions "arbitrary.") But even if Anderson is right and Elberse is wrong, the shift from hits to niches is obviously slight—we are not entering an era devoid of blockbusters. Anderson readily concedes this and points out that he's never predicted the end of big hits. Often, though, his fans have.

It's also clear that even in this supposed age of the Long Tail, companies that favor a slow, meticulous approach and a small catalog see enormous rewards. Look at Pixar's many blockbusters (or those of its cousin Apple). Or witness the rise of Twelve, the book imprint founded by editor Jonathan Karp that's given rise to a string of best-sellers during the past year. Twelve publishes one book every month, far fewer than others in the industry; this devotion to a few titles, Karp believes, not only produces better books but also books that strike a broad chord and books that everyone wants. "It's been a truism among my colleagues that generally people want to be reading what other people are reading," Karp told me.

Considering that Anderson popularized his theory by coining a catchy phrase, there ought to be a name for Karp's model of working slowly to produce big hits. Let's call it the Big Head theory of entertainment.

1 comment:

RDC said...

I don't know if you have ever read Alvin Toffler's (I think that is how you spell his name). Future Shock is probably the most familar one.

I think what you are seeing is what he forecast in his books. People are overwhelmed by choice. A number of studies have indicated that if you give people a limited set to choose from (lets say 3-5, I don't recall the exact number) people will quickly make a decision. If you give them, lets say 15, they become overwhelmed and often cannot make a decision.

The Internet has created an mechanism where it is easy for someone to get material published (music, books, video clips, etc.) and available. However, the consumers of that product still need a mechanism to narrow that list down and make their selections. In the old days the list was narrowed for them by selections of publishers, wholesalers and retailers based upon their views of what would sell and be profitable. Today they are not providing that filtering mechanism as much as in the past. Many people still use those traditional sources as a screening mechanism because they do not have anything else to replace it with to help themselves reduce the choices to a manageable level.