There's been a lot of buzz about the long-tail phenomenon—the strategy of selling smaller quantities of a wider range of goods that are designed to resonate with consumers' preferences and earn higher margins. And a quick scan of everyday products seems to confirm the long tail's merit: Where once we wore jeans from Levi, Wrangler or Lee, we now have scores of options from design houses. If you're looking for a nutrition bar, there's one exactly right for you, whether you're a triathlete, a dieter or a weight lifter. Hundreds of brewers offer thousands of craft beers suited to every conceivable taste.
It's not surprising that so many companies have embraced this strategy. It allows them to avoid the intense competition found in mass markets. Look at the sales growth that has taken place in low-volume, high-margin products such as super-premium ice cream, non-carbonated beverages, heritage meats and heirloom vegetables.
But the case for the long tail has frequently been overstated. This strategy can be expensive to implement, and it doesn't work for all products or all categories. It's surely better to produce a blockbuster film, for instance, than a smattering of low-volume art films.
In other words, simply avoiding the clutter of mass markets isn't enough. Companies need to stake out unique market sweet spots, those areas that resonate so strongly with target consumers that they are willing to pay a premium price, which offsets the higher production and distribution costs associated with niche offerings. We call this approach resonance marketing.
Finding sweet spots in the market is especially important in these tough economic times, when so many consumers are strapped for cash. Many shoppers will compromise whenever possible by looking for cheaper alternatives to the things they usually buy—but keep buying products that don't have any direct substitutes.The vast amount of information available on the Internet has made this kind of niche marketing more important than ever and easier to do. More important because all that information encourages comparison shopping, putting tremendous downward pressure on prices and profits in highly competitive mass markets. And easier because it eliminates much of consumers' uncertainty about new niche products, since they can easily find reviews, ratings and comments on everything that hits the market. For decades consumer uncertainty blocked the launch of new offerings that were too focused to be supported by national ad campaigns; today's empowered consumer is truly listening to word-of-mouth.
With the right approach, resonance marketing can fulfill its promise. We have found that six marketing principles, taken together, will allow a company to manage the complexity of this strategy and reap superior profitability.
1. Target Carefully
Sweet-spot offerings aren't better than other products in any absolute sense; they simply have to be different from existing options and better for their target consumers. They have to resonate powerfully with them.
But that's not as easy as it might sound. Finding profitable new niches requires a set of skills different from those needed to build market share or to create variations of an existing product—you're looking for places where no offerings exist, not one where consumers are complaining about existing choices.
Simply identifying gaps in the market isn't enough, though. Plenty of unique consumer products have failed to capture the imagination of shoppers. There's no guaranteed way to avoid such failures, but extensive research is essential. Often an ethnologist can help. Many companies use these analysts to explore why consumers buy what they do and what they would buy if it were available.
2. Listen to Your Customers. Really Listen.
Traditional advertising campaigns don't make sense for most niche markets; they're too expensive and too difficult to target precisely enough. Indeed, there are entire product categories, including nutrition bars and craft beers, where most products are never advertised. Their producers have learned how to work with consumer-generated content online—reviews, ratings or just chatter about a product. They don't just listen when customers talk to them; they listen just as carefully when customers talk about them.
The beauty of consumer-generated content is that companies get immediate and continuous feedback about their products. The key here is to listen closely and react quickly. Marketing executives should watch for the first online comments about their wares with the same excitement and apprehension as Broadway producers waiting for opening-night reviews. Consumers will make it clear right away what they like about the product and what they don't.
Harsh reviews can have devastating consequences. We analyzed two years of data on hotel bookings and found that the length, specificity and detail of negative online reviews are the best predictors of a hotel's inability to sell itself online.
So what do you do if the product you so carefully crafted to appeal to a particular market segment is trashed by those very consumers? Fix it immediately.
If defects pointed out by consumers are fixed quickly, more-favorable comments will emerge just as quickly. But companies should never assume that they've gotten it right and can stop listening. Continuous monitoring of online comments will alert executives to any new issues that arise, any improvements consumers might like to see as they become more familiar with the product, and even the emergence of any competitors or alternatives that might siphon off buyers.
Some traditional marketing still has its place, and indeed has become more powerful thanks to the way word-of-mouth spreads so quickly over the Internet. Companies can generate positive buzz for niche products with events like the Great American Beer Festival that small, specialty brewers attend every year. The brewers make sure to attract both professional critics and passionate amateur bloggers alike.
Moreover, craft brewers have learned to work together to make these events successful; they understand that at this point in their industry's development, their greatest danger comes not from each other but from consumer acceptance of mass-produced, generic beers.
3. Control Production Costs
Selling a large number of narrowly targeted products may sound like a production nightmare, but it doesn't have to be. There are several ways to maintain economies of scale over a broad range of product offerings.
Variety and standardization can coexist. For instance, Callaway Golf Co. offers buyers of its drivers multiple options for a club's head, loft angle and shaft—several hundred different combinations in all. But the company doesn't manufacture every variety separately. Any configuration of the various components can be readily assembled, since the interconnections are standardized.
Manufacturing processes can also be standardized to a large extent. While pumpkin spice ice cream appeals to a very different group of consumers than vanilla does, the manufacturing process is nearly identical for both flavors and any others. Brewing involves cold-fermenting lagers in one set of tanks and warm-fermenting ales in another, but the two varieties share many other processes: mashing grains, adding hops, bottling.
It also pays for a company to have a high-volume product in its portfolio that will keep its manufacturing equipment and employees from sitting idle for stretches of time. The relatively low volume of sales in narrowly targeted markets means production plants might not need to work to their full capacity to meet demand. A high-volume, if less profitable, product can take up the slack.
4. Control Distribution Costs
It's not just production costs that will determine the profitability and ultimate success of resonance offerings. Distribution costs are also important. There are ways here, too, to keep costs under control.
It can be difficult to forecast demand for products with limited sales, but that doesn't necessarily mean a company needs to stockpile high levels of inventory to keep from getting caught short. Companies that offer many varieties of a product based on different combinations of components, as Callaway does with its golf clubs, can keep inventory low by postponing final assembly until a particular product is ordered—there's no need to keep a given number of every combination in stock.
Flexible inventory allocation is another way to keep from having to stockpile goods. Auto makers, for instance, often swap needed items. If a customer in New Jersey wants a copper-colored Infiniti FX35 and his dealer has the car in silver, while a customer in Pennsylvania wants the same car in silver and his dealer has the copper, the dealers can arrange an exchange.
Shared distribution is another option worth considering. Small brewers, for instance, cut costs this way.
Selling to customers directly from a company Web site can reduce costs by eliminating intermediaries. But companies should be aware that shoppers can be less forgiving online than they are offline. A consumer who visits a store to buy a product or orders it from a catalog may be miffed if it is temporarily out of stock. But frustration may rise to the level of anger if the same consumer orders the product online and isn't notified until three days later that the item is out of stock, because of a glitch in the site's inventory software.
5. Some Apparent Losers Are Worth Keeping
Even with the best research and the most careful marketing, production and distribution, some products will be unprofitable or only marginally profitable. But before discontinuing a product, a company should consider the product's value in broader terms.
Some products that don't generate significant profit directly still help make a company's other products more profitable. Feeder routes on airlines transport customers to more-profitable routes, such as trans-Atlantic flights. Likewise, niche books that don't account for a significant portion of Amazon.com Inc. sales are valuable to the company because they contribute to its reputation as a one-stop source for any book.
6. Prune Your Portfolio Ruthlessly
Companies must relentlessly drop niche offerings that don't contribute to profitability directly or indirectly. The scores of flavors discontinued over the years by Ben & Jerry's Homemade Inc., remembered fondly in the "flavor graveyard" on the company's Web site, serve as a reminder to all companies that the flip side of creative expansion of a product line is eliminating those that no longer resonate with consumers. And the success of Ben & Jerry's is a reminder of the power of resonance marketing done right.
Source: Online WSJ
No comments:
Post a Comment